Wage & Hour Circular-Classification

Wage and Hour lawsuits are the employment practices claim that just won’t quit. State and federal laws are complex, making violations more likely and defenses more difficult. Settlements, and large legal fees, are relatively easy to extract and the Fair Labor Standards Act’s (FSLA) fee shifting provision lets employees who prevail receive “full wages….and expense for legal fees”; a great benefit and incentive for plaintiff’s attorneys.

With no end in sight, it makes sense to get smart about common Wage and Hour claims and what you can do to reduce your chances of getting sued or losing a judgment.

CATEGORIES OF WAGE AND HOUR CLAIMS

1. Misclassification of Employees – The FLSA determines which employees are entitled to overtime pay (non-exempt employees) and which employees are not (exempt). Employees misclassified as exempt can potentially seek recovery under the FLSA for the misclassification and alleged failure to pay overtime wages.

2. Failure to Pay Overtime Wages – Employees misclassified as “Non-Exempt” employees are entitled to overtime pay. Typical claims include failure to pay overtime, failure to pay at the correct rate, or miscalculation of overtime. Sample Claim: A food processing company failed to pay for pre- and post-work activities, specifically, “donning and doffing” personal protective sanitary equipment, in violation of the California Labor Code.

3. Shift times/ Lunch/Meal Breaks – Currently, federal law does not mandate rest and meal periods, however some state laws do. Employers should be aware of how both federal and state or local laws apply to their business. Sample Claim: A regional fast casual restaurant employee noticed her time sheets were being altered; the restaurant omitted meal periods and breaks, making it appear she worked fewer hours than she actually did. She complained to her supervisor and filed a notice with the Labor Commissioner for failure to pay all wages owed.

4. Independent Contractors – Suits often arise after the Department of Labor rules that workers previously classified as independent contractors are employees and therefore entitled to all benefits. Sample Claim: A private equity-backed energy company treated employees as independent contractors; issuing 1099s instead of W-2s for annual work, and not paying overtime wages for hours worked in excess of 40.

RISK MITIGATION TECHNIQUES

1. Confirm that your employment practices liability insurance policy includes a sublimit for defense of wage & hour claims. Additionally, confirm your policy language covers both FSLA and similar state laws.
2. Consider purchasing specialty wage-and-hour policies to fill potential gaps in coverage. Several Bermuda and London-based insurers and at least one domestic insurer are offering wage-and-hour policies. With minimum retentions of $500,000 to $1,000,000, however, stand-alone wage and hour coverage is a better fit for larger risks.
3. If sued, do not assume a state wage and hour law is “similar” to FSLA if your employment practices liability insurance policy has a FSLA and similar state law exclusion. To apply the exclusion, the insurer must establish that the specific statute section is similar to the analogous FLSA section, not simply that both laws generally address wage-and-hour issues.
4. Confirm your wage and hour policies are in accordance with both federal and state law as there may be differences, especially regarding meal periods and breaks.
5. Ensure all employees are properly classified.
6. Implement policies requiring approval of overtime prior to an employee starting the work shift.
7. Retain employment counsel to confirm policy compliance with state rest and meal periods laws.