American Lawyer, January 25, 2012 – As Supreme Court Mulls Overtime for Pharma Sales Reps, Novartis Settles Class Action for $99 Million

On Behalf of | Jan 25, 2012 | News

Posted January 25th, 2012.

As appeared in American Lawyer

By David Bario

Later this year, if the U.S. Supreme Court rules in a case involving GlaxoSmithKline that pharmaceutical sales representatives are exempt from overtime requirements of the Fair Labor Standards Act, the high court could knock out class action wage-and-hour claims pending against a half-dozen major drug companies in one fell swoop. But if the Justices side with the class action plaintiffs, the drug companies could see their potential liabilities skyrocket overnight.

The latter possibility was apparently a little too frightening for Novartis Pharmaceuticals Corp., which agreed Wednesday to pay $99 million to settle a consolidated wage-and-hour class action brought by current and former sales representatives at the drug company. The sales reps, represented by Sanford Wittels & Heisler, claimed that Novartis violated state and federal labor laws by refusing to pay them overtime. The deal sets aside up to 30 percent of the settlement fund for the plaintiffs lawyers.

Manhattan federal district court judge Paul Crotty preliminarily approved the settlement on Wednesday. Judge Crotty has been presiding over the case ever since a nationwide opt-in class action and two statewide class actions were consolidated before him in 2006. Cravath, Swaine & Moore has been lead counsel for Novartis, with support from Kaye Scholer, since Novartis’s previous lawyers from Vedder Price withdrew from the case in March 2011.

As the firm’s PR machine was quick to trumpet on Wednesday, Sanford Wittels is the same firm that won a $253 million jury verdict against Novartis in May 2010, in a separate gender discrimination class action against the company. (Novartis later settled that case for $175 million.) The wage-and-hour case that settled Wednesday originally grew out of the firm’s investigation into alleged gender discrimination at Novartis, Sanford Wittels name partner David Sanford told us previously.

Sanford Wittels suffered a potentially fatal setback in the sales reps’ case back in 2009, when Judge Crotty granted Novartis’s motion for summary judgment on the grounds that that the plaintiffs qualified as salespeople rather than employees and were therefore exempt from overtime requirements of the Fair Labor Standards Act. But in July 2010 the U.S. Court of Appeals for the Second Circuit reversed Judge Crotty, siding with Sanford Wittels and deferring to a Labor Department amicus brief arguing that the sales reps don’t fall under FLSA exemptions for outside salespeople or administrative employees.

In February 2011 the U.S. Supreme Court refused to grant certiorari to Novartis to challenge the Second Circuit’s ruling. But the same month the U.S. Court of Appeals for the Ninth Circuit ruled in a similar case involving GlaxoSmithKline that that drug company sales reps qualify as outside salesmen, creating an apparent circuit split on the issue. The Supreme Court agreed to hear the GSK case in November and is expected to issue a ruling this summer.

David Sanford of Sanford Wittels told us Wednesday that his firm was also representing plaintiffs and joining in the Supreme Court briefing in the GSK case (Scotusblog editor and Goldstein & Russell partner Thomas Goldstein will face GSK’s lawyers at Bancroft and Paul Hastings at oral arguments.) He said the uncertainty surrounding that case was a big motivator for both sides in the Novartis litigation to reach the $99 million deal announced Wednesday.

“We remain confident that the Supreme Court is going to uphold what the Second Circuit did in our case and affirm the Department of Labor’s position, but the Chamber of Commerce is on the other side [as an amicus], and the Supreme Court often rules on behalf of industry when the Chamber gets involved,” Sanford said. Sanford Wittels also represents sales representatives in wage-and-hour class actions against Merck, Roche, Abbott, and Pfizer; those cases have effectively been stayed in anticipation of the Supreme Court’s ruling in the GSK case, Sanford said. “

Novartis said in a statement announcing Wednesday’s settlement that it had decided resolving the case after six years was “in the best interest” of the company. “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,” the company said.