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WASHINGTON (Reuters)—The U.S. Supreme Court heard arguments Monday on whether pharmaceutical companies must pay sales representatives overtime, a dispute that threatens the industry with billions of dollars in potential liability.
The justices considered an appeal by two former sales representatives for a unit of Britain's GlaxoSmithKline P.L.C. of a ruling by the 9th U.S. Circuit Court of Appeals in California 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.
Paul Clement, a former Bush administration solicitor general now in private practice, argued for the Glaxo unit and said the representatives were exempt from overtime requirements.
Mr. Clement cited a brief filed by the Pharmaceutical Research and Manufacturers of America trade group that said classifying sales representatives as eligible for overtime could expose the industry to potential liability of billions of dollars.
The Federal Labor Standards Act generally requires companies to pay workers overtime, but includes numerous exemptions for certain white-collar workers, including those classified as "outside salesmen."
Attorney Thomas Goldstein, representing the workers, said the main purpose of the representatives was to promote drugs in visits to doctors. "They tout drugs to doctors," he said.
During the hour of arguments, the justices also considered a second issue of whether the U.S. Labor Department's interpretation of the law was owed deference.
In 2009, the Labor Department sided with the former workers 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 workers, 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.
A ruling by the Supreme Court is due by the end of June.
WASHINGTON—The U.S. Department of Labor has entered into a memorandum of understanding under which it will work with the state of California to address the issue of misclassification of employees.