Bloomberg News

Drugmakers Don’t Owe Sales Force Overtime, Top Court Says

June 18, 2012

Drugmakers don’t have to pay overtime to their sales representatives, the U.S. Supreme Court ruled in a decision that saves the industry billions of dollars and marks a defeat for the Obama administration.

The justices, voting 5-4 in a case involving a GlaxoSmithKline Plc (GSK) unit, said pharmaceutical salespeople are exempt from a federal wage-and-hour law. The court is nearing the end of its term, with rulings on the health-care overhaul and Arizona’s immigration law still to come.

More than a dozen wage-and-hour cases had been filed against drugmakers -- including Johnson & Johnson (JNJ:US), Bristol-Myers Squibb Co. (BMY:US) and units of Novartis AG (NOVN) and Merck & Co. (MRK:US) -- by workers charged with persuading doctors to prescribe the company’s products. Business groups said billions of dollars were at stake.

The Obama administration threw its support behind the sales representatives in a 2009 court filing. The administration said the exemption in the Fair Labor Standards Act for “outside salesmen” doesn’t apply to drug-industry representatives.

The court today said that position wasn’t entitled to any special deference because the Labor Department laid out its views in court papers rather than through a formal rulemaking proceeding.

The case split the court along ideological lines. Justice Samuel Alito wrote the majority opinion, joined by Chief Justice John Roberts and Justices Antonin Scalia, Anthony Kennedy and Clarence Thomas.

Promoting Product

Two former Glaxo salesmen, Michael Shane Christopher and Frank Buchanan, argued that the sales exception doesn’t apply because drug industry representatives only promote the product - - and don’t actually sell it -- during their visits to doctors’ offices.

Alito rejected that reasoning. The sales representatives’ “end goal was not merely to make physicians aware of the medically appropriate uses of a particular drug,” he wrote.“Rather, it was to convince physicians actually to prescribe the drug in appropriate cases.”

In dissent, Justice Stephen Breyer said a sales representative “does not take orders” and “does not consummate a sale.”

The justices focused their ruling on the particular characteristics of the pharmaceutical industry, limiting the impact of the decision on other businesses.

Sales Techniques

Some drugmaker shares rose. Glaxo’s American depositary receipts, each representing two ordinary shares, rose 28 cents to $45.35 at 11:18 a.m. in trading on the New York Stock Exchange.

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

The drug industry said the 2009 Labor Department filing marked a reversal of 70 years of practice.

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

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: Steven Komarow at skomarow1@bloomberg.net


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Companies Mentioned

  • JNJ
    (Johnson & Johnson)
    • $105.1 USD
    • -0.70
    • -0.67%
  • BMY
    (Bristol-Myers Squibb Co)
    • $48.62 USD
    • 0.11
    • 0.23%
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