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GSK wins overtime pay dispute in US Supreme Court

Victory over sales reps could save industry billions

The US Supreme Court has come down on the side of GlaxoSmithKline - by a 5-4 vote - in its long-running dispute about overtime pay for sales representatives.

The case centred on a bid to overturn a lower appeals court ruling that sales reps are not entitled to overtime payments because they are classified as "outside representatives."

That classification renders them exempt from federal overtime laws, which provide a mandatory time-and-a-half payment for time worked over 40 hours per week.

Sales reps Michael Christopher and Frank Buchanan, the plaintiffs who brought the case against GSK, had asked to be compensated for an average of 10-20 hours per week worked on top of their normal hours over a number of years.

GSK's victory in the case could save the pharmaceutical industry as a whole billions of dollars in liability for backdated overtime payments, and effectively resolves a decade-long dispute that has affected companies across the pharma and other industries.

In January for example, Novartis paid nearly $100m to settle a similar overtime lawsuit brought by sales reps. Meanwhile, many other big pharma companies - including Johnson & Jonson, Bristol-Myers Squibb, Novo Nordisk and Merck & Co - have been facing litigation on this issue.

The arguments focus on the interpretation of the US Fair Labor Standards Act (FLSA) which exempts companies from minimum wage and overtime requirements for outside sales representatives and certain other functions such as executive, administrative and professional employees.

On one hand, pharma sales reps fit the definition of an outside representative closely, because they work mostly out of the office, receive sales training and are compensated based on the performance of products in the market.

On the other hand, they cannot in law make a definitive sale in the form of a binding commitment by the doctor to prescribe a drug to a patient.

That means they are effectively only promoting the medicines, not selling them, according to the plaintiffs' lawyers.

The Pharmaceutical Research and Manufacturers of America (PhRMA) welcomed the decision, saying in a statement that it was "consistent with the arguments advanced in our amicus brief and with the longstanding sales practices of our member companies."

21st June 2012

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