Confronted with expiring patents, increased competition from generic drug makers and potential ramifications of ObamaCare, pharmaceutical companies have been hemorrhaging jobs for well over a year, highlighted by recent rounds of layoffs from Merck, Pfizer, Astra Zeneca and Novartis.
So when the Supreme Court ruled Monday that pharmaceutical companies are exempt from paying their salespeople overtime, it seemed as if drug sales representatives were dealt yet another crushing blow.
Ironically, the ruling may have actually saved the jobs of thousands of pharmaceutical sales reps.
In the case, two former salespeople had sued drug maker GlaxoSmithKline for overtime pay on behalf of a nationwide class of sales reps. Lower courts had issued conflicting rulings on the matter and the Labor Department had backed the views of the sales reps beginning in 2009. An attorney for the plaintiffs, Thomas C. Goldstein, declined to comment.
"We vehemently disagree with the decision," said Jeremy Heisler, founding partner of Sanford Wittels & Heisler, LLP, another of the law firms representing the plaintiffs in the Supreme Court appeals process. The suit had been backed by "enormous support" from drug reps in the industry and the idea the ruling may have saved jobs "is suspect at best," Heisler said.
“It would have accelerated the job-cutting trend
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Recruiters for the drug industry said, however, that had Supreme Court justices sided with the drug reps, another round of industry-wide layoffs may have followed. "It would have vastly accelerated the [job-cutting] trend," said Steven Raz, co-founder and managing partner of Cornerstone Search Group, a New Jersey-based pharmaceutical and biotechnology executive search firm. Although it will have a neutral effect on hiring, the ruling likely prevented cost-cutting measures that would have surely involved layoffs, Raz said.
GlaxoSmithKline would have had to fork over billions of dollars in retroactive overtime pay while other drug makers would have faced similar litigation in the coming months. Pharmaceutical companies would have had to re-evaluate their overhead costs and make tough decisions, said Mark Cannistraro, president of Apex Executive Recruiting Inc., a California-based recruiting firm that specializes in the pharmaceutical space.
New Compensation
Drug makers also may have opted to alter their compensation packages, said Cannistraro, including adopting a pay structure with fewer performance-based incentives and not allowing employees to work more than 40 hours. A different ruling would have adversely affected better-performing employees while benefiting complacent sales reps who are only interested in working an eight-hour day, said Cannistraro.
The Supreme Court's decision will maintain the status quo of sales in any industry, where the smartest and hardest-working reps are given avenues toward maximizing their bonuses and commissions, said Steve Paster, president of Paster & Associates, a Louisiana-based recruiting firm focused on medical and pharmaceutical sales positions.
Pfizer, Bristol Myers Squibb, Teva and Shire declined to comment. Abbot and Astra Zeneca didn't respond to requests for comment. Novartis didn't comment on whether a ruling for the drug reps would have resulted in layoffs and said it was "pleased" with the Supreme Court's decision. Glaxo also said it was "pleased" with the ruling and that it should bring an end to "costly and misguided classification lawsuits being brought against the industry."
What Drug Reps Get Paid
Base salaries for pharmaceutical sales representatives range from $45,000 to $50,000 for entry-level employees to between $100,000 and $110,000 for more experienced personnel, said Raz. Commissions and bonuses can add another $15,000 to $70,000 for top performers.
"The ruling won't stop fresh talent from entering the industry," said Cannistraro. "If anything, it will assure that top talent will continue to be rewarded."
The sales reps involved in the case were hoping to follow in the footsteps of former and current Novartis employees, who secured a $99 million settlement from the pharmaceutical company in January for retroactive overtime pay. The Novartis salespeople also were represented by Sanford Wittels & Heisler.
"The Supreme Court's ruling will not affect Novartis Pharmaceuticals Corporation's settlement agreement, which recently received final court approval," Novartis said in an emailed statement to FINS. "Our litigation had been ongoing for nearly six years, and we continue to believe that the settlement was in the best interest of our employees and the company."
Write to Beecher Tuttle at beecher.tuttle@dowjones.com
