Novartis is getting ready to shell out a lot of dough! In a recent lawsuit brought by sales representatives who claimed they were denied overtime pay, the plaintiffs won a judge’s preliminary approval of a $99 million settlement.
The class-action settlement, tentatively approved on Tuesday, January 24, 2012, by U.S. District Judge Paul Crotty in Manhattan, covers more than 7,000 current and former sales representatives, according to a statement by the company and lawyers for the workers.
“We believe this settlement is in the best interest of our employees and the company,” Andre Wyss, president of Novartis Pharmaceuticals Corp., said in the statement. “We have been litigating this case for nearly six years and the company has determined that it is time to resolve these wage and hours claims.”
Novartis, the No. 2 Swiss drug maker, is “confident that sales representatives should continue to be exempt from overtime,” Wyss said.
The settlement resolves unpaid overtime lawsuits brought by Novartis drug reps in 2006, as well as some filed more recently, Bloomberg said. According to a Reuters report, the sales reps worked for Novartis between 2002 and 2007, and from Jan. 25, 2009, to the present. Payouts will vary based on length of employment and compensation, and on how many plaintiffs choose to take part in the settlement. The agreement is subject to final court approval, with a fairness hearing scheduled for May 31.
In the original class action lawsuit, Novartis sales reps maintained they did not qualify as “outside sales” employees, and thus aren’t exempt from overtime pay under the Fair Labor Standards Act (FLSA). The lawsuit was just one of many overtime claims filed against drug makers in recent years. It has long been standard practice for drug makers to avoid paying overtime for pharmaceutical sales representatives by classifying them as commissioned outside sales people, or administrative personnel, both categories that are exempt from FLSA overtime requirements.
A New York district judge had originally agreed with Novartis’ contention that the sales representatives fell under overtime exceptions to the FLSA for outside salespeople and administrative workers. But in July 2010, the Second Circuit Court of Appeals overturned that ruling. Last year, the U.S. Supreme Court refused to hear Novartis’ appeal of the Second Circuit ruling, and the lawsuit was allowed to proceed.
This settlement comes just before the U.S. Supreme Court decides in April whether drugmakers must pay overtime to as many as 90,000 sales representatives. The high court will review a lower court’s conclusion that salespeople for a GlaxoSmithKline Plc (GSK) unit aren’t covered by a federal wage-and-hour law. Similar cases are pending against Johnson & Johnson (JNJ), Bristol-Myers Squibb Co. (BMY) and a unit of Merck & Co. Arguments haven’t been scheduled.
Morningstar analyst Damien Conover, who covers the pharmaceutical industry, said he thinks the Supreme Court will likely decide that sales representatives are exempt from overtime. If it doesn’t, any fees the industry has to pay to make up for past overtime will likely amount to just a small percentage of earnings.