April 16, 2012

Justices Weigh Overtime Exemption for Drug Firm Representatives

By ADAM LIPTAK

WASHINGTON — The Supreme Court considered on Monday whether representatives of pharmaceutical companies who visit doctors’ offices to promote their companies’ products are entitled to overtime. The answer turns on whether those visits are sales calls or something else.

Paul D. Clement, a lawyer for the defendant, GlaxoSmithKline, said the plaintiffs “are two pharmaceutical sales representatives.”

“They were hired for a sales job,” he said. “They were given sales training. They attend sales conferences. They are assigned to sales territory, and they are evaluated and compensated as salespeople.”

Chief Justice John G. Roberts Jr. responded by pointing out a gap in Mr. Clement’s presentation: “And they don’t do sales. Your long list sort of stopped one step short. They don’t make sales.”

Indeed, given the structure of the prescription drug business, the representatives do not sell products in the strict sense of the term. Rather, they encourage doctors to write prescriptions for patients to buy drugs from pharmacies.

The federal law that requires overtime pay exempts “outside salesmen.” The plaintiffs say they do not fit that category and so are entitled to overtime.

They say they worked not only the hours set by the company — from 8:30 a.m. to 5 p.m., visiting 8 to 10 doctors a day — but also an additional 10 or 20 hours a week above that.

According to briefs in the case, there are more than 90,000 such representatives. Their median compensation is about $93,000; a quarter or so of compensation is a bonus based on the volume of prescriptions written in a sales area. Should the Supreme Court rule that overtime pay is required, the industry could face billions of dollars in liabilities.

In November 2010, a three-judge panel of the United States Court of Appeals for the Ninth Circuit, in San Francisco, ruled that the plaintiffs were not eligible for overtime because their work — obtaining commitments from doctors to prescribe their companies’ products when appropriate — was a form of salesmanship adapted to how prescription drugs are sold.

Four months earlier, a three-judge panel of the Second Circuit, in New York, came to the opposite conclusion, saying that representatives sell nothing and “cannot lawfully even obtain from the physician a binding commitment to prescribe” their products.

The Labor Department supported the representatives in both cases. On Monday, a lawyer for the federal government, Malcolm L. Stewart, said the representatives, called “detailers” in industry jargon, were not sales representatives because they did not participate in sales but merely “set in motion a chain of events that will make those sales more likely to occur.”

Justice Elena Kagan said that view was “blind to the way the industry actually works.”

“The real work,” she said, “is done by the detailer getting the doctor to say, ‘Yeah, I’m going to start prescribing this where it’s medically appropriate.’ The actual sales from the company to the pharmacy just follows from however successful the detailer is.”

Justice Ruth Bader Ginsburg suggested that focusing solely on whether there were sales was a mistake. She said the representatives had striking autonomy.

“They don’t clock in and out,” she said. “They work outside the workplace. After they’re trained, they have minimal supervision.”

“It includes dinners,” she said to the plaintiffs’ lawyer, Thomas C. Goldstein. “It may be conventions. Entertainment. Maybe golf. If you’re right, would the time on the golf course get time and a half?”

Mr. Goldstein said those kinds of activities are “actually very heavily restricted.”

“While it is true that a pharmaceutical detailer has many of the characteristics of an outside salesman,” he added, “the one they don’t have is selling.”

Justice Stephen G. Breyer said the arguments in the case, Christopher v. SmithKline Beecham, No. 11-204, made for a close call. But he said the Labor Department may have acted rashly in calling for the payment of overtime in the supporting briefs it filed.

“The right way to do it,” Justice Breyer suggested, “is to have notice and comment, hearings, allow people to present their point of view, and then make some rules or determine what should happen. Perhaps they’d say for the future let’s do this, but not let’s give people a windfall for the past. Perhaps they’d say some and not others.”

Law.com

Question of overtime for pharmaceutical sales reps goes to U.S. Supreme Court

Published: Monday, April 16, 2012, 5:46 PM Updated: Monday, April 16, 2012, 6:00 PM

Bloomberg NewsThe Star-Ledger

The U.S. Supreme Court questioned whether drugmakers must pay overtime to as many 90,000 sales representatives in a clash that pits the pharmaceutical industry against the Obama administration.

Hearing arguments today in Washington, the justices grappled with a lower court’s conclusion that a GlaxoSmithKline Plc unit’s salespeople aren’t entitled to overtime because they are exempt from a federal wage-and-hour law. The hour-long session produced no clear consensus among the nine justices on the issue, which has divided lower courts.

More than a dozen similar cases have been filed against drugmakers — including Johnson & Johnson, Bristol-Myers Squibb and units of Novartis AG and Merck — by workers charged with persuading doctors to prescribe the company’s products. Business groups say billions of dollars are at stake.

A ruling against the drug companies would mean “massive retroactive liability on this industry,” Glaxo’s lawyer, Paul Clement, told the justices.

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

Justices Anthony Kennedy and Stephen Breyer both questioned whether that position was entitled to the special deference the court often affords administrative agencies, given that the Labor Department laid out its views in court papers rather than through a formal rulemaking proceeding.

Not So Candid

“It seems to me that’s not nearly as fair or straightforward or as candid as an agency ought to be,” Kennedy said.

Two former Glaxo salesmen, Michael Shane Christopher and Frank Buchanan, say 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.

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 one-hour session suggested the issue might divide the court, and not necessarily along ideological lines. Chief Justice John Roberts jumped on Clement’s listing of reasons why the representatives should be considered salespeople.

Playing Golf

“Your long list sort of stopped one step short,” Roberts said. “They don’t make sales.”

Justice Ruth Bader Ginsburg questioned whether overtime pay was compatible with a job whose requirements might include attending conventions and playing a round of golf with a doctor.

“If you’re right, would the time on the golf course get time and a half?” she asked the lawyer for the workers, Tom Goldstein.

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

The justices indicated their ruling would be specific to the drug industry, a field Justice Antonin Scalia called “peculiar” and “weird” because doctors are legally barred from committing that they will prescribe a particular drug.
‘Peculiar Industry’

Goldstein later said, “It is true that this is a peculiar industry, but the peculiarity of it is that you don’t make sales.”

Scalia suggested he wasn’t persuaded, saying the representatives “look like salesmen to me.”

The drug companies say the 2009 Labor Department filing marked a reversal of 70 years of practice in the industry. Clement said it had been “well understood” previously that the sales exemption applied to pharmaceutical representatives, also known as detailers.

Malcolm Stewart, a Justice Department lawyer, countered that the Labor Department has historically regarded promotional activities “as distinct from selling the product.”

Justice Elena Kagan said the Labor Department’s new stance might represent a legitimate change in priorities, rather than a shift in position.

“You’ve been given a gift for all these years, is one way of looking at it, because you were not their most urgent problem,” Kagan told Clement. “And so they didn’t enforce their own regulations against you.”

MEDCITY   Research Triangle

SCOTUS hears pharma rep overtime case; GSK claims workers are exemptSCOTUS hears pharma rep overtime case; GSK claims workers are exempt

This U.S. Supreme Court case won’t rise to the level of debate afforded the Affordable Care Act, but the high court is hearing arguments today on whether GlaxoSmithKline (NYSE:GSK) pharmaceuticals sales representatives are entitled to overtime pay, a court decision that would affect the entire pharmaceutical industry.

Michael Shane Christopher, et al., v. SmithKline Beecham Corporation, dba GlaxoSmithKline is the only case scheduled for argument today. In the case, GSK pharma reps Michael Christopher and Frank Buchanan claim they are entitled to overtime for their work beyond 40 hours per week.

For most jobs, it’s fairly easy to determine compensation based on hours worked. The Fair Labor Standards Act, or FLSA, requires employers to pay for hours worked beyond 40 hours unless an exemption applies. GSK claims that these workers are “outside salespersons” exempt from overtime. The workers claim that they’re not outside salespeople at all. The court is answering two questions: Whether the U.S. Department of Labor is interpreting the FLSA appropriately and whether the outside sales exemption in the law applies to pharmaceutical sales reps.

GSK argues that the work that Buchanan and Christopher did was consistent with the responsibilities of outside sales people. The company adds that pharmaceutical sales reps are “not merely ‘promoters.’” They sell specific products to specific doctors off-site from GSK locations. According to the law, the work qualifies for an exemption from overtime rules if the employee is “obtaining order or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer,” and “the employee must be customarily and regularly engaged away from the employer’s place or places of business.” Britain-based GSK, which has its U.S. headquarters in Research Triangle Park, North Carolina, argues that the workers qualify as exempt from overtime on both counts.

“On the job, petitioners did precisely what outside salespeople are expected to do,” GSK said in its brief. “They did not work out of a GSK office; instead, they spent their time traveling to, visiting with, and seeking commitments from their physician-customers to prescribe GSK products for appropriate patients.”

But here’s the thing. GSK pharma reps — and reps for all pharmas, for that matter — don’t actually sell drugs. They visit doctors’ offices and promote pharmaceutical products. A sale happens only after a doctor prescribes a drug and the patients fill the prescription. On that reasoning, the pharma reps argue that they’re not outside salespeople. They say in their court brief that their work involves drug promotion rather than drug sales.

The U.S. Department of Labor has weighed in on the matter and sided with the pharma reps. The department’s interpretation of the law is that pharma reps are not exempt from overtime because they’re not selling or taking orders. They’re giving physicians information. As far as the Labor Department is concerned, the sale is a transaction between the pharma company and the pharmacies.

Pharma rep compensation has become a hotly contested topic at companies and courts in recent years. Other large pharmas, including AstraZeneca (NYSE:AZN), Abbott Laboratories (NYSE:ABT) and Pfizer (NYSE:PFE), are also facing similar lawsuits from pharma reps. Novartis (NYSE:NVS) earlier this year agreed to a $99 million settlement with pharma reps who were claiming overtime, though the company continues to believe that such workers are exempt from overtime.

One might expect that a court ruling on pharma rep overtime will lead to broad changes in how pharmas structure the roles of their sales representatives. But that change is already under way. GlaxoSmithKline last year implemented a new pharmaceutical sales strategy that has revamped the role of the pharma sales representative. Instead of being compensated on the financial measure of sales targets, reps are being evaluated on criteria that range from their knowledge of a medication to their ability to communicate that knowledge to a physician.

GSK executive James Millar told MedCity News last year that the goal of the new sales strategy was not to sell more GSK drugs. Instead, the company aims to promote appropriate prescriptions of its products. If anything, those changes would seem to bolster the pharma reps’ claims that they are conveying information rather than making sales. But these new changes aren’t part of the case that is before the court today. Before the pharmaceutical industry can make the full transition to the the new model of pharmaceutical sales, the industry still has to resolve some unanswered questions regarding the old one. And in light of the $99 million Novartis settlement, a Supreme Court decision puts at stake tens if not hundreds of millions of dollars.

ASSOCIATED PRESS

Supreme Court questions whether drug companies’ sales force should get overtime pay

By Associated Press, Updated: Monday, April 16, 2:00 PMAP

WASHINGTON — A seemingly divided Supreme Court on Monday weighed a potentially costly challenge to the pharmaceutical industry’s practice of not paying overtime to its sales representatives.

The justices questioned whether the federal law governing overtime pay should apply to the roughly 90,000 people who try to persuade doctors to prescribe certain drugs to their patients.

Many sales jobs are exempt from overtime pay under the Fair Labor Standards Act. But unlike typical salespeople who often work on commission, pharmaceutical sales representatives cannot seal a deal with doctors. Federal law, in fact, forbids any binding agreement by a doctor to prescribe a specific drug.

Two salesmen who once worked for drug maker GlaxoSmithKline filed a class-action lawsuit claiming that they were not paid for the 10 to 20 hours they worked each week on average outside the normal business day. Their jobs required them to meet with doctors in their offices, but also to attend conventions, dinners, even golf outings.

Justice Ruth Bader Ginsburg was among several justices who wondered about limits on overtime opportunities if the court were to rule for the sales reps. A court filing by the industry said drug companies could be on the hook for billions of dollars in past overtime.

“If you’re right, would the time on the golf course get time and a half?” Ginsburg asked the salesmen’s lawyer, Thomas Goldstein.

The questions at Monday’s argument suggested the court could divide in unusual ways, not along ideological lines.

In an exchange with Paul Clement, representing GlaxoSmithKline, Chief Justice John Roberts indicated he was skeptical of the company’s argument.

Clement said the salesmen “were hired for a sales job. They were given sales training. They attend sales conferences. They are assigned to sales territory, and they are evaluated and compensated as sales people.”

At this point, Roberts jumped in. “And they don’t do sales,” he said. “Your long list sort of stopped one step short. They don’t make sales.”

Fellow conservative Antonin Scalia, however, left little doubt where he stands, saying the people who filed the lawsuit “look like salesmen to me.”

Scalia said the sales reps are a key link in the chain that ends with people picking up prescriptions at pharmacies. “You can only get a prescription from a doctor. Obviously, the number of prescriptions, drugs sold depends upon the number of prescriptions given by doctors,” he said.

The Obama administration is backing the sales reps, arguing that what they do can’t be considered sales.

Liberal Justice Elena Kagan said the administration’s argument “seems a little bit blind to the way this industry really works.”

But later in the hourlong session, Kagan suggested the pharmaceutical industry should be grateful that the Labor Department has not previously sought to compel drug makers to pay overtime.

“You’ve been given a gift for all these years, is one way of looking at it,” she told Clement.

A decision is expected by late June.

The case is Christopher v. SmithKline Beecham Corp., 11-204.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

This is from Saturday

The Arizona Republic

April 16, 2012  

Business

Supreme Court to hear Ariz. pharmaceutical case

It pits drugmakers, sales reps over OT

9 comments by Ken Alltucker – Apr. 14, 2012 03:03 PM
The Republic | azcentral.com

A Mesa-based law firm will bring a case before the U.S. Supreme Court this week that could answer whether 90,000 pharmaceutical sales representatives nationwide are eligible for overtime pay.

The case, petitioned on behalf of former Gilbert residents Michael Shane Christopher and Frank Buchanan against pharmaceutical giant SmithKline Beecham/GlaxoSmithKline, centers on whether pharmaceutical sales representatives are eligible for overtime pay under the Fair Labor Standards Act.

The nation’s high court also will address whether the U.S. Department of Labor has the authority to interpret its own regulations for overtime pay. The ruling could broadly impact businesses in other industries, too.

The nation’s high court will hear oral arguments Monday on Christopher vs. SmithKline Beecham Corp. and is expected to issue a ruling by early summer.

Both the pharmaceutical industry and attorneys for the sales representatives expect the case will bring clarity to an issue that is the subject of more than one dozen individual and class-action suits in federal courts. There are pending cases against companies such as Johnson & Johnson, Bristol-Myers Squibb and Merck, and a federal judge in January gave preliminary approval to a $99 million class-action settlement that Novartis reached with 7,000 current and former sales representatives.

Business and pharmaceutical industry groups that have sided with GlaxoSmithKline warn that an adverse ruling for the drug company would ripple through the industry, with Big Pharma potentially on the hook for billions of dollars in back pay to current and former sales representatives.

Attorneys for Christopher and Buchanan say that drug companies for years incorrectly classified such employees as “outside salespersons” exempt from wage-and-hour laws. They argue that pharmaceutical sales representatives do not directly sell pharmaceuticals but instead promote the sale of pharmaceuticals.

“They have a job where they do a lot of promotion work and they don’t sell anything,” said Otto Shill, an attorney with the Mesa law firm Jackson White, which represents the former Glaxo employees. “We feel that means they are entitled to overtime pay.”

Christopher and Buchanan worked as sales representatives for Glaxo from 2003 to 2007, covering different sales territories in parts of Arizona. Glaxo terminated Christopher in 2007, and Buchanan took a sales position with another pharmaceutical company.

The two sales employees filed the lawsuit in U.S. District Court in Phoenix in 2008. The Phoenix federal court sided with Glaxo.

In a similar case against Novartis, the 2nd U.S. Circuit Court of Appeals ruled in favor of sales representatives. The U.S. Department of Labor filed a brief in support of the employees in the 2nd Circuit case, taking a position that pharmaceutical sales representatives are not exempt from overtime laws.

With the U.S. Department of Labor staking its position, attorneys for the Glaxo employees appealed to the 9th U.S. Circuit Court of Appeals, which affirmed the lower court’s judgment.

The conflicting positions of the 2nd and 9th circuits prompted the Mesa law firm to petition the Supreme Court, which agreed to hear the case.

Employees are generally eligible for overtime pay if they work more than 40 hours per week under federal law, but certain employees, including outside salespersons, are exempt from overtime pay.

Attorneys for Christopher and Buchanan argue that pharmaceutical sales representatives are not traditional outside sales representatives because they do not sell the drugs. These “detailers” visit doctors’ offices and promote drugs and other products, reading from company-provided scripts.

While pharmaceutical representatives do many things similar to what a traditional outside salesperson does, they are barred under federal law from directly selling the pharmaceutical company’s drugs or other products. They encourage doctors to prescribe the drugs when medically appropriate.

However, Glaxo and the pharmaceutical industry have long considered these employees as outside sales representatives who have been classified as “exempt” from overtime laws for about seven decades.

In a company-issued statement, Glaxo said the term “sell” should have a “broad and flexible meaning” and should not have such a narrow definition as the Department of Labor adopted.

“These employees sell in the only way sales can be made in our industry, and the tasks they perform bring them within the exemption for eligibility for overtime pay,” the company said.

The Department of Labor, National Employment Lawyers Association, pharmaceutical sales representatives and doctors have filed amicus briefs supporting the Glaxo sales representatives.

The Pharmaceutical Research and Manufacturers of America (PhRMA), U.S. Chamber of Commerce, National Federation of Independent Business, Center for Constitutional Jurisprudence and Washington Legal Foundation have filed briefs supporting Glaxo.

In its brief, attorneys for PhRMA argued that making sales representatives eligible for overtime would be “costly and disruptive” to the industry and would strip sales representatives of the autonomy they now enjoy.

“Current (sales representatives) are rightly disturbed by these efforts by a relative handful of mostly former employees to upend a compensation system that continues to work well for tens of thousands,” the PhRMA attorneys wrote.

Jackson White has partnered with Washington, D.C., attorney Thomas Goldstein, who will argue the case on behalf of the Glaxo sales representatives.

Read more: http://www.azcentral.com/arizonarepublic/business/articles/2012/04/12/20120412supreme-court-hear-arizona-pharmaceutical-case.html#ixzz1sFFz0jhy

About NELA: The National Employment Lawyers Association advances employee rights and serves lawyers who advocate for equality and justice in the American workplace. NELA provides assistance and support to lawyers in protecting the rights of employees against the greater resources of their employers and the defense bar. It is the country’s largest professional organization exclusively comprised of lawyers who represent individual employees in cases involving employment discrimination and other employment‐related matters. NELA and its 68 state and local affiliates have more than 3,000 members around the country.