Wage and Hour Claims

One of the most common, if not the most common, employment practices liability (EPL) claim seen in the industry today are wage and hour claims. In matter of fact, according to an article published in October 2017, the number of Fair Labor Standards Act (FLSA) class actions hit a record in 2016 when claimants filed nearly 9,000 cases in federal court. That number was likely surpassed in 2017 given the upward trajectory of such claims the last few years.

Wage and hour claims are governed by the Fair Labor Standards Act (FLSA). From the Department of Labor’s website:

The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in Federal, State, and local governments.

The Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) administers and enforces the FLSA with respect to private employment, State and local government employment, and Federal employees of the Library of Congress, U.S. Postal Service, Postal Rate Commission, and the Tennessee Valley Authority. The FLSA is enforced by the U.S. Office of Personnel Management for employees of other Executive Branch agencies, and by the U.S. Congress for covered employees of the Legislative Branch.

Standard EPL policies contain exclusions for claims brought under the FLSA. The two major categories of wage and hour claims are those alleging (1) failure to pay overtime to employees who are not exempt from, and thus, eligible for overtime pay and (2) miscellaneous pay practices claims, which can include, but are not limited to, misclassifying employees as independent contractors, failure to grant rest and meal breaks, and failure to pay wages when due. A coverage endorsement may be attached that covers the cost of defending such claims; however, no coverage typically applies under these endorsements to settlements or judgments as it would seem to be against public policy to cover salary an employer owes its employee. Nevertheless, there is one carrier that I have come across, and perhaps there are others, that offer coverage for settlements or judgements. Thus, on a typical policy that does contain a wage and hour endorsement, it would only cover defense costs, usually with a sublimit attached to it (i.e. $50,000 to $150,000).

Given the propensity of such claims, it would be prudent for companies to investigate their EPL policies to determine whether wage and hour coverage is included and if not, see if it can be added. My experience in reviewing policies of prospective clients usually finds no such coverage included on their EPL policies. Having said that, not all carriers are willing to endorse their policies and afford wage and hour coverage to their policyholders. Companies with bad loss experience or in industries that have more than their fair share of wage and hour claims, are often unable to obtain wage and hour coverage on their policies. Nevertheless, those companies that have the option to add the coverage should strongly consider it. Some of my colleagues have shared with me that clients are hesitant to absorb the additional cost of such coverage, confident that they are immune to such claims or of the mistaken belief that the likelihood of such claims to be too remote to warrant the expense attached to it. In my experience and based on recent news articles I have come across, no industry or class of business is immune to wage and hour claims and any hesitation to purchase such coverage, when available, may be shortsighted and not the proper risk management perspective to take. In other words, to those that wage and hour coverage is made available to, I would strongly recommend adding the coverage.