--Supreme Court rules 5-4 that drug representatives are exempt from overtime-pay requirements
--Ruling is a significant win for the pharmaceutical industry
--Court's decision rejects the Labor Department's position
(Updates with Glaxo comment and details from the ruling.)
By Brent Kendall
WASHINGTON--The Supreme Court ruled Monday that drug companies don't have to pay their sales representatives for working overtime hours, a significant win for the pharmaceutical industry.
The court, in a 5-4 opinion written by Justice Samuel Alito, ruled that drug sales representatives fall under a provision of federal labor law that removes overtime-pay requirements for those employed as outside salespeople.
The court's ruling, which split the court along ideological lines, rejected arguments by the Department of Labor in favor of overtime pay. The department had argued the outside-sales exemption shouldn't apply because drug representatives don't actually sell medicines to doctors but merely promote them.
Justice Alito dismissed that argument as "quite unpersuasive," saying drug representatives effectively function as salespeople "in the unique regulatory environment within which pharmaceutical companies must operate."
A sales representative's job is to obtain nonbinding commitments from doctors to prescribe a particular drug in appropriate cases, and doctors must prescribe the product "if any sale is to take place at all," Justice Alito said in the 25-page opinion.
Justice Alito, joined by the court's four other conservative justices, said deferring to the Labor Department's interpretation of overtime regulations would impose "potentially massive liability" on pharmaceutical companies without fair warning.
Drug companies have classified their sales representatives as overtime-exempt for decades but the Labor Department didn't suggest the industry was acting unlawfully until 2009, Justice Alito said. He noted that the department announced its position in a series of court briefs instead of relying on normal rulemaking procedures that would have given the public a chance to comment.
The court's four liberal justices dissented. Justice Stephen Breyer, writing for the dissenters, said drug representatives aren't salespeople because their primary duty is to provide doctors with information about their pharmaceutical products. If a particular drug is the best treatment for a patient, a doctor will prescribe it "irrespective of any nonbinding commitment" he made to a sales representative, Justice Breyer said.
Monday's decision came in a case involving GlaxoSmithKline PLC (GSK, GSK.LN), which was fighting legal claims from two former salesmen who were seeking overtime pay on behalf of a nationwide class of representatives employed by the drug maker.
The case held high stakes for the industry, which spends billions each year promoting drugs to doctors in the U.S. Lower courts had issued conflicting rulings on whether the sales representatives were eligible for overtime pay.
The Pharmaceutical Research and Manufacturers of America, the drug industry's main trade group, had warned in a court brief that classifying sales representatives as eligible for overtime could expose drug companies to retroactive liability and cost the industry billions of dollars.
Glaxo, in a statement, said the ruling "should bring an end to the rash of costly and misguided classification lawsuits being brought against the industry."
Pharmaceutical-sales representatives are typically paid a combination of base salary and performance-based commission. In addition, they are usually given a car or an allowance for a car. Many salespeople work long days trying to track down doctors, sometimes waiting until after office hours for a few minutes of face time.
Glaxo said the industry approach to compensation is fair, "and recognizes that sales professionals need the flexibility to schedule their work in a way that accommodates their schedules and the busy schedules of the healthcare providers they serve."
Neither the Labor Department nor the plaintiffs in the case immediately responded to requests for comment.
The case is Christopher v. SmithKline Beecham, 11-204.
Write to Brent Kendall at email@example.com
(END) Dow Jones Newswires
June 18, 2012 13:50 ET (17:50 GMT)
Copyright (c) 2012 Dow Jones & Company, Inc.