Paying Overtime is Cheaper than Getting Sued for the Failure to Pay: Wage and Hour Claims and Insurance Coverage

By James Tolfree, Senior Vice President, Alliant

Employers face a host of wage and hour exposures from employees. Assertions and claims can include overtime wages were owed, but not paid, lack of compliance with break periods, allegations of wrongful deductions from pay checks, failure to pay wages for off-the-clock work and failure to timely pay wages upon an employee being terminated. Further allegations can include the misclassification of employees as independent contractors or the misclassification of exempt or non-exempt status.

The litigation costs that can arise from alleged violations of the Fair Labor Standards Act (FLSA), US Department of Labor rules and other state and federal laws can be quite substantial.  Bank of America’s $73MM settlement was in regards to litigation accusing it of violating the Fair Labor Standards Act by requiring more than 180,000 hourly employees to work off-the-clock. T.G.I. Friday’s $19.1MM settlement included allegations of minimum wage violations, unpaid overtime, work without pay and tip credit issues.

In addition to employees, employers are also exposed to independent contractor liability.  A new Maryland law makes general contractors responsible if a subcontractor fails to pay their employees the wages that are owed.

A key element in reducing the risks of incurring these types of claims and lawsuits is having a strong written wage and hour policy. This policy should include timekeeping, break times and complaint procedures. Employees need to know the procedures to submit a wage and hour complaint. Employers should require employees to provide a written acknowledgement of the accuracy of recorded time worked. Outside counsel should review the policy and employers must keep the policies current. Audits of a company’s compliance with various wage and hour laws and regulations are vital and a best practice is to incorporate a dedicated team that focuses specifically on wage and hour compliance.

Regarding independent contractors, employers must pay very close attention to the indemnification provisions in their service contracts. Employers may require independent contractors to procure their own insurance to protect against wage and hour claims. It is also important to conduct sufficient due diligence to ensure the independent contractor has the financial wherewithal to honor the indemnity provisions of the contract.

Employment Practices Liability provides protections for various work place torts and third party exposures. Those policies generally exclude wage and hour claims, though some policies offer a smaller defense costs sub-limit. An additional solution is obtaining a wage and hour insurance policy. This can be purchased as a standalone policy or combined with an Employment Practices Liability policy. This wage and hour product was introduced out of the Bermuda market place several years ago. It can provide coverage for both defense and indemnity obligations. Both the premium and retention have come down significantly in recent years. The combined product protects against employment and third party claims and wage and hour liability including plaintiff’s fees.

Employers should take preventative measures to avoid being outflanked and caught off guard by these costly exposures. Strong, clear and currently updated wage and hour policies and service contract indemnification provisions can provide pre-emptive protections while an employment practices liability and wage and hour policy can provide an important financial back stop.

EEOC Focuses on Harassment in the Workplace in the Wake of #MeToo

By Cara Murray, Assistant Vice President, Alliant

In October 2017, allegations of rampant sexual abuses by Hollywood producer Harvey Weinstein finally broke through to major news sources after decades of rumors of his engaging in sexual harassment and assault. The high profile revelations to the general public gained traction in the public narrative, and the conversations started in the aftermath of Weinstein ballooned into the wider #MeToo movement – a hashtag showing the prevalence of sexual harassment and assault (experienced predominantly but not exclusively by women), especially in the workplace.

In addition to the general public, the US Equal Employment Opportunity Commission (EEOC) was paying careful attention to the #MeToo movement. The EEOC is the government entity responsible for enforcing federal laws against discrimination, including harassment, against job applicants or employees based on a protected class (race, color, national origin, religion, sex, sexual orientation, gender identity, pregnancy, age, disability or genetic information). Not surprisingly, this major public discourse on harassment was of interest to the EEOC, especially considering the EEOC had just launched their Respectful Workplaces training program, a program developed following the 2016 meeting of the EEOC’s Select Taskforce on the Study of Harassment in the Workforce.

On June 11th, 2018 the EEOC reconvened the Select Taskforce on the Study of Harassment in the Workforce in a meeting called “Transforming #MeToo into Harassment-Free Workplaces.” Commissioner Chai Feldblum, in her opening statements of the meeting, emphasized the national focus on sexual harassment and the opportunity the EEOC has to leverage that focus in furtherance of its mission.[i]  Commissioner Feldblum made a point of emphasizing that the EEOC is seeking sustainable change in the workforce in decreasing all kinds of harassment, including but not limited to sexual harassment. In fiscal year 2017, harassment charges made up about 30% of the charges under all statutes enforced by the EEOC.[ii]  Within that 30%, sexual harassment accounted for approximately 35% of charges, with racial harassment accounting for 27% of charges, and harassment on other grounds accounting for the remaining 38% of harassment charges.[iii]  It is yet to be seen whether the Harvey Weinstein revelations will have an impact on the number or proportion of sexual harassment charges filed. Acting Chair Victoria Lipnic’s opening statement notes that the revelations came out at a time that coincided with the EEOC’s fiscal year (which begins in October and ends in September), and that there are typically delays in charge filing, so the EEOC cannot yet say if they will end up seeing more sexual harassment charges as a result of the #MeToo movement.[iv]

With a prominent place in public narrative, and with EEOC scrutiny at a bolstered high, harassment is an issue that companies should be carefully monitoring for, and attempting to prevent, in their workplaces. As well as continued development, implementation, and review of company policies and procedures against harassment in the workplace, it may also be beneficial for companies to review their Employment Practices Liability coverage in light of this EEOC focus. In particular, it is important to make sure the definition of Employment Practices Violation (or Employment Practices Wrongful Act) explicitly references harassment, and that such reference to harassment is not limited to sexual harassment.

In the wake of #MeToo, workplace harassment is high in public consciousness. The EEOC sees this public and media focus as an opportunity to effectively fulfill its role of enforcing federal laws against discrimination, including harassment. Companies should be on alert for harassment in their workplaces, because the general public and the EEOC are certainly paying attention.

[i] Opening Statement of Commissioner Chai R. Feldblum (2018) https://www.eeoc.gov/eeoc/task_force/harassment/feldblum.cfm

[ii] Derived from data found in the EEOC’s enforcement and litigation statistics. All Statutes https://www.eeoc.gov/eeoc/statistics/enforcement/all.cfm and All Charges Alleging Harassment https://www.eeoc.gov/eeoc/statistics/enforcement/all_harassment.cfm

[iii] Opening Statement of Acting Chair Victoria A. Lipnic (2018) https://www.eeoc.gov/eeoc/task_force/harassment/lipnic.cfm

[iv] Id.