Published on: 4/25/2012
Ann M. Byrd and Laura Vogel, DLA Piper
The Supreme Court heard oral argument on Monday, April 16, 2012, regarding whether, as a result of unique industry circumstances, pharmaceutical sales representatives (PSRs) are entitled to overtime pay under the federal Fair Labor Standards Act (FLSA).
The appeal arises from the U.S. Circuit Court of Appeals for the Ninth Circuit, which ruled that PSRs fall within the “outside sales” exemption to the federal overtime pay requirements. This is in direct conflict with an earlier ruling by the U.S. Circuit Court of Appeals for the Second Circuit. Should the justices agree with the Department of Labor’s (DOL) position that they are not “outside sales” persons, the result could mean massive retroactive liability for four to six years of back overtime pay for roughly 90,000 PSRs, as well as a complete industry-wide overhaul of PSR duties and compensation.
The primary focus of this case is whether PSR activities constitute “sales” as defined by the DOL regulations and are thus exempt from overtime pay, rather than pure “promotion” which is subject to the overtime pay requirements. The justices peppered Thomas C. Goldstein, appearing on behalf of the petitioner PSRs, and Paul D. Clement, appearing on behalf of the respondent GlaxoSmithKline (GSK), with questions regarding the interaction between PSRs and physicians.
Petitioners and the DOL argue that product “sales” in the pharmaceutical industry occurs between the manufacturer and the wholesaler, and between the pharmacy and the consumer. Referring to PSRs as “detailers,” Goldstein argued that, although they have “many of the characteristics of an outside salesman,” they merely “tout drugs to doctors” and fail to gain a commitment or transfer title to a product, both of which would be illegal.
On behalf of GSK, Clement emphasized that a key to application of the outside sales exemption is identifying who places the orders. In the pharmaceutical industry, doctors have the sole, exclusive authority to prescribe specific drugs. As a result, PSR activities directed to prescribing physicians are “sales.”
Several justices, including Antonin Scalia, Sonia Sotomayor, Stephen Breyer and Anthony Kennedy, were clearly frustrated by the DOL’s seeming about-face after 70 years of allowing PSRs to be considered exempt from overtime pay. Malcolm L. Stewart, who appeared on behalf of the DOL, was taken to task for filing amicus briefs in various courts, some with apparent inconsistencies, instead of following the appropriate legislative and rulemaking process. Justice Scalia twice described the DOL’s actions as “extraordinary.”
On the other hand, Justice Elena Kagan appeared to side with the DOL, stating that the DOL’s position had not changed, but because it may not have been the “most urgent problem on their plate . . . they didn’t enforce it” and that the industry has “been given a gift for all these years.”
Although the petitioners and government argued future uncertainty if deference is not given to the DOL’s interpretation of the regulations, the justices expressed concern regarding the “uncertainty” that may come with changing what appears to be 70-years of acquiescence by the DOL. Should the PSRs and DOL get what they are asking for, the impact on their jobs and the industry could be far-reaching. Opening the industry to immediate, retroactive and burdensome liabilities is contrary to the promotion of job growth. Revamping PSR job descriptions, down-sizing, reorganizing, and major changes to PSR compensation structures are likely to follow close behind.
A decision is expected in June 2012. The Supreme Court case is Christopher v. SmithKline Beecham Corporation; No. 11-204.