WASHINGTON (Reuters) — The Supreme Court has ruled pharmaceutical companies do not have to pay overtime to their representatives who visit doctors' offices to promote their products, a dispute that had threatened the industry with billions of dollars in potential liability.
By a 5-4 vote, the high court handed a defeat to two former sales representatives for a unit of Britain's GlaxoSmithKline. They had appealed a ruling by a U.S. appeals court in California that they were "outside sales" personnel exempt from federal overtime pay requirements.
That decision conflicted with an earlier ruling by the 2nd U.S. Circuit Court of Appeals in New York that pharmaceutical sales representatives qualified for overtime under the federal Fair Labor Standards Act.
The Pharmaceutical Research and Manufacturers of America trade group has told the Supreme Court that classifying sales representatives as eligible for overtime could expose the industry to billions of dollars in potential costs.
The Federal Labor Standards Act generally requires companies to pay workers overtime, but includes numerous exemptions for some white-collar workers, including those classified as "outside salesmen."
In 2009, the U.S. Labor Department sided with the former Glaxo employees and said the exemption applied only if the representatives had been involved in a consummated sales transaction, but not when they just promoted drugs in visits to doctors.
The two former Glaxo employees, Michael Christopher and Frank Buchanan, said in their class-action lawsuit that they did not receive overtime for 10 to 20 hours worked each week, on average, outside the normal business day.
Glaxo replied that pharmaceutical sales representatives typically got a base salary and performance-based commissions, and the overtime requirements did not apply.
The Supreme Court, in a majority opinion written by Justice Samuel Alito, upheld the decision by the California-based appeals court. He agreed that the employees qualified as "outside sales" personnel.
Alito also said the Labor Department's interpretation was "quite unpersuasive" and not entitled to deference.
Liberal Justices Stephen Breyer, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan dissented. The Supreme Court case is Christopher v. Smithkline Beecham Corp, No. 11-204.