Paging Scotus: Ninth Circuit Rules Pharma Reps Are Exempt from Overtime Laws, Creating Direct Split with Second Circuit

On Behalf of | Feb 15, 2011 | News

Are pharmaceutical sales representatives exempt from federal overtime laws? That’s a question whose answer very much depends on which U.S. circuit court you ask.

In a 32-page decision Monday, the U.S. Court of Appeals for the Ninth Circuit ruled that an overtime class action by GlaxoSmithKline sales reps may not proceed under the Fair Labor Standards Act. The opinion upholds Phoenix federal district court judge Frederick Martone’s grant of summary judgment to Glaxo–and it directly contradicts a July 2010 ruling on the same issue by the Second Circuit, which found an overtime class action by Novartis sales reps could go forward.

The three-judge Ninth Circuit panel–Judges Mary Schroeder, Richard Tallman, and Milan Smith Jr.–found that drug company sales reps qualify as “outside salesmen,” and are thus exempt from the FSLA’s overtime requirements. The plaintiffs’ claims to the contrary, the panel concluded, ignore how sales reps target doctors. “In this industry, the ‘sale’ is the exchange of non-binding commitments between the [pharmaceutical sales representative] and physician at the end of a successful call,” Judge Smith wrote for the panel. “Through such commitments, the manufacturer will provide an effective product and the doctor will appropriately prescribe; for all practical purposes, this is a sale.”

Judge Smith also had harsh words for the Labor Department, which submitted an amicus brief contending that drug sales reps are not exempt from overtime requirements. Siding with Glaxo, the judge said that the Department’s amicus brief contradicted 70 years of Labor Department practice. “The about-face regulation, expressed only in ad hoc amicus filings, is not enough to overcome decades of [Labor Department] nonfeasance and the consistent message to employers that a salesman is someone who ‘in some sense’ sells,” Judge Smith wrote.

The Ninth Circuit ruling adds to the appellate confusion over the status of the country’s 90,000 pharmaceutical sales representatives, increasing the likelihood that the U.S. Supreme Court will examine the issue. Last October, Novartis filed a certiorari petition with the Supreme Court, highlighting what it contends is a split between the Second and Third Circuits over sales reps’ qualification for an administrative exemption from FLSA-mandated overtime. The Ninth Circuit opinion tees up the issue of the “outside salesman” exemption because its reasoning rejects the Second Circuit’s deference to the Labor Department, which also submitted an amicus brief in the Novartis case.

“I think that the Second Circuit panel seemed reluctant to look behind the Department of Labor’s articulated view in its amicus brief and basically accepted its position,” said Neal Mollen of Paul Hastings Janofsky & Walker, who represents Glaxo in the Ninth Circuit case. (Mollen also represent the U.S. Chamber of Commerce, for which he helped draft an amicus brief in support of Novartis’ cert petition.) Any Supreme Court review of FLSA overtime exemptions would have a huge impact on the recent proliferation of overtime class actions, Mollen said.

Mollen’s assessment of the likelihood of the Supreme Court granting cert in the Novartis case was disputed by plaintiffs lawyer Jeremy Heisler of Sanford Wittels & Heisler, which won the case at the Second Circuit. “We don’t necessarily think the Supreme Court will take it,” Heisler said, adding that Novartis’s cert petition erroneously characterizes different facts in the Second and Third Circuit cases as a split in the appellate courts’ interpretation of the overtime laws.

And as for the Ninth Circuit’s Glaxo ruling, Heisler said, it’s “premature” to declare a circuit split, since the plaintiffs may still seek an en banc hearing. Whether the Ninth Circuit panel’s opinion will factor into the Supreme Court’s consideration of the Novartis cert petition, he told us, is hard to predict. “The only certainty is that it doesn’t decrease the chances for cert,” Heisler said.

We reached out to the plaintiffs’ lawyer in the Glaxo case, Michael Pruitt of JacksonWhite, but did not hear back. Novartis counsel Evan Chesler of Cravath, Swaine & Moore declined to comment on the Ninth Circuit decision.