Employment Practices Liability Insurance - Conference Materials

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

ATLANTA LABOR & EMPLOYMENT

January 29, 2013

The Evolution of Wage & Hour and EPLI

Offering and Obtaining

Coverage for and

Reducing Exposure to

Wage & Hour Claims

| ATLANTA LABOR & EMPLOYMENT

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


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, co-

insurance, deductibles, hammer clauses



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?



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 Wage & Hour Coverage

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

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

ATLANTA LABOR & EMPLOYMENT

January 29, 2013

QUESTIONS

Career

Employment Practices Liability Insurance - Conference Materials