Wage and hour (W&H) exposure is an often misunderstood and frequently underinsured risk. Naturally, a business seeking protection from the catastrophic exposure of W&H violations may look into purchasing Employment Practices Liability (EPL) insurance. However, to their dismay, W&H violations are largely excluded in EPL policies.
What is W&H? It is commonly — and incorrectly — assumed that W&H claims are restricted to either misclassification of exempt/nonexempt employment status or failure to pay overtime. However, W&H liability also includes allegations such as underpayment of overtime, not paying overtime, miscalculating wages, refusing breaks, expecting employees to work off the clock, not paying employees regularly, refusing to pay exempt employees for absences, and following federal minimum wage guidelines when state guidelines warrant higher pay.
When the Department of Labor’s Fair Labor Standards Act (FLSA) was passed in 1938, wage and hour claims were born. The law defined which employees were to receive overtime pay (nonexempt) and which were not (exempt). Since that time, W&H claims have risen steadily, with sharp increases starting in 1993 and increasing year over year.
RECENT CLAIMS AND SETTLEMENT ACTIVITY
- The number of FLSA lawsuit filings for the preceding four years [2014-2017] is the greatest in the last several
- The dollar value of workplace class-action settlements skyrocketed in 2017 to an all-tim record high of $2.72 billion, up
from $1.75 billion in 2016.*
- The top 10 most expensive FLSA overtime lawsuits of 2017 totaled $180 million dollars, MetLife taking the lead with a
$50 million dollar settlement for unpaid overtime violations. In 2016, FedEx made FLSA history with its agreement to
pay out $240 million in unpaid overtime. Source
SAMPLE EPL POLICY, FLSA EXCLUSION
Based upon, arising out of, directly or indirectly resulting form, or in consequence of, or in any way involving any actual or alleged violations of any federal, state, local or foreign wage and hour laws, whether statutory or common law, including without limitation, the Fair Labor Standards Act, including any amendments thereto.
For the most part, the insurance marketplace has not seen new entrants in the W&H coverage space. Existing carriers have reduced their offerings, including restricted coverage and terms.
Small to mid-sized busi
For small and mid-sized employers, generally coverage has been restricted to sublimited defense costs only, with no indemnity for judgments or settlements and even that restricted offering may be unavailable in certain regions and for certain classes of business, such as healthcare, restaurants, and franchisee business.
Currently, the defense costs only sublimits range from $50,000 to $150,000 to the small and middle markets. In a small number of cases, employers may be able to negotiate an option 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, those limits are tightened even further, or not offered. With more than 20 percent of W&H claim cases costing employers over $1 million and 50 percent costing over $100,000 (source), the pressure on premiums and availability will continue in the near future.
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 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.
Prevention is always the best line of defense. Therefore, beyond insurance, employers can reduce their risks in a few ways:
- Employers can assess the risk within the company, starting with the State and Local Government Self-Assessment Tool
from the U. S. Department of Labor’s Wage and Hour Division
- Review exempt/nonexempt employee classifications regularly and update/revise job descriptions
- Enact policies that prohibit employees from working when off the clock
- Review managerial practices to ensure that supervisors are discouraging work after hours
- Understand the state wage and hour laws, as well as what changes are happening federally
- Consult with outside counsel to assist in navigating the wage and hour field
Coverage, while difficult to come by, is available. More often, the right relationship with a wholesale broker that has connections and industry expertise, like CRC Group, can make the difference when it comes to navigating this complex marketplace.
*According to the annual Workplace Class Action Litigation Report by law firm Seyfarth Shaw
xiii The New York Times, “Illegal in Massachusetts: Asking your Salary in a Job Interview”