Drugmaker Sales Force Overtime Clash Gets Top U.S. Court Review

The U.S. Supreme Court agreed to consider whether drugmakers must pay overtime to as many as 90,000 sales representatives, as the justices heeded calls from both sides for review of what may be a multibillion-dollar case.

The high court today said it will review a lower court’s conclusion that salespeople working for a GlaxoSmithKline Plc (GSK) unit aren’t covered by a federal wage-and-hour law.

The suit is one of more than a dozen similar cases that have been filed against drugmakers, including Johnson & Johnson (JNJ), Bristol-Myers Squibb Co. (BMY) and units of Novartis AG (NVS) and Merck & Co. (MRK) With federal appeals courts divided on the issue, business trade groups joined the Glaxo salespeople in urging review.

“Such suits could potentially lead to billions of dollars in unexpected liability,” the U.S. Chamber of Commerce said in a court filing. “Further, they could force the industry to abandon pay practices that have existed -- virtually unchallenged -- since before the Second World War.”

The dispute turns on the exception in the U.S. Fair Labor Standards Act for outside salespeople. Two former Glaxo salesmen, Michael Shane Christopher and Frank Buchanan, contend that exception doesn’t apply because drug industry sales representatives don’t actually sell the product during their visits to doctors’ offices.

The representative’s job is to “promote pharmaceuticals to physicians in an effort to influence their prescribing habits,” Christopher and Buchanan argued in court papers. “Actual sales of pharmaceutical products occur when hospitals, pharmacies and wholesalers purchase the products from the pharmaceutical company.”

Trained in Sales

Glaxo says its representatives are trained in sales techniques, learning how to obtain a commitment from doctors to prescribe the company’s medicines. Glaxo also says its salespeople are paid in part through incentives that are tied to sales volume and market share in assigned territory.

The suit, which seeks class action status, targets GlaxoSmithKline LLC, a U.S. unit of the London-based drugmaker.

One question before the justices will be whether to defer to the Obama administration’s interpretation of the law. In a 2009 court filing, the Labor Department took the salespeople’s side, saying the exception applies only when a salesperson is directly involved in a “consummated transaction.”

Labor Department

In throwing out the suit against Glaxo, a San Francisco- based federal appeals court said the Labor Department’s interpretation wasn’t based on any special expertise that would warrant deference. The appeals court said the Labor Department’s regulation covering the provision “does little more than restate the terms of the statute itself.”

Glaxo contended in court papers that the 2009 Labor Department court filing marked an “abrupt departure from DOL’s longstanding position and flexible interpretation of the term ‘sales.’”

The salesmen argued that the Labor Department’s position is consistent with “decades of appropriately narrow construction of the exemption.”

The justices will hear arguments and rule by the middle of next year. The case is Christopher v. SmithKline Beecham, 11- 204.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net.

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