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Paying Attention

Wednesday, June 16, 2010
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Novartis Pharmaceutical Corp., the U.S. arm of the Swiss drug maker, made headlines last month when it was fined $250 million in punitive damages in what is believed to be the largest gender-discrimination verdict ever.

In issuing its verdict, the nine-person jury awarded 12 female sales representatives $3.3 million in compensatory damages. But it also ruled that the company must pay the additional $250 million to roughly 5,600 women who were represented by the class-action suit. Ouch!

The plaintiffs accused Novartis of discriminating against the female employees by paying them less than their male counterparts and passing them over for promotion. They also accused the Basel, Switzerland-headquartered company of creating a hostile environment for women, especially those who were pregnant. 

Novartis says it's disappointed by the ruling and plans to appeal. But whether the appeal succeeds or not, the jury verdict is a reminder of the very steep price companies can pay if they're on the losing end of one of these class-actions. In this particular case, the punitive damages amount to roughly 2.6 percent of the company's $9.5 billion in revenue!

Ironically, the Novartis story broke just as contributing writer Scott Flander was putting the finishing touches on this month's cover story, "Facing Up to Obama." When we asked Flander to identify what legal issues were likely to occupy HR's agenda in the next few years -- as a part of our third annual "Most Powerful Employment Attorneys" editorial package -- we figured several major themes might emerge. But as Flander began interviewing some of the employment attorneys who made our 2010 "Most Powerful" list, pay seemed to be all anyone wanted to talk about.

As Obama approaches the halfway mark of his first term, healthcare reform is likely to be remembered as his most notable domestic accomplishment. But judging from his administration's current agenda, it probably isn't happenstance that one of Obama's first actions as president was to sign into law the Lilly Ledbetter Fair Pay Act, legislation that rejected the U.S. Supreme Court's decision in Ledbetter vs. Goodyear Tire & Rubber Co. and relaxed the statute of limitations for discriminatory-pay complaints. 

Ledbetter was certainly significant. But experts are quick to add that it was just the beginning. When you add to it proposed legislation such as the Paycheck Fairness Act and a much more active Wage and Hour Division at the U.S. Department of Labor, they say, you have a recipe for trouble. (Especially disturbing to employers is a provision in the PFA that would eliminate caps for compensatory and punitive damages.)

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Mike Delikat, global head of the employment practice group at Orrick in New York, describes Novartis, Ledbetter, the Paycheck Fairness Act and a U.S. Court of Appeals' decision to certify a class-action lawsuit against Wal-Mart as a " 'perfect storm' that indicates the expansion of employee rights and increased employer liability in the workplace." Maybe a more apt description would be a "tsunami." But whatever label you attach to it, there seems to be little question pay is an issue the Obama administration is taking very seriously.

Why it even got its own day, when the president declared April 20 National Equal Pay Day.

As Flander's story points out, there's no single magic bullet that's going to protect your organization from becoming the next Novartis. Not even being named to Working Mother's list of the "100 Best Companies to Work For" 10 years in a row -- as was the case for Novartis -- is going to make much of a difference.

Still, as some of the employment attorneys remind us, there are proven steps employers can take to minimize their risks and ensure they don't turn out to be the next big story, starting with closely monitoring and re-evaluating their pay practices and seriously beefing up their efforts to train managers on what they should and shouldn't be doing.

There's no guarantee such efforts will keep your business out of the courtroom. But maybe, just maybe, they'll lessen the chances of winding up on the losing end of a precedent-setting verdict.

e-mail: dshadovitz@lrp.com

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