The Outside Salesman Lives On

More than 60 years after Arthur Miller introduced Willy Loman to the world, a policy change by the Obama administration threatened to push some of the last of today’s “salesmen” toward Loman’s professional fate.

Since Willy Loman’s days as a traveling salesman (“Death of a Sales Representative,” while more timely, just doesn’t have the same ring to it), the job has been made obsolete in most industries by toll-free telephone lines, fax machines, email, Facebook and FedEx. A key exception is pharmaceutical sales. About 90,000 people, known in the industry as “detailers,” continue to boost sales for pharmaceutical companies by traveling to doctors’ offices, talking about the benefits of their companies’ drugs and, often, handing out samples.

In 2009, however, the Labor Department started arguing that these “detailers” aren’t salespeople at all, at least not for the purposes that count. In a case decided last week, four Supreme Court justices – Stephen G. Breyer, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan – agreed. But, in an ironic twist worthy of great literature, by siding with the detailers, the court’s more liberal justices would in all likelihood have brought down the curtain on this particular breed of road warriors.

This tale has a happier ending, however, because the other five justices ruled against them.

The dispute centered on the application of the 1938 Fair Labor Standards Act. The provision of the law requiring employers to pay overtime wages includes an exception for workers employed “in the capacity of outside salesman.” (Apparently updating the law’s nomenclature to use more modern, gender-neutral terminology isn’t a priority.) Pharmaceutical representatives appear to be a clear example of what Congress meant by this category. Like the traveling salespeople of the past, they are typically assigned a geographic region and work independently, setting their own hours, to cover that region. Then they are compensated, usually quite well, with incentives based on how effectively they increase sales. Until 2009, the Labor Department never expressed any doubt that they were covered by the “outside salesman” exception.

But the Department reversed its opinion in a friend-of-the-court brief regarding a case similar to the one the Supreme Court recently ruled on. The Department, which wrote an additional amicus brief in the case the court decided last week, sided with two former detailers who sued for back wages. Their key argument was that pharmaceutical representatives can’t be “outside salesmen” because they never actually make sales. According to the Department’s brief, “an employee does not make a ‘sale’ for purposes of the ‘outside salesman’ exemption unless he actually transfers title to the property at issue.”

The two reps, who worked for a unit of GlaxoSmithKline from 2003 to 2007, only obtained non-binding agreements from doctors saying they would prescribe the companies’ medications when appropriate. The real sales occurred later, when patients took their doctors’ prescriptions to the pharmacy.

In reality, however, salespeople of the Willy Loman variety are seldom in a position to immediately transfer title to property. If Loman had sold hubcaps to auto makers, for example, he would not have carried hubcaps in his battered briefcase. Most companies send salespeople on the road to make deals; the companies often include language in their order forms specifying that no contract is binding until it is accepted at the company’s headquarters. This protects the company from obligation if a salesperson offers unreasonable pricing or commits to a production quantity or schedule that the company cannot honor. Your local Girl Scout may happily let you fill out an order for 1 million boxes of Thin Mints, but she most likely can’t guarantee that the organization is prepared to procure and deliver so many cookies. (Though, as far as I know, the Girl Scouts don’t use the no-sale-is-final language on their order forms.)

What is important is that both traditional door-to-door salespeople and pharmaceutical representatives must be able to work with minimal supervision in order to do their jobs. Companies can track the sales that an individual generates, but they have little way to know or control how many hours that individual works in order to gain those sales. The two former representatives involved in the recent case were not even required to report their hours.

If companies are required to treat outside salespeople as ordinary employees for the purposes of overtime, they will need to implement ways of monitoring and controlling those employees’ hours. The most likely way to do that would be to have them work from company premises – converting outside salespeople into inside salespeople, who have always been covered by the overtime rules. The outside sales job would have all but disappeared. Some of the detailers might have moved to these new desk-based jobs, but many would have simply had to leave their pharmaceutical sales jobs – and their generally handsome incomes – behind.

The Supreme Court’s sensible decision saved these jobs, even as it also saved drug companies from “potentially massive liability,” as Justice Samuel A. Alito Jr. wrote for the majority. If the court’s liberals had triumphed, former employees would have pursued the companies for back pay, even for periods long before the companies could have had any idea the Labor Department would eventually challenge those employees’ status as “outside salesmen.”

Fortunately, while the ruling was a close call, today’s most significant re-enactment of Willy Loman’s sad story will continue to be in the current revival on Broadway.

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About Larry M. Elkin 564 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

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