US Top Court Rules for Glaxo on Overtime Pay

19.06.2012 -

The U.S. Supreme Court ruled on Monday that pharmaceutical companies do not have to pay overtime to their representatives who visit doctors' offices to promote their products, a dispute that had threatened the industry with billions of dollars in potential liability.

By a 5-4 vote, the high court handed a defeat to two former sales representatives for a unit of Britain's GlaxoSmithKline. They had appealed a U.S. appeals court in California ruling that they were "outside sales" personnel exempt from federal overtime pay requirements.

That decision conflicted with an earlier ruling by the 2nd U.S. Circuit Court of Appeals in New York that pharmaceutical sales representatives qualified for overtime under the federal Fair Labor Standards Act.

The Pharmaceutical Research and Manufacturers of America (PhRMA) trade group has told the Supreme Court that classifying sales representatives as eligible for overtime could expose the industry to billions of dollars in potential costs.

"PhRMA strongly supports the Supreme Court's decision," the trade group said in a statement. "The Supreme Court's opinion is consistent with the arguments advanced in our amicus brief and with the longstanding sales practices of our member companies."

The U.S. Court of Appeals for the 7th Circuit in May ruled that pharmaceutical sales representatives were also exempt from overtime as administrative employees in a separate case against Eli Lilly and Abbott Laboratories.

"It's fair to say almost every major pharmaceutical manufacturer has been hit by one of these lawsuits," said Lisa Schreter, an Atlanta lawyer with Littler Mendelson, who represents employers but was not connected with the case.

The federal Fair Labor Standards Act generally requires companies to pay workers overtime, but includes numerous exemptions for some white-collar workers, including those classified as "outside salesmen."

Swiss drugmaker Novartis in January agreed to pay $99 million to settle a similar overtime lawsuit. That settlement came after the 2nd Circuit Court of Appeals ruled sales representatives were not exempt, a holding that the Supreme Court has now rejected.

The ruling will not effect the Novartis settlement, which has received final court approval. But the company applauded the Supreme Court decision.

"Novartis is pleased with the U.S. Supreme Court's ruling in the GSK Wage and Hour lawsuit, which validates the decades-long industry practice of classifying sales representatives as exempt from overtime laws," Novartis spokeswoman Brandi Robinson said in a statement.

"The Supreme Court's decision resolves this industry-wide issue and affirms Novartis' belief that sales representatives should continue to be classified as exempt outside salespersons under the Fair Labor Standards Act."

In 2009, the U.S. Labor Department sided with the former Glaxo employees and said the exemption applied only if the representatives had been involved in a consummated sales transaction, but not when they just promoted drugs in visits to doctors.

The two former Glaxo employees, Michael Christopher and Frank Buchanan, said in their class-action lawsuit that they did not receive overtime for 10 to 20 hours worked each week, on average, outside the normal business day.

Glaxo replied that pharmaceutical sales representatives typically got a base salary and performance-based commissions, and that the overtime requirements did not apply.

The Supreme Court, in a majority opinion written by Justice Samuel Alito, upheld the decision by the California-based appeals court. He agreed with the appeals court that the employees qualified as "outside sales" personnel.

Alito also said the Labor Department's interpretation was "quite unpersuasive" and not entitled to deference.

Liberal Justices Stephen Breyer, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan dissented.

Richard Alfred, an attorney with the firm of Seyfarth Shaw, who represents pharmaceutical companies in similar litigation, said the ruling could affect other industries.

"The decision has very broad implications and will have a very broad impact, not only on the dozens of pending lawsuits challenging exempt status of pharmaceutical sales representatives, but beyond that, the decision will make the outside sales exemption a stronger exemption," Alfred said.

The Supreme Court case is Christopher v. Smithkline Beecham Corp, No. 11-204.