United States: Supreme Court Docket Report - November 28, 2011

Originally published November 28, 2011

Keywords: Fair Labor Standards Act, Outside-sales exemption, overtime pay, criminal sentencing, criminal fines, RCRA

The outside-sales exemption of the Fair Labor Standards Act ("FLSA") provides that workers who are employed "in the capacity of outside salesman" are not entitled to overtime pay. See 29 U.S.C. § 207(a)(1); 29 U.S.C. § 213(a)(1). Today, the Supreme Court granted certiorari in Christopher v. Smithkline Beecham, Corp., No. 11-204, to determine whether the outside-sales exemption applies to pharmaceutical sales representatives ("PSRs"), and to clarify whether courts must defer to the Secretary of Labor's interpretation of the exemption with regard to PSRs.

The Court's resolution of these issues will be important to the pharmaceutical industry, which currently employs approximately 90,000 PSRs. Numerous class-action lawsuits have been filed across the country, and if the Supreme Court concludes that PSRs do not qualify as outside sales employees, pharmaceutical companies could face billions of dollars of liability. The Court's ultimate decision will also be of interest to businesses in other industries that are subject to the FLSA and have classified certain employees as outside salesmen.

The Court's decision in this case could also have far-reaching implications outside the FLSA context, because the Court will have occasion to decide whether courts should defer to a position that an agency takes without formal rulemaking, e.g., in an amicus brief, even when that position marks a significant change from the agency's prior position.

Generally speaking, PSRs are hired by drug manufacturers to explain the benefits of the manufacturers' products to physicians and to encourage physicians to prescribe those products to patients. PSRs receive both a salary and incentive-based compensation. Petitioners, the plaintiffs below, filed suit on behalf of themselves and a putative nationwide class of PSRs, alleging that respondent's practice of requiring overtime work without providing additional pay violated the FLSA. The district court granted respondent's motion for summary judgment, and the Ninth Circuit affirmed. 635 F.3d 383. The Secretary of Labor had filed an amicus brief in the Ninth Circuit in which she asked that the court defer to her view that PSRs do not satisfy the test for the outside-sales exemption. The Ninth Circuit declined to defer to the Secretary's interpretation, thereby creating a circuit split on the issue. Cf. In re Novartis Wage & Hour Litigation, 611 F.3d 141 (2d Cir. 2010) (deferring to the Secretary's view that PSRs did not meet the requirements of the outside sales exemption). The petitioners then sought Supreme Court review. While defending the judgment below, the respondent took the unusual step of acquiescing in a grant of certiorari, because of the need for a uniform national rule.

Absent extensions, amicus briefs in support of the petitioners will be due on January 19, 2012, and amicus briefs in support of the respondent will be due on February 21, 2012.

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Criminal Sentencing—Judicial Factfinding in the Context of Criminal Fines

In Apprendi v. New Jersey, 530 U.S. 466 (2000), the Supreme Court held that, under the Fifth and Sixth Amendments, "any fact" other than the fact of a prior conviction "that increases the penalty for a crime beyond the prescribed statutory maximum must be submitted to a jury, and proved beyond a reasonable doubt." Id. at 490. Today, the Court granted certiorari in Southern Union Company v. United States, No. 11-94, to determine whether Apprendi requires that facts underlying the imposition of a criminal fine be found by a jury rather than a judge.

The Court's resolution of this question could prove significant to all companies subject to statutory regimes enforced through criminal fines.

Southern Union, a natural gas company, was found guilty by a jury of a single count of knowingly storing mercury without a permit in violation of 42 U.S.C. § 6928(d)(2)(A), a provision of the Resource Conservation and Recovery Act ("RCRA"). The RCRA imposes a fine for knowing storage of hazardous waste without a permit of "not more than $50,000 for each day of violation." 42 U.S.C. § 6928(d). At sentencing, the government recommended that Southern Union be fined $38.1 million—a recommendation that was based on the maximum $50,000 fine for each of the 762 days of violations charged in the indictment.

Southern Union challenged this recommendation. First, it argued that Apprendi applied to the imposition of criminal fines, and that therefore a jury, not a judge, must find the number of days a defendant violated the RCRA. Second, it argued that, because the jury in this case was not asked to determine the number of days Southern Union had violated the RCRA, the most that could be inferred from the guilty verdict was that the jury found a single day of violation—a finding that would limit the fine to $50,000.

The district court agreed with Southern Union that Apprendi applied to criminal fines, but found that the jury had implicitly found a violation for the full 762 days. The district court then imposed a $6 million fine and a $12 million "community service obligation" on Southern Union.

On appeal, the First Circuit rejected the district court's determination that Apprendi applied to criminal fines. The First Circuit based its decision on the post-Apprendi case Oregon v. Ice, 129 S. Ct. 711 (2009), in which the Supreme Court held that the Fifth and Sixth Amendments do not prohibit a state sentencing regime that allows judges to find facts justifying the imposition of consecutive, rather than concurrent, sentences of incarceration. In Ice, the Court noted in dicta that "[t]rial judges often find facts about the nature of the offense or the character of the defendant in determining, for example, . . . the imposition of statutorily prescribed fines and orders of restitution." Id. at 719. Based on this language, the First Circuit concluded that judicial factfinding is permitted in the context of criminal fines. Noting that the issue was a close one, however, the First Circuit went on to hold that if it were wrong and Apprendi did apply to criminal fines, the case should be remanded for a more explicit determination by the jury of the number of days of violation.

Absent extensions, amicus briefs in support of the petitioner are due on January 19, 2012 and amicus briefs in support of the respondent are due on February 21, 2012.

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