Novartis Faces $250 Million in Sex Discrimination Damages

A Novartis AG pharmaceuticals unit was ordered to pay a group of 5,600 female employees punitive damages of $250 million, the largest ever employment discrimination verdict according to data compiled by Bloomberg.

A federal court jury in Manhattan today returned the damages ruling, which was also the second-largest verdict of 2010, to punish the company for the harm to the women. The same jury on May 17 found the company liable for discrimination and ordered it to pay about $3.4 million in compensatory damages to 12 women named as plaintiffs.

The women, among the Basel, Switzerland-based company’s 14,000 workers in the U.S, sought $190 million to $285 million in punitive damages, or 2 percent to 3 percent of the company’s stipulated $9.5 billion value. Jurors found that Novartis had discriminated against women over pay and promotion and because of pregnancy.

“This is a vindication of everything that has happened in the courtroom,” David Sanford, a lawyer for the women, said. “This sends a message to Novartis and all other corporations in America that they cannot continue to get away with the discrimination and the systemic problems that have occurred for so long.”

The Novartis award was surpassed this year only by a $505.1 million verdict by a Las Vegas jury in a lawsuit against Teva Pharmaceutical Industries Ltd. and Baxter International Inc. Plaintiffs in that case claimed inadequate packaging of the anesthesia propofol.

Share Drop

Novartis’s American depositary receipts fell 3 cents to $46.06 in New York Stock Exchange composite trading, after declining as much as 1.6 percent earlier in the day after the verdict. One ADR represents one ordinary share of the company’s stock.

“We are disappointed in the jury’s verdict. For more than 10 years the company has developed and implemented policies setting high standards with regards to diversity and inclusion for the development of our employees,” Andy Wyss, president of the Novartis Pharmaceuticals Corp. unit, said in a statement.

Richard Schnadig, a lawyer for Novartis, declined to comment after the verdict. Novartis said May 17 that it planned to appeal the jury’s first verdict.

In weighing punitive damages, the jury’s five women and four men considered the nature and length of Novartis’s conduct, the extent of harm it caused, the company’s actions after learning of allegations of discrimination and the amount required to deter future bias.

Novartis Sales

Both sides agreed Novartis’s U.S. unit had 2009 revenue of $9.5 billion. The plaintiffs’ lawyers argued yesterday in closing arguments that, to send a message to Novartis about the harm done to the women, the jury should award 2 percent to 3 percent of revenue to the 5,600 women in the class. In their verdict today, the jury awarded 2.6 percent of the 2009 revenue to the plaintiffs.

Jurors declined to comment as they left the courthouse after their verdict.

“$250 million fine as a one-off is really no great shake,” Nick Turner, an analyst at Mirabaud Securities in London, said in an interview.

“It doesn’t say much for the firm as an employer,” Turner said. “But from the point of view of Novartis as an investment opportunity or on valuation, I can’t see that this makes any difference.”

Further Damages

The women covered by the case are sales representatives and entry-level managers who worked for Novartis from 2002 to 2007.

U.S. District Judge Colleen McMahon, who presided over the case, told lawyers to return to court on May 26.

McMahon can also set a dollar figure on back pay for lost wages and promotions for the women in the class, Sanford said. He said the plaintiffs will seek $37 million from the court in back pay for the women.

Women who didn’t testify at the trial and worked at the company’s U.S. unit during the covered period, can apply for compensatory damages in a process that will likely include a special master or magistrate who could be appointed by the judge, Sanford said. No arrangement for that process, which could take as long as one year, has been determined, he said.

“Notices will likely go out to 5,600 women in the class,” Sanford said. “They will have the opportunity to come to New York and tell their story one at a time.”

Almost $1 Billion

Sanford said that he and his colleagues have calculated that the potential compensatory damages could reach almost $1 billion, if two-thirds of the 5,600 women opt in. That amount makes it unlikely that Novartis will be able to have the punitive damages verdict reduced through post-trial motions or appeals.

“I think you have virtually no chance for this getting reduced because compensatory damages will certainly dwarf the punitive damages of $250 million,” Sanford said. “They usually only get reduced when the ratio is greater than 10 to one and punitive damages are greater than compensatory damages.”

The plaintiffs’ will also ask McMahon to issue a ruling directing systemic changes toward women workers at Novartis, Sanford said.

“We’re seeking sweeping changes to the performance appraisal system, to the human resources department, to the promotion system and sweeping changes to the pregnancy policy,” he said.

The lead plaintiff is Amy Velez, who was hired by Novartis in 1997 as a sales representative in Washington. She worked at the company until 2004, the year the suit was filed.

The case is Velez v. Novartis Corp., 04-cv-09194, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: David Glovin in New York federal court at dglovin@bloomberg.net and; Patricia Hurtado in New York federal court at pathurtado@bloomberg.net.

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