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Supreme Court agrees to hear pharmaceutical rep overtime case


WASHINGTON—The U.S. Supreme Court's eventual decision on whether pharmaceutical sales representatives are entitled to overtime pay could have significant implications for the pharmaceutical industry and employers in general, observers say.

The court on Monday agreed to consider the February 2011 decision by the 9th U.S. Circuit Court of Appeals in San Francisco in Christopher vs. SmithKline Beecham, in which the appellate court ruled that GlaxoSmithKline's pharmaceutical sales representatives are exempt as outside sales employees under the Fair Labor Standards Act of 1938 from being paid overtime. SmithKline Beecham is now known as GlaxoSmithKline P.L.C., based in London.

In contrast, in its July 2010 decision in In re Novartis Wage & Hour Litigation, the 2nd U.S. Circuit Court of Appeals in New York ruled pharmaceutical sales representatives are not exempt from overtime.

The Supreme Court said the two issues it will consider are “whether deference is owed to the Secretary of Labor's interpretation of the Fair Labor Standards Act's outside sales exemption and related regulations” and whether the FLSA's outside sales exemption applies to pharmaceutical sales representatives.

Andrew J. Rolfes, a member of law firm Cozen O'Connor in Philadelphia, said the 9th Circuit “in this case took a practical view of what the sales reps do and said, ‘Yes, they are really engaged in selling pharmaceuticals.' The 2nd Circuit said, ‘No, they're not, because the doctors don't buy anything. All they do is write prescriptions.'”

Mr. Rolfes said, “If that view were to prevail, it would mean a fundamental change” in the way pharmaceutical firms do business.

Daniel J. Prokott, a partner with Faegre & Benson L.L.P. in Minneapolis, noted that in the Novartis and the SmithKline cases, the Department of Labor had submitted briefs arguing the pharmaceutical sales representatives should not be exempt, and thus be paid overtime, although it was unsuccessful in the 9th Circuit case.

“The scope of the (Supreme Court's) review could result in a pretty narrow decision that just simply addresses deference given to the DOL interpreting this particular exemption, and also looking specifically at only the outside sales exemption and its applicability to pharmaceutical sales representatives,” said Mr. Prokott.

But Mr. Prokott added while he is sure the Supreme Court will try to issue a limited ruling in the case, whatever it holds will impact future cases.

“If the Supreme Court says, ‘We give deference to the DOL's interpretation of this particular outside sales exemption,” then it could “bolster the DOL's efforts to try to help shape the law through amicus briefs” in other cases, Mr. Prokott said.

On the other hand, if the Supreme Court rules there should be not be deference paid to the DOL's position, then it is “likely (the DOL) may take a second look before they decide to put in the effort to provide an amicus brief” in other cases.

Mr. Prokott said also the ruling could impact other industries that have sales-related employees, who do not actually close the deal, even if it is not precisely analogous to pharmaceutical sales representatives.

Robin E. Shea, a partner with Constangy, Brooks & Smith L.L.P. in Winston-Salem, N.C., said the eventual decision “could have important implications for employers who are seeking to classify employees as exempt under the administrative exemption to the FLSA.”

Furthermore, while presumably the Supreme Court's decision will be limited to that issue, “it also could have implications for employees who are in positions where they travel during the work day and make use of cellphones and emails outside their standard work hours, and are into that gray, or semi-gray, area between exempt and non-exempt and don't figure squarely within the outside sales exemption,” Ms. Shea said.

Wage-and-hour lawsuits are becoming a major concern for employers as more suits are filed, observers say.

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