The financial crisis the United States has been dealing with the past few years has incited a new and increasing trend of wage and hour lawsuits. The increasing number of successful settlements and court rulings has motivated more and more displaced workers to take legal action.
As a result of this trend, wage and hour issues have become the largest potential employment liability risk for businesses today. Wage and hour lawsuits usually consist of allegations from current or former employees regarding unpaid work, off-the clock work, or failure to provide breaks and/or meals.
These cases may be brought under the Fair Labor Standards Act (FLSA) or state law. The cases can result in back wages and penalties or civil settlements. According to the Federal Judicial Center, the amount of FLSA cases went up by 5% between 2013 and 2014. As these numbers continue to rise, the risk of expensive litigation and large damage awards for employers rises as well. This accentuates the importance of employment liability insurance.
Wage and hour claims can affect any type of business or industry. However, manufacturers in particular are frequently getting hit with private litigation from current and past employees.
This is because manufacturers often pay their employees hourly which can cause confusion and error in calculating hours and paying employees the correct amount.
Also, there are certain laws regarding wages that some employers may not be aware of. For example, some employers may not understand the legality of deducting cash or payment from employees’ wages below the FLSA required minimum rate for necessary tools, uniforms, and merchandise shortages. In addition, a manufacturer might not be aware that they may have to pay their employees for the time it takes them to change into required uniforms or gear, this is called “donning and doffing”.
Risk of Expensive Legal Proceedings
Since enforcement of wage and hour laws is on the rise and the potential of large damage awards and class action status are on the rise with it, wage and hour litigation is becoming increasingly popular. In a 2013 report by NERA Economic Consulting, companies in the US paid a total of $467 million in settlements for hour and wage lawsuits. Averaging at about 4.8 million per case.
Due to the fact that the fees awarded by the court have been extremely high for these cases, plaintiff attorneys are taking notice and are actively seeking out clients who believe that their employer violated hour and wage laws. Also because employers often pay large amounts of employees in the same manner, these cases always have the potential of growing and becoming multiple-plaintiff cases. In fact, it is safe for employers to assume that a good attorney will make sure they contact all other employees of that company to seek out anyone else who wishes to be compensated.
How to Avoid Litigation
To avoid costly litigation from wage and hour violation claims, it is important that employers consult with legal counsel to ensure that they are properly following the laws set by FLSA. Another great way to protect your business from these claims is to always track and record the hours your employees work. There are many great technologies in the market such as time clocks and products of that nature that help keep an accurate and computerized log of hours worked. It’s also a good idea to be consistent in your decisions of whether or not you are paying your employees for donning and doffing activities, like getting changed into a uniform.
Also, frequently review your classification choices on exemption statuses to make sure they are up to current standards. And lastly, take advantage of risk management resources provided by insurers that can help you evaluate your risks and take the needed steps in prevention. These services could include things like free legal advice and helpful websites.
While there are many steps you can take to avoid litigation, it is always a good idea for businesses to purchase an Employment Practices Liability insurance policy (EPLI) in the event that a mistake is made. Even though this type of coverage does not usually cover back pay for wage and hour violation, is does cover the defense costs for these claims.
Not only is an EPLI policy important to mitigate legal defense costs for wage and hour claims, but it also protects the business from other potentially damaging risks. These include allegations of discrimination, retaliation, and wrongful termination. Since every businesses that has employees is at risk for these types of claims, an EPLI policy is a must to protect your business from costly legal proceedings and damaging losses.