Are Pharma Sales Reps Service Employees? The Supreme Court May Decide

Delivery GuyThe Supreme Court agreed to decide whether drug companies have to pay their sales representatives for working overtime hours — “a question that could have considerable financial impact on the industry,” according to the Wall Street Journal (see “Supreme Court to Decide if Pharma Reps Are Exempt from Receiving Overtime Pay“). The question (see here) before the court in case “CHRISTOPHER V. SMITHKLINE BEECHAM CORP” is:

The outside sales exemption of the Fair Labor Standards Act exempts from the overtime requirements of the Act “any employee employed … in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary …).” 29 U.S.C. para. 213(a)(1).

The Secretary of Labor has implemented various regulations that “define and delimit” the outside sales exemption and, filing as amici in this and other related matters, has interpreted these regulations to find the exemption inapplicable to pharmaceutical sales representatives.

A split exists between the Second and Ninth Circuits concerning whether this interpretation is owed deference and whether the outside sales exemption of the Fair Labor Standards Act applies to pharmaceutical sales representatives.

The questions presented are: 

  1. Whether deference is owed to the Secretary’s interpretation of the Fair Labor Standards Act’s outside sales exemption and related regulations; and  

  3. Whether the Fair Labor Standards Act’s outside sales exemption applies to pharmaceutical sales representatives.

If the Supreme Court rules that pharma sales reps are NOT exempt as per Q#2, some sales reps worry that they will become “service” employees. “This will be a similar model to UPS / Fed Ex etc. Log in………….track activity……….gps…………clock out at 5:00 pm.” (see this CafePharma thread in the GSK discussion board).

This is interesting considering that the pharmaceutical industry is now moving away from the sales force being the primary channel of promotion focused on a narrow stakeholder audience to that of “a multi-faceted influence model where it has to really maximize its return on investment,” according to Mark Sales, Head of Global Brand and Stakeholder Management at Kantar Health (see “The Changing Pharma Commercial Model in 2010 and Beyond“; a PMN article sponsored by Kantar Health). The new sales model drivers are all about becoming more customer-centric and service model-focused.

So, would a NO ruling by the Supreme Court in this case would be a good thing for the pharmaceutical industry, aside from the billions in additional expenses?

Reps also worry that their companies would cut back on the number of sales reps and overtime hours to forestall the added expenses going forward. “The problem is that if overtime has to be paid out it will lead to more cuts,” said an anonymous CafePharma poster. “Lets face it, the impact of reps has been going down for quite a while.”

What do pharma sales reps do in “overtime” (after 5 PM) anyway? It may be “role-playing”: “Would the role playing to India at 9:00pm count as overtime?,” asks another anonymous CafePharma poster. “Get ready for bye bye role plays after 5pm,” said another.

Some reps do not think this is an issue at all: “Since most reps really only work a couple hours a day, this really looks like a non-issue.” To which this response was made:

“Actually it’s a huge issue! Other big pharma companies have had to pay and pay big! This could cost GSK hundreds of millions. As to your comment about a couple of hours, please stop with that nonsense. I avg about 9 hrs per day. It’s not back breaking work (that’s why I went to college) but it is work. Inventory at the storage facility, lifting boxes, conference calls, emails, coordinating lunches/dinners, knowing and understanding the complex molecules and how they interact invivo/invitro, analytics, ability to utilize Microfoft word/excel, intrapersonal skillls, the list goes on an on…oh but you say reps only work 2 hours. When are reps supposed to answer email, voicemail, build a business plan? On their office day? Ohhhh that’s right, there is no office day. So when does all this work get done? According to you we only work 2 hrs a day. C’mon dude! Look, I’m not saying the law suit is a good thing, but the pharma companies had their cake and got fat eating it.”

Issue: Vol. 10, No. 18
Publication date: 1 December 2011

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