For the second time in the past year, the US Department of Labor has filed an amicus brief with a federal appeals court, contending that a lower court was wrong to rule against sales reps fighting for overtime pay. This time, the agency is supporting two GlaxoSmithKline reps who were told by a federal court in Arizona ruled they are exempt from overtime provisions of the Fair Labor Standards Act. Last fall, the Labor Department filed its first such brief in a case involving a Novartis sales rep (back story). In both briefs, Labor Department attorneys say the lower courts committed "legal error."
A quick primer: The FLSA’s overtime compensation requirement doesn’t apply to employees who work as outside salespeople, but the law does require employers to pay overtime for hours worked beyond 40 hours a week, unless a FLSA exemption applies. What are those exemptions? If an employee’s primary duty is to obtain orders or contracts (as defined by the statute) and regularly does so away from the employer’s place of business.
Drugmakers argue their sales reps are, indeed, outside salespeople who close sales because the primary customer is the physician. In their lawsuit, Glaxo reps Michael Christopher and Frank Buchanan argued, however, that a direct sale doesn’t occur because medicines are actually purchased by patients and hospitals, which receive the drugs from wholesalers.
"The new Deparment of Labor brief is a game changer," says Charles Joseph of Joseph & Herzfeld, whose firm has brought several lawsuits against drugmakers over this issue, which has divided courts around the country. The brief is significant, he explains, because several other lawsuits filed have been stayed pending the outcome of this particular case, which is being heard by the US Court of Appeals for the Ninth Circuit, where the Labor Department filed its brief. Other cases are already on appeal to this court, he adds.
In a lower court ruling in the Glaxo case, US District Court Judge Frederick Martone sided with drugmaker. Here’s what he wrote in his ruling last fall: “The pharmaceutical industry is unique in that federal regulations prohibit a direct sale to an end-user, thereby shifting the focus of sales efforts from the consumer to the physician - the catalyst behind any pharmaceutical sale. A (sales rep’s) ultimate goal is to close an encounter with a physician by obtaining a non-binding commitment from the physician to prescribe the PSR’s assigned product...In all regards, a PSR engages in what is the functional equivalent of an outside salesperson and to hold otherwise is to ignore reality in favor of form over substance.”
In its brief, the Labor Department countered by writing: "Under the Department of Labor’s regulations, the reps do not meet the requirements for the outside sales exemption. The reps do not sell or take orders for...GlaxoSmithKline's drug. Rather, they provide information to target physicians about GSK’s drugs with the goal of persuading the physicians to prescribe those drugs to their patients. The actual sale of drugs takes place between GSK and pharmacies.
"Although the reps’ duties bear some of the indicia of sales - they use methods of persuasion similar to those of salespersons, they receive some of their compensation in the form of incentive compensation, and their promotion work affects GSK’s actual drug sales - the fact that the reps do not actually 'make sales' conclusively demonstrates that the position is not that of an outside salesperson consistent with the Department’s legislative rules."