WASHINGTON, June 18
(Reuters) - 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 Plc. 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."
Glaxo shares closed up
nearly 1 percent in London.
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 & Co 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.