Ninth Circuit Court of Appeals: CHRISTOPHER v. SMITHKLINE BEECHAM CORPORATION DBA–Michael Christopher and Frank Buchanan Appeal Lower Court Judgment That They Are Not Entitled to Overtime Pay Under the Fair Labor Standards Act of 1938

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CHRISTOPHER v. SMITHKLINE BEECHAM CORPORATION DBA

Michael Shane CHRISTOPHER; Frank Buchanan, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. SMITHKLINE BEECHAM CORPORATION, DBA GlaxoSmithKline, Defendant-Appellee.

No. 10-15257.

Argued and Submitted Nov. 3, 2010. — February 14, 2011

Before MARY M. SCHROEDER, RICHARD C. TALLMAN, and MILAN D. SMITH, JR., Circuit Judges.

Michael R. Pruitt, Esq.; Christine F. Crockett, Esq., Jackson White, P.C., Mesa, AZ, for plaintiffs-appellants Michael Christopher and Frank Buchanan.Neal D. Mollen, Esq.; Barbara L. Johnson, Esq., Paul Hastings Janofsky & Walker, L.L.P., Los Angeles, CA, for defendant-appellee SmithKline Beecham Corporation.

OPINION

Plaintiffs-Appellants Michael Christopher and Frank Buchanan appeal the judgment of the district court that they are not entitled to overtime pay under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. §§ 201 et seq. Plaintiffs were employed as Pharmaceutical Sales Representatives (PSRs) for Defendant-Appellee SmithKline Beecham Corporation d/b/a GlaxoSmithKline (Glaxo). Glaxo classified Plaintiffs as “outside salesmen”-a legal designation that exempts an employee from the FLSA’s overtime-pay requirement. Plaintiffs’ suit challenges Glaxo’s classification and seeks back pay.

The district court granted summary judgment to Glaxo. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

I. Pharmaceutical Sales Representatives

Glaxo is in the business of developing, producing, marketing, and selling pharmaceutical products. Christopher and Buchanan began working as PSRs for Glaxo in 2003. Glaxo terminated Christopher in May 2007. Buchanan’s career at Glaxo ended when he accepted a PSR position at another pharmaceutical company. Since the enactment of the Pure Food and Drug Act of 1906, Pub.L. No. 59-384, 34 Stat. 768, federal law has, to varying degrees, regulated and influenced the sale of pharmaceuticals.¹ In 1938, the Federal Food, Drug, and Cosmetic Act, Pub.L. 75-717, 52 Stat. 1040 (codified as amended at 21 U.S.C. §§ 301 et seq.), clothed the Food and Drug Administration with broad regulatory authority over, inter alia, drug manufacturers.² The Durham-Humphrey Amendment of 1951 established the first comprehensive scheme governing the sale of prescription pharmaceuticals to the public. See Pub.L. No. 82-215, 65 Stat. 648 (1951) (codified at 21 U.S.C. § 353(b)). Importantly, for our purposes, Durham-Humphrey formalized the now well-established distinction between prescription and over-the-counter drugs.³ The Controlled Substances Act of 1970, Pub.L. 91-513, 84 Stat. 1260, continues the prescription/non-prescription dichotomy, and prohibits dispensing the former without the authorization of a “practitioner, other than a pharmacist, to an ultimate user.” 21 U.S.C. § 829(b)-(d). Currently, all pharmaceuticals requiring a physician’s prescription are branded “Rx only.” 21 U.S.C. § 353(b)(4)(A).

We analyze this case within the framework of how Glaxo sells its “Rx only” products to an “ultimate user.” A key, undisputed fact underlying our analysis is that the ultimate user-the patient-cannot purchase a prescription drug without first obtaining a physician’s authorization.

Because Glaxo is proscribed from selling Rx-only products directly to the public, it sells its prescription pharmaceuticals to distributors or retail pharmacies, which then dispense those products to the ultimate user, as authorized by a licensed physician’s prescription. In this restrictive sales environment, Glaxo employs PSRs to make “calls” on physicians to encourage them to prescribe Glaxo products. On calls, PSRs typically present physicians with a variety of information about Glaxo products, provide product samples, and attempt to convince the physicians to prescribe Glaxo products, when medically appropriate, over competitor products. PSRs also try to build business relationships with physicians, respond to their concerns, and recruit them to attend Glaxo-organized dinners and conventions. Each PSR is responsible for a particular “drug bag” of medications he or she tries to induce physicians to prescribe. As perceived by the Plaintiffs, the primary duty of a PSR is to communicate features and benefits of Glaxo products to physicians. In Buchanan’s words, he tried to “convince prescribers that the benefits of [Glaxo’s] products warranted them prescribing that product to the appropriate patient.”

PSRs usually work outside of a Glaxo office and spend much of their time traveling to the offices of, and working with, physicians within their assigned geographic territories. Plaintiffs visited between eight and ten physicians each day, usually between the hours of 8:30 a.m. and 5:00 p.m. Plaintiffs claim that they worked between ten and twenty hours each week outside of normal business hours, for which they received no overtime wages. When not making calls on physicians, Plaintiffs studied Glaxo products and relevant disease states, prepared new presentation modules, answered phone calls, checked email, generated reports, and attended events on evenings and weekends.

Before a PSR makes his or her daily calls, Glaxo provides him or her with detailed reports about the physicians he or she will visit. These reports include information about a physician’s prescribing habits and drug preferences, the market volume of Glaxo products prescribed by the physician versus the volume of competitor products, and the volume of prescriptions filled in a particular region. Glaxo also provides each PSR with a budget to use for speaker programs and to engage socially with physicians.

Glaxo prepares and provides information about its products-called “Core Messages”-for PSRs to present to physicians during calls. Core Messages include information about product benefits and risks, dosage instructions, and the types of patients for whom Glaxo recommends each product. Glaxo expects PSRs to use the Core Messages and then “[d]evelop and deliver informative sales presentations based on customer needs.”

PSRs do not carry any prescriptions with them for direct sale; rather, Glaxo provides PSRs with small amounts of sample products to distribute to physicians. PSRs do not contact patients or market anything to them. To the contrary, in compliance with federal law, PSRs cannot sell the samples, take orders for any medication, or negotiate drug prices or contracts with either physicians or patients.

Glaxo recruits applicants who have prior sales experience for its PSR positions. When Glaxo hires new PSRs, it provides them with more than one month of training that focuses on making presentations, learning about Glaxo products, and building interpersonal skills. PSRs are taught how to ask for a commitment from a physician to prescribe Glaxo products if the physician believes the medication is appropriate.

Since 2001, Glaxo has instructed PSRs on various methods of completing a call. When Plaintiffs were hired, they received training in Glaxo’s “Assertive Selling Always Professional (ASAP)” model. They were also trained to follow Glaxo’s “Winning Practices” program. ASAP and Winning Practices are similarly structured and emphasize that a PSR should: (1) analyze and understand what is happening in an assigned region; (2) work with the team to drive results; (3) master professional knowledge to understand clinical management of patients; (4) prepare for calls; (5) “Sell Through Customer-Focused Dialogue”; (6) obtain the strongest commitment possible from a healthcare professional at the end of the call; and (7) provide added value to the customer relationship.

In 2004, Glaxo started a new program called “When? Why? How?” which distilled the old model into three questions PSRs should use to bond the targeted physician to the Glaxo brand: “(1) When should I use this product? (2) Why should I use this product? (3) How should I use this product?” PSRs strive to ensure that their targeted physicians have the answers to all three questions before PSRs leave the physicians’ offices.

Plaintiffs received two types of pay-salary and incentive-based compensation. Incentive-based compensation is paid if Glaxo’s market share for a particular product increases in a PSR’s territory, sales volume for a product increases, sales revenue increases, or the dose volume increases. Glaxo aims to have a PSR’s total compensation be approximately 75% salary and 25% incentive compensation.⁴ However, the dollar value of incentive-based compensation is uncapped.

The process of providing information to physicians is referred to within the pharmaceutical industry as “detailing,” and PSRs have traditionally been known by the moniker “detail men” or “detailers.” Plaintiffs’ job functions during their tenures at Glaxo varied little from those of their predecessors of fifty or sixty years ago.⁵ Moreover, there is homogeneity within the industry-PSRs carry out essentially the same business functions regardless of which drug manufacturers they represent.⁶

The pharmaceutical industry self-regulates PSRs and their contacts with physicians by way of a voluntary industry-wide code of conduct-the Pharmaceutical Research and Manufacturers of America (PhRMA) Code. The PhRMA Code does not speak of selling, but, rather, provides that “[i]nteractions [with health care professionals] should be focused on informing [them] about products, providing scientific and educational information, and supporting medical research and education.” The PhRMA Code refers to PSRs as “industry representatives” and states that “[i]nformational presentations and discussions by industry representatives speaking on behalf of a company provide valuable scientific and educational benefits.” The PhRMA Code also regulates the provision of meals and gifts to physicians and professes an industry commitment to independent medical decisionmaking.

II. Proceedings in the District Court

This litigation commenced in August 2008, when Plaintiffs filed the Complaint challenging Glaxo’s practice of requiring overtime work without paying additional compensation as a violation of 29 U.S .C. §§ 207(a)(1), 216(b). The parties cross-moved for summary judgment, and Plaintiffs moved to certify a conditional class. Glaxo contended that Plaintiffs were exempt under