- About PS&F
- Industry Focus
- Client Tools
- Education & Events
June 9, 2010
The Fair Labor Standards Act (FLSA or the Act) governs wage and hour employment matters for employees engaged in interstate commerce. The scope of the Act is broadly interpreted, making most employers subject to the FLSA. Further, state laws provide additional wage and hour regulations. One of the biggest areas of dispute surrounds the exemptions to the Act, notably the “white-collar” overtime exemptions for professional, executive, administrative and computer employees.
The burden of proof that an employee is exempt from the Act’s overtime requirements has always fallen squarely and exclusively on the shoulders of the employer. Changes made to the Act in the past decade have broadened the requirements, causing the number of protected workers to expand. The US Department of Labor estimates that a staggering 70% of employers are out of compliance with Wage and Hour laws.
Peter Nohle and David Black, both attorneys with Jackson Lewis LLP explain that employers can get in trouble in a number of key areas:
Peter and David explain that these costs add up quickly. Consider a small firm with 100 employees alleging improper compensation for rest breaks, a 20 minute per day issue per employee:
|Number of uncompensated minutes per day, per employee||20 minutes, or 1/3 hour|
|Number of working days per year, per employee||260 approximately|
|Number of uncompensated hours per year, per employee||86.67|
|Hourly Minimum Wage, per employee||$ 8.55|
|Unpaid Compensation, per year, per employee||$ 741.00|
|Unpaid Compensation, per year, 100 employees||$ 74,100.00|
|Unpaid Compensation over three years, 100 employees||$ 222,300.00|
|Double-damages for willful violations||$ 444,600.00|
This assumes a simple claim with one allegation and minimum wage earners, when in reality these actions cover many employees and many allegations. Consider your demographics and factor in some costs to investigate and defend yourself against these claims.
On a basic level, Employment Practices Liability Insurance provides protection for employment related discrimination, harassment/retaliation and wrongful termination. Virtually all standard policies exclude violation of FLSA (except the Equal Pay Act when pay discrimination is asserted). In response to the growing trend of Wage and Hour claims, many insurance companies have drafted policy language to specifically address “Wage and Hour” disputes. Does this language exclude coverage? Are they providing coverage? If they are providing coverage, what does it actually do?
There’s no easy answer; you can’t make any assumptions with this coverage. You’ll need to read your policy and talk to your broker. Some carriers are excluding coverage altogether and claims for wage and hour disputes will be denied. However, most carriers are providing limited coverage for these disputes, ranging from:
Each of these provides a dramatically different level of coverage so it’s important to understand what your policy provides. It’s also important to know how much coverage your policy provides. While you may be purchasing substantial overall policy limits, they won’t necessarily apply to the Wage and Hour coverage provided by your insurer. This coverage is typically sublimited to a fraction of the overall policy limit, oftentimes only $100,000 to $250,000 of coverage. This level of coverage is usually provided without a premium charge, although as carriers continue to pay claims, we may see this change.
The media has educated both the plaintiff’s bar and the general public about this area of law. Record verdicts against large employers including Wal-Mart, Starbucks, Lowe’s and Washington Mutual have shown how lucrative these actions can be. Defense firms, such as Jackson Lewis LLP are seeing an increase in frequency of the actions and a steady increase in the settlements required to resolve these matters. But there are steps that you can take today to help protect your company. As Peter and David recommend:
Finally, understand what coverage you have and strive to broaden it. Don’t settle for coverage that is limited to investigative costs or only defense coverage. Seek insurers who will provide coverage for investigation, defense and indemnity. Find out what resources, tools and education your insurer can provide to your firm to help evaluate and mitigate your risk. Ask for higher limit options and be prepared to pay for it. Consider your demographics and your controls, and purchase the limit that is right for your unique profile.
By Casey Smith, Vice President
The views and opinions expressed within are those of the author(s) and do not necessarily reflect the official policy or position of Parker, Smith & Feek. While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it.