Corporate Court Sides with Big Pharma in Overtime Pay Case

The Supreme Court gives another example
of how real life isn't like the movies.

In the 2010 romantic comedy Love and Other Drugs, Jamie Randall was a pharmaceutical representative who ensured that the products of his employer, Pfizer, were prescribed more often than its competitors’. He worked hard and, thanks to Pfizer’s revolutionary new treatment for erectile dysfunction, succeeded in replacing many pharmaceutical products with their Pfizer equivalents.

Those who have seen the movie will remember Jamie’s great success upon Viagra’s entry into the market. They might also remember that Jamie was eventually offered a huge promotion.

But for real-life drug rep Michael Shane Christopher, employed by SmithKline Beecham, life has not been so charmed.

Michael, like Jamie, does not actually sell pharmaceutical products directly to patients or to pharmacies. Just like Jamie, his job is to meet with doctors to persuade them to prescribe SmithKline products. Michael, like Jamie, worked long hours to make SmithKline products more competitive in the pharmaceutical market. But unlike Jamie, Michael will never earn the pay he deserves.

Many could consider Michael’s job as a drug rep to be less than admirable. After all, if Love and Other Drugs had an underlying purpose, it was probably to shed light on the pharmaceutical industry’s shady operations.

But federal law does not afford fair pay only to those whose jobs are popular or likable. The Fair Labor Standards Act (FLSA) does not make any employee more deserving than the next, but rather entitles all workers to certain rights and guarantees. That is unless a major drug company decides to argue semantics with the Supreme Court. When that happens, all bets are off.

Enter Christopher v. SmithKline, a Supreme Court decision announced on Monday, June 18, in which SmithKline successfully defined Michael as an “outside salesman” not entitled to overtime pay. Under FLSA, outside salespersons are one of several narrowly-drawn classes of employees exempted from the overtime pay requirement. Congress tasked the Department of Labor with defining those classes, which they did by reaching the outrageous conclusion that salespersons must, in fact, make sales. The Department of Labor argued exhaustively that since a drug rep like Michael does not make sales, he must not be an “outside salesman.” Case closed, right?

Wrong. The Corporate Court disagreed with the Department of Labor and ruled that Michael should be denied overtime pay.

In a narrowly divided 5-4 decision written by Justice Alito, the Court found that the Department of Labor’s definition of an “outside salesman” was invalid because – essentially – it was too obvious. The conservative majority held that, because the agency simply “parroted” the FLSA language, it had no reason to rely on its interpretations.

After hearing oral arguments in this case, it seemed unlikely that the Court would side with SmithKline. Chief Justice John Roberts insisted that, at the end of the day, drug reps “don’t make sales.” Justice Sonia Sotomayor worried that defining drug reps as outside salesmen might serve to exclude all those involved in promotional work from overtime pay.

SmithKline’s counsel Paul Clement, who also argued the challenge to the Affordable Care Act, responded that drug reps “make sales in some sense” and that the Department of Labor’s definitions were “inconsistent with the statute.”

Note to the editors of the Oxford English Dictionary: being a “salesperson” no longer requires making any actual “sales.”

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A Look Ahead: The Last Decisions of the Supreme Court's Term

Last week the Supreme Court heard the final oral argument of the term in Arizona v. United States. With little more than two months left until the term officially ends, let’s take a brief look at the cases on the Corporate Court docket in which decisions remain outstanding.

In Christopher v. SmithKline Beecham Corp., the Court will decide whether courts should defer to the Secretary of Labor’s interpretation of “outside salesman” under the Fair Labor Standards Act (“FLSA”), and whether the FLSA’s “outside sales” exemption applies to pharmaceutical sales representatives. During the oral argument on April 16, the justices seemed somewhat more inclined to side with the drug companies by holding that the sales reps fall within the “outside sales” exemption, which would mean they are not entitled to overtime pay. If the Supreme Court ultimately decides in the companies’ favor, it will not only constitute an earthquake in administrative law, it will also deny overtime to roughly 90,000 drug company employees.

In Knox v. SEIU, which was argued on January 10, the Court is considering whether unions must send a notice to workers every time they impose temporary fee increases to cover the costs of additional advocacy activities, rather than report those increases in annual notices as they already do. The Court could decide that the case is moot, as several months ago the SEIU sent all members of the class a $1 bill and a promise to pay one hundred percent of the charged fee increase. If the Court decides the case on the merits, however, and rules against the SEIU, it will erode the power of unions to fight back against new political attacks by making it harder to raise additional funds to respond.

The Court has not yet released its opinions in either of this term’s two cases arising under the Real Estate Settlement Procedures Act of 1974 (“RESPA”). Enacted to protect consumers from overpriced insurance due to abusive practices like kickbacks, RESPA outlaws payment for business referrals.

In First American Financial Corp. v. Edwards, which was argued on November 28,  the Court is considering whether RESPA allows individual plaintiffs to recover charges for title insurance when the selling corporation has violated a provision of the Act, regardless of whether the plaintiff was overcharged. If the Court sides with First American Financial, it will weaken RESPA regulations and put consumers seeking title insurance at an economic and informational disadvantage.

In Freeman v. Quicken Loans, which was argued on February 21, the Court is considering whether RESPA prohibits unearned fees, regardless of whether a third party was involved in the improper fee arrangement. In this case, petitioners were charged loan-discount fees on their mortgages but did not receive the corresponding reduced interest rates. If the Court sides with Quicken, it will allow mortgage lenders to take hundreds or thousands of dollars from homebuyers without giving them anything in return.

And last, but certainly not least, the Court is likely to release its decisions in the remaining blockbuster cases of the term – the healthcare cases, argued on March 26-28, and Arizona v. United States, argued on April 25 -- around the end of June. More details on what is at stake in these two cases can be found at earlier guest blog posts by Professor Tim Jost (on healthcare) and Professor Angela Banks (on Arizona v. United States).

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Supreme Court Hears Overtime Pay Case

On Monday, April 16, the Supreme Court will hear argument in the case of Christopher v. SmithKline Beecham Corp. At stake in this case is the ability of employees to get time-and-a-half pay for overtime work, as guaranteed under federal law.

This case arose from a dispute between Michael Shane Christopher and his employer, SmithKline Beecham, a drug company. As a “pharmaceutical representative,” Christopher’s work consisted mainly of visiting doctors’ offices and encouraging doctors to prescribe appropriate SmithKline drugs to patients. He sometimes worked more than 40 hours per week, but did not receive time-and-a-half pay for his overtime work. He and another plaintiff sued on behalf of themselves and a class of all other similar employees working for SmithKline for time-and-a-half pay, which is generally guaranteed to workers under the federal Fair Labor Standards Act (FLSA).

SmithKline claims that Christopher is not entitled to overtime pay because he is an “outside salesman,” and thus falls into one of several narrowly-drawn classes of employees exempted from the FLSA’s overtime pay requirement. Christopher argues that he should not be categorized as an outside salesman because he does not actually sell anything.

Through the FLSA, Congress delegated to the secretary of labor the authority to define terms such as “outside salesman.” The secretary of labor has issued regulations providing that an “outside salesman” must in some sense make sales. According to the secretary, who filed an amicus brief in this and a related case, these regulations do not exempt drug companies from paying pharmaceutical representatives like Christopher overtime.

It is a well-established principle of federal law that courts generally defer to agencies’ interpretations of statutes and of their own regulations. However, in this case, the Ninth Circuit Court of Appeals agreed with SmithKline that the secretary’s interpretation deserved no deference because the secretary merely “parroted” federal law in writing the regulations. As a result, the Ninth Circuit substituted its judgment for the judgment of the agency, and decided that Christopher was in fact an outside salesman who did not merit overtime pay.

Although this case raises the technical question of the degree of deference a reviewing court should give to agency interpretations of its own regulations, it is important to remember the core dispute at issue in this case. Christopher worked longer hours than a full-time employee is expected to work. Federal law demands that such workers receive overtime pay, unless they fall into specific, narrowly drawn categories. Congress delegated the authority to define the boundaries of these categories to the secretary of labor, who has determined that employees in Christopher’s position should receive overtime pay.

If the Supreme Court sides with the drug companies, it will not only constitute an earthquake in administrative law, it would also deny overtime to roughly 90,000 drug company employees in Christopher’s situation.

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Corporate Court Grants Cert in Overtime Pay Case

On November 28, the Corporate Court granted cert in the case of Christopher v. SmithKline Beecham Corp. At stake in this case is the ability of employees to get time-and-a-half pay for overtime work, as guaranteed under federal law.

This case arose from a dispute between Michael Shane Christopher and his employer, SmithKline Beecham, a drug company. As a “pharmaceutical representative,” Christopher’s work consisted mainly of visiting doctors’ offices and encouraging doctors to prescribe appropriate SmithKline drugs to patients. He sometimes worked more than 40 hours per week, but did not receive time-and-a-half pay for his overtime work. He and another plaintiff sued on behalf of themselves and a class of all other similar employees working for SmithKline for time-and-a-half pay, which is generally guaranteed to workers under the federal Fair Labor Standards Act (FLSA).

SmithKline claims that Christopher is not entitled to overtime pay because he is an “outside salesman,” and thus falls into one of several narrowly-drawn classes of employees exempted from the FLSA’s overtime pay requirement. Christopher argues that he should not be categorized as an outside salesman because he does not actually sell anything.

Through the FLSA, Congress delegated to the Secretary of Labor the authority to define terms such as “outside salesman.” The Secretary of Labor has issued regulations providing that an “outside salesman” must in some sense make sales. According to the secretary, who filed an amicus brief in this and a related case, these regulations do not exempt drug companies from paying pharmaceutical representatives like Christopher overtime.

It is a well-established principle of federal law that courts generally defer to agencies’ interpretations of statutes and of their own regulations. However, in this case, the Ninth Circuit Court of Appeals agreed with SmithKline that the secretary’s interpretation deserved no deference because the secretary merely “parroted” federal law in writing the regulations. As a result, the Ninth Circuit substituted its judgment for the judgment of the agency, and decided that Christopher was in fact an outside salesman who did not merit overtime pay.

Although this case raises the technical question of the degree of deference a reviewing court should give to agency interpretations of its own regulations, it is important to remember the core dispute at issue in this case. Christopher worked longer hours than a full-time employee is expected to work.  Federal law demands that such workers receive overtime pay, unless they fall into specific, narrowly drawn categories.  Congress delegated the authority to define the boundaries of these categories to the Secretary of Labor, who has determined that employees in Christopher’s position should receive overtime pay.

If the Supreme Court sides with the drug companies, it will not only constitute an earthquake in administrative law, it would also deny overtime to roughly 90,000 drug company employees in Christopher’s situation.

Read more »