Supreme Court holds that pharmaceutical sales reps not entitled to overtime pay

by Saul Ewing Arnstein & Lehr LLP
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On June 18, 2012, the U.S. Supreme Court decided Christopher v. SmithKlineBeecham dba GlaxoSmithKline ("Glaxo") and determined, by a five to four vote, that "detailers," otherwise known as "pharmaceutical sales representatives," are not entitled to overtime payments. This decision resolved a split between the Second and Ninth Circuit Courts of Appeals. The Ninth Circuit, in In re: Novartis Wage and Hour Litigation ("Novartis") had determined that pharmaceutical sales representatives were entitled to overtime payments. The Second Circuit, in Glaxo, had determined they were not.

Interestingly, both the majority and the dissent agreed that the Department of Labor's interpretation of its rules was not subject to deference under Auer v. Robbins, 519 U.S. 452 (1997). The Department of Labor had not interpreted its rules concerning the definition of "outside salesmen" until it filed an amicus brief in the Ninth Circuit, and then it changed the basis of its explanation when it filed its brief with the Supreme Court. The majority analyzed the Department of Labor's position, and determined fundamentally that its interpretations were not made in a time frame that gave reasonable notice to the industry about its interpretation and, moreover, the agency's announcement of its "interpretation was preceded by a very lengthy period of conspicuous inaction."

The difference between the positions taken by the majority and the dissent depended on the their different interpretations of the regulatory language concerning the definition of "sales." The majority viewed the sales representatives' activities with physicians as related to sales and encompassed by the phrase "other disposition" in the definition of a sale, and the dissent argued that there is no connection with sales whatsoever as the detailers made no sale to physicians. The dissent argued that the sale was made by a pharmacist to a patient, while everyone else was involved in promotion or prescribing, not sales. The philosophical difference in the respective positions is identified by the majority's use of the term "pharmaceutical sales representative" and the dissent's use of "detailer."

This is an important decision for the pharmaceutical industry. Had the Supreme Court ruled that pharmaceutical sales representatives were subject to the Fair Labor Standards Act requirement of overtime pay, the potential payments for back pay, and possibly penalties, would have resulted in the payment of significant sums to employees.

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Saul Ewing Arnstein & Lehr LLP
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