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Supreme Court to rule on pharmaceutical sales overtime pay

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WASHINGTON—The U.S. Supreme Court's eventual decision on whether pharmaceutical sales representatives are entitled to overtime pay could well extend to employers in general, observers say.

The nation's highest court last week agreed to consider the February decision by the 9th U.S. Circuit Court of Appeals in Michael Christopher et al. vs. SmithKline Beecham Corp., in which the San Francisco-based appeals court ruled that pharmaceutical sales reps of the unit of GlaxoSmithKline P.L.C. are outside sales employees under the Fair Labor Standards Act of 1938 and are exempt from being paid overtime.

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

The Supreme Court said last week that it will consider two issues: “whether deference is owed” to the secretary of labor's interpretation of the FLSA's outside sales exemption and related regulations, and whether the FLSA's outside sales exemption applies to pharmaceutical sales reps.

Andrew J. Rolfes, a member of law firm Cozen O'Connor in Philadelphia, said the ruling by the 9th Circuit “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 (the latter) 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 the Labor Department submitted briefs in both cases arguing that the pharmaceutical sales reps should not be exempt and should 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,” he said.

But Mr. Prokott added that while he is sure the Supreme Court will try to issue a limited ruling in the case, whatever it holds will affect 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 the ruling also could affect other industries that have sales-related employees who do not actually close deals, even if their jobs are not precisely analogous to pharmaceutical sales reps.

Gerald L. Maatman Jr., a partner with Seyfarth Shaw L.L.P. in Chicago, said the Supreme Court's rulings have a “ripple effect, so depending on the holding or the language used by the Supreme Court, I think it will be important” for interpretation of exemptions under the FLSA. While much will depend on the decision itself, “it does have the potential to have much broader implications” beyond the pharmaceutical industry.

“There is much more wage-and-hour litigation than almost any other type of employment litigation, and some of the judges think it's gotten out of hand,” Mr. Maatman said. The court's decision could affect plaintiff attorneys' chances of success in bringing some such cases, he said.

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 the Supreme Court's decision presumably would 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 semigray area between exempt and nonexempt and don't figure squarely within the outside sales exemption,” Ms. Shea said.