Employers should not assume that their employment practices liability (EPL) insurance excludes any cost related to a wage and hour claim, according to Barry Buchman, an attorney with Gilbert LLP in Washington, D.C.
It is very common these days for an EPL policy to have an exclusion for claims arising under the Fair Labor Standards Act (FLSA), he acknowledged. This has been partly in reaction to the rise in FLSA litigation over the past 10 years.
But Buchman wants to get the message across to employers that the FLSA exclusion is not the be-all, end-all defense that insurers would have employers believe it is.
Often the costs of defending a claim are covered, and often the costs of defending are more than the ultimate liability, he added.
Typically, plaintiffs allege multiple claims, including under different statutes and common law. Some of the claims are covered by insurance, while others are not. And cases often settle without specifying the amount of settlement for each claim, leaving open the argument that some of the settlement costs might be covered by EPL insurance.
Liability arising under state wage and hour statutes might be covered by insurers as well, said Ken Remson, an attorney with Dickstein Shapiro in Los Angeles.
Some insurance plans, however, state that not only FLSA claims, but also similar state law claims, are not covered by EPL policies.
It’s well-established case law that for an exclusion to be valid the policyholder must be informed clearly and unambiguously about what is not covered. To the extent that an exclusion is ambiguous, the policyholder is entitled to the benefit of the doubt, Remson said.
The word “similar” injects an element of ambiguity, he emphasized. Some requirements under state wage and hour law might be identical to FLSA mandates, while others might be completely different. Many fall somewhere on the continuum between these extremes.
So, in California, when there have been state law claims of daily overtime and violated meal and rest breaks, arbitrators have gone both ways as to whether these claims are clearly encompassed by an FLSA exclusion, Remson remarked.
Read the fine print
Christine Howard, an attorney with Fisher & Phillips in Tampa, Fla., said that in her experience EPL carriers typically will cover defense costs up to a limit, but not FLSA judgments or settlements. EPL insurance “might cover an FLSA retaliation claim, as opposed to the underlying FLSA claim, since those claims are more akin to a discrimination or retaliation claim,” she stated.
Given the uncertainty of the potential exposure, including liquidated damages (double damages) of a large FLSA class action, “carriers may be willing to experience the risk associated with defense costs, but not indemnity,” she remarked.
“Research the various carrier options and assess what makes sense for the business,” Howard recommended. “Do they have potential exposure, for example positions in which employees might claim off-the-clock work or positions that are not consistently found to be exempt under the wage and hour laws?”
Kami Quinn, another attorney with Gilbert, said that there are instances in which employers are willing to pay enough that an insurer will provide FLSA liability coverage, but she said that such coverage is expensive.
Misconceptions about EPL insurance in the context of wage and hour claims are common, according to Howard. Employers often will assume that “there is no coverage at all, or the opposite, they assume their coverage goes beyond defense costs.”
Allen Smith, J.D., is manager, workplace law content, for SHRM.
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