Over the last several years virtually every drug company has been hit with a lawsuit about whether its drug representatives or “drug reps” are exempt from overtime.  In case you have missed them on TV or in the doctor’s offices, drug reps are the folks who visit your doctor hawking drugs from all of the drug companies to get physicians to prescribe them.  Coincidentally, that is where those samples your physician may have given you at one time come from.   These drug reps don’t actually sell directly to the doctors because the doctors are actually the folks who “sell” the product to their customers.  Rather, drug reps just try their best to get doctors to choose to prescribe the medications.

The argument in all of the lawsuits goes something like this:  Everyone is entitled to receive overtime if they work more than 40 hours a week, unless they are “exempt” from the overtime requirement under one of several permitted exemptions (see my previous posts on Overtime and Exemptions from Overtime).  “Outside sales” are one of the groups that may be exempt from overtime.  For many years drug reps have been considered by drug companies as outside sales people, and in virtually every respect they meet the requirements of the exemption that were originally laid out by the Department of Labor.

Recently, however, the Department of Labor decided to take the position that drug reps do not meet the requirements of the exemption because they don’t actually “sell” anything.  As noted above, they just push physicians to choose to use their products and “sell” the drugs.  The Department of Labor then encouraged drug reps to bring suit against drug companies by publishing this narrow view as an interpretation of its own original regulations that should be followed by businesses.

Some of the courts where suit was filed accepted the Department of Labor’s interpretation of its original requirements, giving deference to the agency that originally wrote the rules.  Other courts found that the new interpretation was a self-serving attempt to narrow the outside sales exemption to produce more overtime earning employees.  In an effort to deal with the differing opinions among the courts of appeal, the issue was put to the US Supreme Court to decide.  Last week the Supreme Court handed down its final pronouncement on the subject.  In a 5-4 decision, the Court found that drug reps are properly “outside sales” and exempt from overtime.

The Supreme Court felt that the Department of Labor was being overly technical about what constitutes a sale and found that the Department’s interpretation did not deserve deference even though it originally wrote the requirements for the exemption.

I think this is the right result.  The drug industry is a unique environment that requires special consideration.  Drug companies would be happy to sell their products directly to patients, but they can’t.  Physicians have to be the one to decide when a drug is needed and should do so based on patient need and not to line drug companies pockets.  In this system, drug reps are the closest thing to a salesman that the drug companies could have to get their product to market.  Without them, physicians might not know about or choose to prescribe a particular medicine.  The Department of Labor overstepped its bounds and even tried to cheat by redefining its own rules and the Supreme Court was looking.

Besides, drug reps are exceptionally well paid.  Many make over $100,000 per year without any special additional compensation for working overtime.  They don’t need the extra compensation.

So, what does this mean for your business?  If you are a drug company, you should be very happy.  If, more likely, you have a different business, you should know that the outside sales exemption is alive and well and if you have similarly situated sales representatives, they should be well protected.  Otherwise, it probably has limited application for you because the drug rep environment is so unique.