(CN) - Drugmakers will save billions of dollars after the Supreme Court gave them the green light Monday to classify sales representatives as "outside salesmen" ineligible for overtime.
Such employees are also called "detailers" for their work telling physicians about new prescription drugs to drive up sales.
Two such detailers, Michael Christopher and Frank Buchanan, filed a federal complaint in Arizona that claimed SmithKline Beecham dba GlaxoSmithKline owed them overtime pay.
But a federal judge granted the drugmaker summary judgment after applying an exemption of the federal Fair Labor Standards Act that relates to outside salesmen.
The 9th Circuit affirmed
in February 2011, noting that the workers follow a commission-based model that has existed for 70-plus years.
"PSRs are driven by their own ambition and rewarded with commissions when their efforts generate new sales," the decision states, abbreviating pharmaceutical sales representatives. "They receive their commissions in lieu of overtime and enjoy a largely autonomous work-life outside of an office. The pharmaceutical industry's representatives - detail men and women - share many more similarities than differences with their colleagues in other sales fields, and we hold that they are exempt from the FLSA overtime-pay requirement."
But this decision contradicted
one involving Novartis sales reps seeking overtime that Supreme Court refused
to disturb about a week earlier.
The issue has been a divisive one for the courts. Federal courts
in the 3rd Circuit have applied the so-called "administrative exemption" to sales reps in overtime cases against Abbot Laboratories, Johnson & Johnson, AstraZeneca and Alpharm. Just last month, the 7th Circuit sided
with the drugmakers Eli Lilly & Company and Abbot Labs over similar claims.
In rejecting the sales reps' claims Monday, the Supreme Court noted that the Department of Labor has "never initiated any enforcement actions with respect to detailers or otherwise suggested that it thought the industry was acting unlawfully."
"There are now approximately 90,000 pharmaceutical sales representatives; the nature of their work has not materially changed for decades and is well known; these employees are well paid; and like quintessential outside salesmen, they do not punch a clock and often work more than 40 hours per week," Justice Samuel Alito wrote for the majority. "Other than acquiescence, no explanation for the DOL's inaction is plausible."
Yet despite this history, the department turned around in 2009 and fought classification of pharmaceutical detailers as "exempt outside salesman" in an amicus brief filed with the 2nd Circuit.
And though the department took this position again in its 9th Circuit brief, its reasoning changed in its brief to the Supreme Court.
The Supreme Court majority refused to defer to this new reasoning.
"We find the DOL's interpretation of its regulations quite unpersuasive," Alito wrote. "The interpretation to which we are now asked to defer - that a sale demands a transfer of title - plainly lacks the hallmarks of thorough consideration. Because the DOL first announced its view that pharmaceutical sales representatives do not qualify as outside salesmen in a series of amicus
briefs, there was no opportunity for public comment, and the interpretation that initially emerged from the department's internal decisionmaking process proved to be untenable. After arguing successfully in the Second Circuit and then unsucessfully in the Ninth Circuit that a sale for present purposes simply requires a 'consummated transaction,' the DOL advanced a different interpretation in this court. Here, the DOL's brief states unequivocally that '[a]n employee does not make a "sale" for purposes of the "outside salesman" exemption unless he actually transfers title to the property at issue.'
"This new interpretation is flatly inconsistent with the FLSA, which defines 'sale' to mean a 'consignment for sale.' A 'consignment for sale' does not involve the transfer of title."
But the dissenting justices said detailers are simply not sales outside salesman.
"Unless we give the words of the statute and regulations some special meaning, a detailer's primary duty is not that of 'making sales' or the equivalent," Justice Stephen Breyer wrote, joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan. "A detailer might convince a doctor to prescribe a drug for a particular kind of patient. If the doctor encounters such a patient, he might prescribe the drug. The doctor's client, the patient, might take the prescription to a pharmacist and ask the pharmacist to fill the prescription. If so, the pharmacist might sell the manufacturer's drug to the patient, or might substitute a generic version. But it is the pharmacist, not the detailer, who will have sold the drug."