Top court’s decision on overtime pay expected to have large impact in pharma

While the U.S. Supreme Court’s decision that pharmaceutical sales representatives are not entitled to overtime pay is a win for New Jersey’s drugmakers, an employment expert said the ruling could have broader impacts on how pharma companies make sales, and which employees are subject to federal overtime laws.

While the U.S. Supreme Court’s decision that pharmaceutical sales representatives are not entitled to overtime pay is a win for New Jersey’s drugmakers, an employment expert said the ruling could have broader impacts on how pharma companies make sales, and which employees are subject to federal overtime laws.

“We tend to think of salespeople as professionals, but then they’re not subject to overtime pay in what they do,” said David Finegold, a senior vice president at Rutgers University and former dean of the school of management and labor relations. “As we’re heading more towards a service-based economy, the big question is, what workers should be subject to these laws? I don’t get overtime from Rutgers when I’m sending e-mails in the middle of the night … but with more teachers being hired and paid just to teach particular courses in higher education, should you get overtime pay for that extra work?”

The case involving GlaxoSmithKline brought an end to nearly a dozen similar lawsuits against major pharmaceutical companies, including New Jersey-based Merck & Co. and Johnson & Johnson, which could have been liable for overtime compensation together worth billions of dollars. Finegold said the high court’s decision has “a larger influence for (New Jersey) because we have more pharma companies here than any other state.”

According to John Sarno, president and general counsel for the Employers Association of New Jersey, the court’s ruling “will be good law for a while, but the real problem is the U.S. Department of Labor changed its defense in the middle of litigation.”

“Because the department developed its argument in the middle, the court felt it did not have to defer … to what the agency’s interpretation is for its own rules,” Sarno said. “If that would have happened, the decision would have gone the other way. Now it’s subject to change if the agency issues a rule change.”

Still, Sarno noted an amendment in the near future is not very probable, because Labor is “right now positioning itself to be a little more employer friendly.”

Finegold said drugmakers employ “tens of thousands of individuals in these doctor-influencer sales roles,” so if they were forced to compensate the sales representatives in back pay and future overtime, it would have had “big impacts in New Jersey and affected the cost structure.”

But Finegold said, regardless of the court’s decision, the industry is “clearly undergoing restructuring and change in sales.”

“These companies want to influence doctors’ prescriber behavior, but it falls more on the health care providers now, so they’re scaling back investment in sales,” Finegold said. “The buying is not being made by doctors, and with health care reform, it could be made by federal and state governments. So, instead, we’re seeing more investment in people with heavy quantitative skills to handle pharmaceutical economic stuff.”

Finegold said drugmakers were not filling sales positions as they awaited the court’s decision, but noted “we’re not going to see a surge in hiring,” since the companies are restructuring their sales forces.