The employees of drug manufacturers who try to convince doctors to prescribe their products are salesmen, even though they don't actually sell anything, the 9th Circuit Court of Appeals has ruled.
In a decision with industry-wide implications, the federal judges rejected arguments by two former Arizona employees of SmithKline Beecham Co. that they cannot be classified as "outside salesmen." That distinction is critical because such workers are not entitled to overtime.
Judge Milan Smith Jr., writing for the unanimous court, acknowledged that the U.S. Department of Labor filed a friend of the court brief supporting the position of the two former workers - and, by extension, of everyone else still working for the company known as GlaxoSmithKline, and, potentially for the entire industry.
But Smith said the court owes no deference to the agency's position.
"And, in any event, we respectfully disagree with that interpretation," he said.
Central to the question is what constitutes sales.
Federal law precludes drug companies from selling their products directly to the public. Instead, individuals can get these items only through a prescription from a physician.
The sales staff, officially called "pharmaceutical sales representatives," call on physicians to educate them about the company products and urge them to prescribe them over the items sold by competitors.
According to the former salesmen, they visited up to 10 doctors a day. More to the point, they said they worked from 10 to 20 hours a week outside normal business hours studying Glaxo products, preparing new sales materials, checking e-mails, answering phone calls and attending events.
Federal law precludes these PSRs from selling the samples they have, taking orders from physicians or negotiating drug prices with either doctors or patients.
Pay includes a base salary and an incentive, the latter based on things like whether Glaxo's market share for a particular product increases in the PSR's territory, sales revenues increase or the dose volume increases. The company said it aims to have salary at 75 percent of compensation with 25 percent for incentives, though there is no cap to that incentive.
Federal labor regulations define an "outside salesman" as someone who makes sales or obtains orders, and who is primarily away from the company's offices. Based on their duties - and federal restrictions - the salesmen said they do not fit that definition.
"Plaintiffs' contention that they do not ‘sell' to doctors ignores the structure and realities of the heavily regulated pharmaceutical industry," the judge wrote. With patients unable to purchase drugs, Smith said the "sale" in this case is a non-binding commitment by a doctor, at the end of a sales call, to prescribe more of the drug.
"Through such commitments, the manufacturer will provide an effective product and the doctor will appropriately prescribe," Smith said. "For all practical purposes, this is a sale."
Smith also said that the primary duty of the PSRs is not to educate doctors or even to promote Glaxo products in general. He said these are "but preliminary steps" to getting a doctor to prescribe more of a specific drug being pushed by the salesman.
And Smith noted that without this commitment - and without the sales that follow - the PSR would not receive a commission.
The bottom line, wrote Smith, is that the business has changed.
"Telephones, television, shopping malls, the Internet and general societal progress have largely relegated the professional pitchman ... to the history books," the judge wrote.
"But selling continues," Smith continued. "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 sale."