Employment Practices Liability Insurance - Conference Materials

ATLANTA LABOR & EMPLOYMENT

The Evolution of Wage & Hour and EPLI
Offering and Obtaining
Coverage for and
Reducing Exposure to
Wage & Hour Claims

January 29, 2013
GREENBERG TRAURIG, LLP  ATTORNEYS AT LAW  WWW.GTLAW.COM
©2012. All rights reserved.

FLSA Cases on the Rise
 20-year upward swing
□

1,457 FLSA cases filed in 12 months ending 9/30/93

□


□


□

Increase of over 74% in last ten years alone

 Settlements are both common and expensive
□

Offer of judgment is common FLSA strategy

□

One study found a per-plaintiff settlement amount of
approximately $5,000 per plaintiff in 2011
 It takes only 200 employees to reach $1 million

| ATLANTA LABOR & EMPLOYMENT

Evaluating Industry Trends Relating to
Wage & Hour Coverage
 Long history of not covering wage & hour claims
 Recent clamor for coverage from insureds
 Impact on the market of Aon’s new Wage &
Hour product in 2012


Determining Whether to Offer Wage &
Hour Coverage
 Is the market hardening?
□

General upward trend of premiums

□

But a wide disparity in premium increases/decreases,
partly depending on size of employer to be covered

□

Other areas of market hardening – retentions, coinsurance, deductibles, hammer clauses


Hour Coverage
 Competitive considerations
□

Relatively few players in EPLI market, and even fewer in
wage & hour area

□

Balances out market hardening, to some extent

□

Willingness to sacrifice market share to increase
premiums?


Hour Coverage
 Public policy
□

Reluctance to cover wage & hour is ostensibly based on
public policy

□

Moral hazard to insure against improper payment of
wages

□

Is wage & hour really any different than other EPLI
claims in this regard?

Underwriting Considerations When Offering
 Scope of Coverage
□

Defense-only sublimits
 More common than indemnity coverage

□

Indemnity coverage
 Starting to come around
 Employer size as a factor?

□

Coverage limits
 Single v. Aggregate

□

Claim types: Misclassification, travel time, off-the-clock,
retaliation
 Industry trends in coverage

 Factors to consider
□

Insured’s policies and procedures
 Procedures for proper classification of exempt/non-exempt

 Policies for off-the-clock work

 Time recording methods for exempt and non-exempt

 Internal complaint procedures


 Factors to consider
□

Employee composition
 White collar v. blue collar?
 Use of independent contractors?

 Use of PEO or employee leasing company?
 Stable workforce or high turnover?
 Large employer with defined roles v. small employers with
fluid, cross-functional workforce

 Industry-specific considerations
□

Industries with significant on-call time
 E.g., health care, tech support

□

Traditional (if questionable) use of independent
contractors
 E.g., auto dealers/sales staff

□

Industries with historic donning/doffing or travel time
issues
 E.g., food processing or airport workers

□

Industries with high-income, front-line exempt
employees
 E.g., mortgage brokers

Assessing the Costs and Benefits of
Available Wage & Hour Coverage
 Consider all the costs, not just premiums
□

Deductibles, co-insurance, hammer clauses, etc.

□

Increased administrative burdens

 Consider all the benefits, not just
defense/indemnity
□

Access to best practices, especially for small- to mid-size
employers

□

Increased workplace satisfaction from proper payment

□

Avoidance of litigation


Understanding ERISA Claims as They Relate
to Wage & Hour Claims
 Wages and benefits are two sides of the total
compensation coin.
 When total compensation is wrong, it may
trigger suits under ERISA and FLSA

 For example:
□

A misclassified independent contractor claims he should
have been paid overtime and allowed to participate in
ERISA benefit plans

 Overlap where ERISA benefits are derivative of
FLSA wages
□

E.g., 401(k) contributions as a percentage of total wages

Impact on EPLI of Overlap Between Wage &
Hour Claims and Other EPL Claims
 Start with the specific language of the policy
and the complaint
 Impact of duty-to-defend provision on “mixed”
cases
 Treatment of FLSA retaliation cases that
overlap with FLSA wage claims


Reducing Exposure to Wage & Hour Claims
 Instituting effective policies and procedures
□

Proper classifications of exempt/non-exempt and
employee/independent contractor

□

Proper time reporting and recording procedures,
potentially for all employees

□

Proper complaint procedures for internal grievances

□

Other best practices?

Reducing Exposure to Wage & Hour Claims
 Obtaining review by outside counsel
□

Can obtain privileged classification analysis

□

Can try to preemptively “fix” FLSA problems

□

FLSA audit may uncover other legal landmines

 Key Issue – how do you fix past FLSA violations
without triggering an avalanche of lawsuits?


EPLI Issues That Can Arise Involving Independent
Contractors or Joint Employment
 Coverage typically limited to “employees”, not
independent contractors
□

Tough choice for employer – calling them “independent
contractors” may win the FLSA case, but result in denial
of coverage

□

So is there incentive to lose the FLSA case to win the
coverage?

□

Does this pose a conflict of interest for the attorney?


EPLI Issues That Can Arise Involving Independent
Contractors or Joint Employment
 Joint employment arises in two situations
□

Corporate affiliates

□

Employee leasing firm or PEO

 Joint employment relationships should be
disclosed and contemplated up front in policy
 Try to make sure that coverage will not be at
odds with substantive defenses

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