Exclusively from Foa & Son
Continuing with employment practices liability risks, wage and hour litigation has been a persistent and worsening problem for employers all over the country, and the news is getting worse. According to data from the Federal Judicial Center, the research and education agency of the federal judicial system, workers filed a record number of wage and hour lawsuits under provisions of the Fair Labor Standards Act (FLSA) during the federal fiscal year that ended Sept 30. The data indicates that employers are more likely to face wage and hour claims in federal court than any other form of employment related litigation. During the past decade these claims have increased in eight out of ten years; since 2000, wage and hour federal court filings has gone up by more than 450%.
What’s driving this increase? There are a number of separate factors all combining to drive this type of litigation, but the root of the problem goes to the FLSA itself. Originally passed in 1938, its an old Depression-era statute created for a time when smokestack industries were characterized by work shifts that started and ended with the sounding of a whistle. As written the law is antiquated and ill suited to the modern workplace which is characterized by independent contractor classifications, joint employer relationships, stay-at-home and telecommuting jobs and other modern innovations, where application of the Act’s mandates, grounded in a different time and reality, is often confusing and difficult.
And wage & hour claims are expensive. Most often they are class actions or multiple plaintiff suits, which drives up the cost. Actual damages per employee may be modest; legal fees and defense costs are usually the most costly thing about these claims. In addition to your own legal costs you may also have to cover your employees’ legal fees because of attorney-fee-shifting provisions in wage and hour laws. The FLSA and many state laws also require employers in violation to pay “liquidated” damages and interest as well as the unpaid wages. Under the FLSA, liquidated damages are an additional 100 percent of the unpaid wages.
A cottage industry of litigation has sprung up here, with many plaintiffs attorneys actively client shopping. Strong enforcement of federal wage and hour laws, the potential for class action status and large damage awards have made wage and hour violations an attractive target for litigation. This is not good news for employers because, unlike with marijuana related employment litigation, most employment practices liability insurance policies either totally exclude wage and hour claims, or if they do cover them have only some very low sublimit, perhaps $50,000 or $100,000, and for defense costs only. Some limited niche products may be available, but when they can be found terms are restrictive and premiums are very expensive.
Bottom line, these types of claims are frequent, very expensive, and probably not covered by your EPL policy. This is an area where the best defense is to take a close look at your own policies and procedures to be sure you are in compliance with the law. If you’re not, you could find yourself writing some big checks.