America’s war on wages has been in full swing the past couple of months. Cities and states have passed legislation increasing minimum wage and most recently, the Labor Department finalized a new rule that is expected to affect 4.2 million salaried workers and make them eligible for overtime pay. Despite these changes, lawsuits in the space are higher than ever. A report published by law firm Seyfarth Shaw indicated that there were 8,781 federal wage and hour lawsuits filed in 2015, a nearly 400% increase from 2000.
According to a white paper released by Baldwin Krystyn Sherman Partners (BKS – Partners), businesses must be proactive in light of the evolving wage and hour landscape as claims continue to increase.
To start off, businesses should begin self-auditing, such as reviewing current and past 1099’s to confirm that any personnel classified as ‘independent contractor’ were not, in fact, employees. Also, to prevent errors, employers should also review job descriptions, pay roll records and written policies and procedures, to ensure they are all current and accurate. “Long before a government investigation begins or a lawsuit is filed, there are preventative measures that employers should take to minimize their exposure,” said Dan Howell, commercial risk advisor with BKS-Partners.
Following the Civil Rights Act of 1991, which allowed punitive damages to be awarded in employment discrimination cases, many employers have relied on employment practices liability insurance (EPL) to minimize the potential impact of disputes. Though coverage was only provided for specific cases of discrimination, some insurers have included wage and hour coverage under EPL policies after the surge in lawsuits.
“Today, those employers relying on an EPL insurance policy to provide wage and hour coverage could be making a costly miscalculation. There are some insurers in the market place willing to cover wage and hour disputes, but only the defense costs associated with these claims. Additionally, these insurers offer much smaller sub-limits for this coverage, $100,000 on average. Recently, stand-alone wage and hour policies have become available on a limited basis,” said Howell. “Businesses must be aware that costly wage and hour penalties are not covered by an EPL policy.”
According to Howell, many insurers won’t initially offer wage and hour coverage but may provide “off-the-shelf” policies that cover defense costs for such disputes. However, if employers begin to take proactive measures now, they can decrease their risks and minimize the impact of potentially pricey wage and hour claims.
