Dissecting the Uptick in Wage & Hour Claims
Employment Practices Liability: Wage & Hour Claims
Last month, I touched on Employment Practices Liability (EPL) insurance, which was also a recent Assurance University webinar. Given the continual rise in employment-related claims, I thought I’d extend the topic further to an area that’s getting a lot of attention in the staffing industry – wage & hour lawsuits.
Wage & hour suits made under the Fair Labor Standards Act (FLSA) or state labor laws can include claims such as misclassification of employees, uncompensated work performed off the clock and failure to pay overtime. In addition to an increase in the number of claims made under these laws, there has also been an uptick in claims made on a class or collective action basis, which magnifies potential exposure.
While employers look to their EPL policies for coverage of suits alleging wrongful acts arising from the employment process, practically all of these policies now contain language that explicitly excludes suits alleged under the Fair Labor Standards Act (with the exception of the Equal Pay Act) or similar laws. Beyond the exclusionary language, obtaining coverage is also difficult because the claims for unpaid wages may be construed as uninsurable restitution, not damages suffered under a loss.
Some insurance carriers now offer limited coverage for wage & hour violations; although coverage is typically restricted to a sublimit rather than full policy limits, which applies towards defense costs only. For staffing firms, the pool of insurance carriers that provide comprehensive EPL coverage is somewhat limited, as many carriers aren’t willing to provide coverage for suits made by temporary employees (only internal corporate employees) or extend coverage to defend and/or pay damages on a client company’s behalf for suits made by temporary employees, which many staffing firms agree to cover contractually.
Across those carriers, the offerings for wage & hour coverage vary significantly – some are unwilling to offer coverage, some restrict coverage to suits made only by internal corporate employees and some offer sub-limited defense cost. For those that offer defense cost coverage on a sub-limited basis, the coverage is typically restricted to a $100,000 limit and may require taking a higher deductible than would otherwise be required to obtain a quote without wage & hour defense coverage. The carrier’s willingness to provide the coverage will also hinge on the individual loss results and risk management procedures of the staffing firm.
For staffing firms, wage & hour coverage is one of many considerations that need to be weighed when choosing a carrier for EPL coverage. This is in addition to premium charged, limits, deductibles, coverage for temporary employees, coverage for client companies and ability to select counsel, among others. Each firm should have a clear understanding of these components and make an informed decision that takes into account individual priorities and tolerance for risk.
- Game of Tic Tac Toe: Employment Practices Liability
- Understanding Employment Practices Liability Insurance Webinar (6/4)
- Differences in EPL Coverage
- Seven Tips for Preventing EPL Claims
- Reporting Requirements of EPL Policies
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