Judges Tell Glaxo Sales Reps: You're Just Glorified Coffee Baristas
Two federal appeals courts have reached diametrically opposite opinions on the issue of whether pharmaceutical sales reps are entitled to overtime pay when they work more than 40 hours a week, setting the stage for a potential intervention by the U.S. Supreme Court. The more recent ruling also concluded that drug reps at GlaxoSmithKline (GSK) might as well be schlepping coffee for a living. The Supremes tend to take cases in which there are major conflicts between different appeals courts. That is no guarantee of a high court hearing, however. In neither case are any great constitutional principles at stake — the Nine also like cases in which the principles that define our nation are at issue. If the Supreme Court left the two cases — the other one involves Novartis (NVS) — alone it would mean that a drug sales rep’s overtime pay would depend entirely on which area of the country they lived in, or which company they worked for.
In the most recent case, the Ninth Circuit Court of Appeals (covering Western states) said that drug sales reps at GSK are not entitled to overtime because they are legally defined as “salesmen.” Under federal labor law, salespersons and other managers get salaries instead of overtime the way hourly workers do.
The Ninth Circuit panel apparently lives in a different universe to the Second Circuit court (New York, Connecticut and Vermont), which held last year that reps at Novartis were not “salesmen” because they don’t actually sell drugs and their work lives are so heavily scripted they might as well be “robots.” Both rulings use sensible logic to reach their conclusions and neither seems unreasonable. The GSK ruling, however, contained some gossip about who earns what at GSK:
In 2004, [Michael S.] Christopher received $72,576 gross pay, of which $29,993 was incentive compensation (41% of gross); in 2005, he received $67,243, of which $21,231 was incentive (32% of gross); and in 2006, he received $77,552, of which $28,249 was incentive (37% of gross).
In 2004, [Frank] Buchanan received $70,740 gross pay, of which $19,232 was incentive compensation (27% of gross); in 2005, he received $74,358, of which $27,743 was incentive (32% of gross); in 2006, he received $84,932, of which $32,519 was incentive (38% of gross); and in 2007, he received $75,776, of which $19,957 was incentive (26% of gross).
For reps, the scary thing about the GSK case is that the judges seemed to indicate that sales reps ought to be consigned to the dustbin of history. The judges noted that fewer and fewer sales reps in any profession actually collect payments on the sales they make. More often, once a customer agrees to buy something the sale is transacted over the phone or on the web. Just because drug reps aren’t literally selling drugs (the sale occurs at the pharmacy) doesn’t mean they’re not salespersons, the court said. The judges based their ruling on the Jewel Tea case of 1941, which involved door-to-door salesmen selling tea and coffee on commission. The ruling says GSK reps are virtually identical to the Jewel Tea sellers who drove delivery trucks around neighborhoods in the late 1930s, and thus exempt from the overtime requirement:
Telephones, television, shopping malls, the Internet and general societal progress have largely relegated the professional pitchman embodied in Jewel Tea to the history books. But selling continues, and, as in prior eras, a salesperson learns the nuances of a product and those of his or her potential clientele, tailors a scripted message based on intuition about the customer, asks for the customer to consider her need for the product, and then receives a commission when the customer’s positive impression ultimately results in a purchase.
For the past seventy-plus years, selling in the pharmaceutical industry has followed this process.
Ouch! The ruling will hit with a particular sting at GSK because its new bonus scheme for reps includes the unintended incentive for reps to turn themselves into Starbucks delivery girls and boys.
Here’s the updated OT legal scorecard:
- Companies that have lost rulings favoring OT for reps:
- Companies that have won rulings denying OT for reps:
Johnson & Johnson (Ortho McNeil)
- Settlements favoring OT for reps:
Kaiser Foundation Health Plan
- Pending cases:
Pfizer (King), Takeda, Amgen, Serono, Bristol-Myers Squibb
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