When the Department of Labor’s Fair Labor Standards Act (FLSA) was passed in 1938, Wage and Hour claims were born. The FLSA establishes minimum wage, employee classifications, recordkeeping, and youth employment standards. Since the law’s enactment, W&H claims have risen steadily, with 2019’s average settlement values nearly doubling those observed earlier in the decade.⁴

RECENT CLAIMS AND SETTLEMENT ACTIVITY

Multi-plaintiff W&H lawsuits are expensive, and they pose a substantial threat to employers.

The number of 2019 FLSA cases focused on minimum wage or overtime violations reached 20,584 and resulted in the payment of more than $225 million in back wages.¹

The settlement value of 2019’s top 10 government enforcement cases dropped to $57.52 million from $125 million in 2018. However, total settlement figures rose slightly in 2019 and W&H settlements rose from $253 million to $449 million.²

MOST COMMON ALLEGATIONS IN WAGE AND HOUR CASES

It is commonly assumed that W&H claims are restricted to either misclassification of exempt/non-exempt employment status or failure to pay overtime. However, W&H liability also includes allegations such as underpayment of overtime, miscalculation of wages, refusal to allow employee breaks, expecting off-the-clock work, not paying employees regularly, refusal to pay exempt employees for absences, not paying for time required to put on or remove protective gear or clothing, and adhering only to federal minimum wage guidelines when state guidelines warrant higher pay.

PLACEMENT CONSIDERATIONS

Naturally, a business seeking protection from the catastrophic exposure of W&H violations may look to purchase Employment Practices Liability (EPL) insurance; however, W&H violations are largely excluded in EPL policies. Protecting against W&H exposure requires that businesses purchase W&H liability coverage. For the most part, there are fewer carriers in the W&H coverage space and the industry isn’t seeing new entrants in the sector. In addition, existing carriers have reduced their offerings, restricting coverage and tightening terms.

SMALL TO MID-SIZED BUSINESSES

For small and mid-sized employers, coverage has generally been restricted to sub-limited defense costs only, with no indemnity for judgments or settlements. Even the restricted offering may be unavailable in certain regions and for specific classes of business, such as healthcare, restaurants, and franchisee business.

Currently, the defense costs only sub-limits range from $50,000 to $150,000 for small and middle markets. In a small number of cases, employers may be able to negotiate an option up to $250,000. However, carriers have begun pulling back in light of increased focus on W&H legislation and attention from the plaintiff’s bar.

In states where the risk is higher or litigation is frequent, those limits are tightened even further, or not available at all. There were more favorable class certification rulings for plaintiffs in 2019 than in any other year in the past decade. Of the 271 W&H certification decisions in 2019, plaintiffs won 81%, suggesting that the pressure on premiums and availability will continue.³

LARGER BUSINESSES

Overseas, with roughly $100 million in capacity, options for standalone or blended W&H and EPL coverage is still available, though mostly reserved for the Fortune 500 tier, or larger companies. The Bermuda and London markets continue to quote coverage with large retentions and heavy premiums. For smaller companies, standalone W&H is simply not available at an affordable rate.

ADDITIONAL SOLUTIONS

Prevention is always the best line of defense against W&H claims. Beyond purchasing insurance, employers can mitigate risk by:

• Assessing the Risk within the Company, Starting with the State and Local Government Self-Assessment Tool Available from the U. S. Department of Labor’s Wage and Hour Division
• Reviewing Exempt/Non-Exempt Employee Classifications Regularly and Promptly Updating or Revising Job Descriptions to Ensure Employee Classifications and Job Descriptions are Accurate
• Enacting Policies that Prohibit Off-The-Clock Work
• Regularly Reviewing Managerial Practices to Ensure that Supervisors Discourage After-Hours Work
• Correctly Understanding State Wage and Hour Laws, and Keeping Pace with any Local or Federal Changes
• Consulting with Outside Legal Counsel to Safely Navigate Wage and Hour Issues

BOTTOM LINE

As the number of labor law violations and lawsuits rises, employers must be vigilant in properly managing employees or risk falling victim to the added costs of litigation, penalties, and back wages. It’s critical that businesses review HR policies and employee classifications to avoid devastating mistakes. In addition, Wage & Hour Liability coverage, while difficult to come by, is available. Maintaining a strong relationship with a knowledgeable wholesale CRC Group producer with extensive marketplace connections and deep industry expertise can make all the difference when navigating the world of W&H risks. Contact your CRC Group producer for more information.

Contributor

• Allyson Benda is a Senior Broker, Vice President located in CRC’s Nashville office and a member of the ExecPro Advisory Committee.

ENDNOTES

1. Fair Labor Standards Act, U.S. Department of Labor, 2020. https://www.dol.gov/agencies/whd/data/charts/fair-labor- standards-act
2. Workplace Class Action Litigation Report, Seyfarth, 2020. https://www.workplaceclassactionreport.com
3. https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/top-class-actions-2019.aspx
4. Trends in Wage and Hour Settlements: 2019 Update, NERA Economic Consulting, June 4, 2020.