Supreme Court Holds Pharmaceutical Reps Don’t Get Overtime

Supreme Court Holds Pharmaceutical Reps Don’t Get Overtime

Last week the Supreme Court issued a ruling in a case affecting a large number of employees.  In Christopher v. SmithKline Beecham Corp., the Court addressed the issue whether pharmaceutical representatives are exempt from overtime under the Fair Labor Standards Act exemption for “outside sales” employees.

This exemption distinguishes between employees making sales “inside,” such as on the telephone, and those visiting potential customers.  The exemption also had drawn a sharp distinction between employees making sales and those promoting products.

For pharmaceutical reps, other laws prevent them from selling prescription drugs.  Pharmacies sell drugs, but don’t get involved in choosing which drugs go to which patients.  Only physicians can prescribe drugs, and pharmaceutical company employees can sell them neither to patients nor their doctors.  So their jobs involve “detailing,” informing physicians about the drugs manufactured by their employers, in the hopes that the doctors will choose one drug over another for their patients.  They try to get doctors to commit to use their drugs; the commitment is non-binding.

The reps, backed up the Department of Labor, denied that they engaged in sales, and therefore could not fit into the outside sales exemption.  They routinely work more than 40 hours per week.

By a 5-4 decision (we’ll be seeing a lot of that almost even divide, I think), the Supreme Court disagreed.  Key to the majority decision, written by Justice Alito, was the Court’s unhappiness with the Department of Labor’s recent decision to enforce the long-existing regulation against pharmaceutical companies.  The regulation itself does not make clear whether pharmaceutical reps’ activities fall under the exemption.  Rather than issue new regulations making clear that reps are non-exempt, and therefore entitled to overtime, the Department weighed in at the litigation level.  If the Department had amended the regulations, the public would have had an opportunity to comment.

After criticizing the Department’s decision to enforce a relatively new interpretation of the regulation as a matter of poor process, the Court also disapproved of the Department of Labor’s interpretation itself.  In the critique of the Department’s interpretation, the Court has to stretch logic.   It holds that it would be “anomalous” to distinguish between sales people and people who, by virtue of an unrelated law are unable to make sales.  But it is just as anomalous that inside sales people are entitled to overtime.

The dissent focused on the actual work performed by the representatives.  The work is to explain the features and benefits of the drugs sold by the manufacturer, and hope that the information will lead the doctor to think of that drug for more of her patients’ needs.  Further, the Department of Labor has long held that manufacturer’s representatives (who place items in supermarkets, for example) and the work of promotion men are entitled to overtime.  The similarities between those representatives and the pharmaceutical representatives are striking.

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