Supreme Court To Review Overtime For Sales Reps

Supreme Court To Review Overtime For Sales Reps

November 29th, 2011 // 1:35 pm @

After years of conflicting rulings and legal confusion, the US Supreme Court has agreed to review a case in which a pair of pharmaceutical sales reps argue that they were wrongfully denied overtime pay . The implications for the pharmaceutical industry are likely to be far-reaching, given that drugmakers have been laying off thousands of reps as part of a massive wave of cost cutting.

At issue is whether sales reps are exempt from overtime provisions of the Fair Labor Standards Act. The FLSA overtime compensation requirement does not apply to employees who work as outside salespeople, but the law does require employers to pay overtime for hours worked beyond 40 hours a week, unless a FLSA exemption applies. What are those exemptions? If an employee’s primary duty is to obtain orders or contracts (as defined by the statute) and regularly does so away from the employer’s place of business.

Drugmakers argue their sales reps are, indeed, outside salespeople who close sales because the primary customer is the physician. In their lawsuit, Glaxo reps Michael Christopher and Frank Buchanan argued, however, that a direct sale doesn’t occur because medicines are actually purchased by patients and hospitals, which receive the drugs from wholesalers. However, a federal appeals court decided earlier this year that they were not eligible (back story, their peitition to the Supreme Court and the Glaxo reply).

In fact, there has been a split among appeals courts over this issue. Last year, the US Court of Appeals for the Second Circuit ruled that Novartis reps are entitled to overtime (back story), and the Supreme Court earlier this year declined to review the decision (see here).

“In some sense, this is a good move, because the law will be unified across the country,” says Eric Kingsley, an attorney who represents the Glaxo reps and has argued on behalf of still other reps in other cases, tells us this morning. “It’s basically, double or nothing.”

Meanwhile, the US Department of Labor has sided with sales reps in various court filings, and lawyers for the Glaxo reps argue that the differing court rulings leave unanswered the extent to which the courts should give deference to the interpretation of federal law by a federal agency. “I don’t think they took this case to resolve issue of overtime for reps in the pharmaceutical industry, though,” says Kingsley. “I think the issue is whether deference should be granted an agency.”

Earlier this year, the Labor Department attorneys wrote that the appeals court decision, in which the Glaxo reps were denied overtime, was “incorrect and warrants rehearing…because the panel did not accord proper deference to the Secretary’s interpretation of her own regulations, thereby expanding the outside sales exemption without any basis in law or fact” (read here). In a friend of the court brief, the PhRMA trade group argues deference is not warranted (see this).

However, the Supreme Court will not review the FLSA administrative exemption, because this was provision was not reviewed by the appeals court earlier this year in the Glaxo case. This exemption, by the way, relieves employers from paying overtime to any employee who is employed in a bona fide executive, administrative, or professional capacity – and to employees earning over $455 a week whose primary duty is to perform office or non-manual work involving managerial or general business matters. A primary duty includes exercising discretion and independent judgment.

Earlier this month, Abbott Laboratories won a case based on the administrative exemption, although Novartis had previously lost such a case before an appeals court. If the Supreme Court rules that an outside sales exemption does not apply for the Glaxo reps, they would be entitled to overtime, although the drugmaker could still argue that the administrative exemption applies.

In other words, a Supreme Court ruling that finds for the Glaxo reps would mean that earlier rulings regarding the administrative exemption remain intact, at least until further legal challenges are filed. “The industry only has to win one or the other exemption,” says Kingsley.

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