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A Pennsylvania-based medical software company has agreed to pay morethan $14.4 million to settle a class action suit brought by workers whosaid their incentive-based bonuses were unfairly reduced in 1998.Under the terms of the proposed settlement, a class of about 1,200current and former employees of Siemens Medical Solutions HealthServices Corp. will be paid from a fund of more than $10.1 million andwill receive a net recovery of the full amount of the adjustment totheir 1998 compensation. SMS has also agreed to pay up to $4.33 million in attorney fees andcosts to the team of lawyers who brought the suit — Steven A. Schwartzof Chimicles & Tikellisin Haverford, Pa., and E. Powell Miller of Miller Shea in Rochester,Mich. Philadelphia Common Pleas Judge Mark I. Bernstein has grantedpreliminary approval of the settlement, clearing the way for the lawyersto send notices to the class members. Bernstein also scheduled a fairness hearing for May 5 to hear anyobjections to the settlement or the proposed attorney fees. In the suit, Street v. Siemens Medical Solutions Health Services Corp.,workers alleged that SMS breached their contract by instituting a30 percent across-the-board reduction of their 1998 bonuses.The suit also alleged a claim under Pennsylvania’s Wage Payment andCollection Law. Lawyers for SMS — Michael L. Banks and Azeez Hayne of Morgan Lewis &Bockius in Philadelphia and Erik Haas of Patterson Belknap Webb & Tylerof New York — argued that the company’s senior management had the rightto reduce the employee bonuses, called “incentive compensation plans,”at any time. Ruling on cross-motions for summary judgment, Bernstein dismissed theplaintiffs’ claims under the WCPL, but granted judgment in theplaintiffs’ favor on the breach of contract claim.Bernstein’s ruling was a major victory for the plaintiffs because theonly issues left for trial were an assessment of damages and adetermination of whether any of the workers had forfeited their rightsto pursue the breach of contract claim by signing release forms. In court papers, lead plaintiff Janet Street, who worked for thecorporation’s sales division from 1983 to 2001 at its Malvernheadquarters, alleged that under Pennsylvania contract law, the 30percent across-the-board reduction of the 1998 bonuses had no basis inany contract language. The suit alleged that up to 1,200 SMS employees who received the bonuseson top of their 1998 base salaries were entitled to the amount SMScalculated prior to the 30 percent cut. Schwartz said the SMS employees learned of the reduction after the endof 1998 but before any of the bonuses were paid. According to Bernstein’s opinion certifying the case as a class action,SMS had designed its incentive compensation plan to “align the interestsof the … participants with the profitability of sales and revenue theygenerated.” Employees set goals for themselves and were rewarded withbonuses for meeting or exceeding those goals. SMS had budgeted $29 million to pay for the 1998 bonuses, but early inthe year it became clear from accounting projections that the company’sperformance in sales and other revenue was exceeding what was projected;therefore, the money slated for ICP “appeared low,” according to aninternal memorandum described in the opinion. Employees would have received $48 million in total bonus payments beforethe reduction “adjustment” was made in early 1999, according to theopinion.As a result, the company’s “leadership team” decided to adjust thepayments to a level that “they believed to have been more consistentwith 1998 financial results,” Bernstein explained.That adjustment meant a blanket 30 percent reduction in the bonuses. Thebonuses for at least 25 employees were cut by $50,000 each. About 380more saw their bonuses cut by $10,000 each, and 600 bonuses were cut by$5,000 each, according to the opinion. The potential class members reside in more than 40 states, includingDelaware, New Jersey and New York.

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