Novartis, Sales Reps Settle for $99 Million Nationwide Suit Based on Overtime Dispute

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By Kevin P. McGowan  

A federal district court in New York has granted preliminary approval to a $99 million proposed settlement of a nationwide wage and hour class action against Novartis Pharmaceuticals Corp., potentially benefiting more than 7,000 current and former sales employees, representatives for both sides announced Jan. 25 (In re Novartis Wage & Hour Litig., S.D.N.Y., No. 06-MD-1794, preliminary approval of settlement 1/25/12).

The proposed settlement, which stems from a pair of 2006 lawsuits filed under the Fair Labor Standards Act and California and New York laws, is pending before Judge Paul A. Crotty in the U.S. District Court for the Southern District of New York. Crotty granted preliminary approval Jan. 25 and has scheduled a May 31 fairness hearing.

The proposed agreement covers five subclasses of Novartis sales representatives who allege they were denied overtime pay in violation of the FLSA and state laws.

Crotty in April 2007 had certified three subclasses, including a California subclass of sales representatives working in that state from March 23, 2002, to April 7, 2007, a New York subclass of sales representatives working from March 23, 2002, to April 7, 2007, and an FLSA subclass of those working at least one day between March 23, 2003, and April 7, 2007, who had filed consents to join the FLSA collective action.

The proposed settlement would add an FLSA settlement subclass of those working as Novartis sales representatives for at least one day between Jan. 25, 2009, and Jan. 25, 2012, in certain designated states and a catch-all subclass of Novartis sales representatives who worked in designated states for varying periods beginning in 2005 and are not part of previously certified subclasses.

Parties Decline to Await Supreme Court Ruling.

The U.S. Supreme Court currently is considering Christopher v. SmithKlineBeecham Corp. (U.S., No. 11-204), a separate case raising the issue of whether the FLSA's outside sales exemption exempts pharmaceutical sales representatives from overtime pay under federal law (29 HRR 1295, 12/5/11).

In February 2011, the justices had declined to review a U.S. Court of Appeals for the Second Circuit July 2010 ruling that the FLSA exemption did not apply to the Novartis sales representatives and reversing the district court's 2009 ruling for Novartis (29 HRR 234, 3/7/11; 28 HRR 746, 7/12/10; 27 HRR 76, 1/26/09).

But Novartis and the plaintiffs' attorneys Jan. 25 said they decided not to await a Supreme Court decision in SmithKlineBeecham and to settle their case now. Novartis said the proposed settlement “is in the best interest of our employees and the company.”

“We have been litigating this case for nearly six years and the company has determined that it is time to resolve these wage and hour claims,” said Andre Wyss, president of Novartis, in the parties' joint statement.

“We consistently compensate all employees in accordance with the FLSA and applicable state laws,” Wyss said. “We remain confident that sales representatives should continue to be classified as exempt from overtime because their autonomy and incentive compensation are typical of exempt employees as defined by U.S. law.”

David Sanford, the lead class counsel for the plaintiffs, said the plaintiffs settled despite confidence that the Supreme Court ultimately would find that the FLSA covers pharmaceutical sales representatives.

“While we remain confident that the Supreme Court later this year will uphold the Department of Labor's interpretation of wage and hour law, the risks of further litigation are great,” said Sanford, a partner with Sanford Wittels and Heisler in Washington, D.C.

“We are proud that over [7,000] current and former Novartis sales representatives will be able to participate in this settlement. It is a fair and equitable result and can serve as an exemplar for companies around the United States that face wage and hour litigation,”Sanford said.

Novartis and Sanford Wittels and Heisler, which also has offices in New York and San Francisco, in 2010 reached a $175 million settlement of a sex discrimination class action on behalf of female sales representatives after a jury in the U.S. District Court for the Southern District of New York had returned a $253 million verdict against Novartis (28 HRR 539, 5/24/10).

By Kevin P. McGowan

Text of the proposed settlement may be accessed at http://op.bna.com/dlrcases.nsf/r?Open=kmgn-8qus8k and text of the brief in support of the motion for preliminary approval may be accessed at http://op.bna.com/dlrcases.nsf/r?Open=kmgn-8qutl4.