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The U.S. Supreme Court appeared conflicted Monday over whether drug companies have to pay their sales representatives for working overtime hours, a high-stakes question for the industry.
The Fair Labor Standards Act, in general, requires companies to pay workers overtime, but it includes many exemptions for white-collar workers, including those employed as outside salespeople.
The high court, during an hour-long oral argument Monday, grappled with whether drug companies can place their sales representatives in the exempt category.
Lawyer Thomas Goldstein, representing former salespeople for GlaxoSmithKline PLC (GSK, GSK.LN) who are seeking overtime pay, said drug representatives can't be placed under the outside-sales exemption because they don't actually sell medicines. Doctors, he said, don't make any binding commitments to the drug representatives who visit them.
Chief Justice John Roberts echoed the point, saying physicians merely tell the drug representatives that they'll think of their products when the relevant medical situation arises.
The Obama administration is supporting the employees' arguments in favor of overtime pay.
Paul Clement, the lawyer representing Glaxo, said drug representatives are hired as salespeople and are given sales training. Their main purpose, he said, is to convince doctors to prescribe the drugs they are promoting. To require overtime pay for those workers could impose billions of dollars of potential liability on the industry, he said.
Justice Antonin Scalia was perhaps the court's strongest voice against overtime pay. He said pharmaceutical sales may function differently than sales in other industries, but "these people look like salesmen to me."
Justice Ruth Bader Ginsburg noted that the sales rep don't punch a time clock and can spend part of their time promoting drugs over golf or dinner. "Would the time on the golf course get time-and-a-half?" she asked.
Other justices suggested the Department of Labor's support for overtime pay, announced in a series of court briefs, upset a long-held understanding that drug representatives were not entitled to overtime wages. Justice Stephen Breyer said the department should have engaged in administrative rulemaking, with notice and comment from the public, before embarking on such a course.
Lower courts are divided on the overtime issue. In the current case, the San Francisco-based Ninth U.S. Circuit Court of Appeals ruled the Glaxo representatives weren't entitled to the extra pay.
But in a 2010 case, the New York-based Second Circuit revived employee overtime claims against U.S. units of Merck & Co. (MRK) and Novartis AG (NVS, NOVN.VX). That court noted that drug sales reps can't take orders or obtain binding commitments from doctors.
The case is Christopher v. SmithKline Beecham, 11-204. A decision is expected by the end of June.
-By Brent Kendall, Dow Jones Newswires; 202-862-9222; email@example.com