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
□ 4,055 FLSA cases filed in 12 months ending 3/31/03
□ 7,064 FLSA cases filed in 12 months ending 3/31/12
□ 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
| ATLANTA LABOR & EMPLOYMENT
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
| ATLANTA LABOR & EMPLOYMENT
Determining Whether to Offer Wage & 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?
| ATLANTA LABOR & EMPLOYMENT
Determining Whether to Offer Wage & 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?
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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
| ATLANTA LABOR & EMPLOYMENT
Underwriting Considerations When Offering Wage & Hour 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
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Underwriting Considerations When Offering Wage & Hour Coverage
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
| ATLANTA LABOR & EMPLOYMENT
Underwriting Considerations When Offering Wage & Hour Coverage
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
| ATLANTA LABOR & EMPLOYMENT
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
| ATLANTA LABOR & EMPLOYMENT
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
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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
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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?
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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?
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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?
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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