wage and hour violations

DOL Offers Employers a Better Way to Resolve Wage-and-Hour Violations

Allegations of withholding tips or failing to pay employees minimum wage or overtime have hit the restaurant, landscaping, construction and childcare sectors, among others.

CCIG’s Spencer Mahoney.

For employers with large workforces, the potential liability in these cases can be staggering, often in the tens to hundreds of millions of dollars. According to the latest figures, the 10 largest wage-and-hour class-action settlements entered into or paid in 2017 totaled $574 million.

In response, more insurers have begun to offer wage-and-hour coverage, but these policies and endorsements only go so far, in most cases covering just defense costs, rather than indemnifying employers.

This spring, the U.S. Department of Labor launched a six-month pilot program designed to help business owners avoid the costly litigation and legal fees associated with wage-and-hour violations.

It’s called the Payroll Audit Independent Determination, or PAID, program and, it provides an incentive for employers to catch up on any back wages they owe.

Employers that enroll in PAID would conduct a self-audit of their compensation practices and report any violations that need to be resolved.

In exchange, they would avoid any penalties they might have incurred. Workers who accept the payment of back wages would then forfeit their right to sue the employer.

“If an employer comes forward and says, ‘I made a mistake,’ we should make it simple to pay up,” Labor Secretary Alexander Acosta said at a Congressional hearing in March.

In other words, PAID is a way for employers and their employees to make things right and avoid nasty litigation.

A couple of conditions:

Employers cannot participate in PAID if they are currently in litigation or under investigation by the DOL for Fair Labor Standard Acts violations. They also can’t use the PAID program repeatedly to resolve the same issues.

As any labor attorney will attest, violations of wage-and-hour laws are one of the largest employment practice risks that employers today face.

Employment Practices Liability policies typically provide coverage for a broad range of claims, including discrimination based on race, age, gender or national origin, as well as claims alleging sexual harassment and wrongful termination. But wage-and-hour claims are often covered only by special endorsement.

Why? Because providing coverage for such things could encourage employers to think they could get away with not paying their workers statutorily mandated wages.

These endorsements, however, will provide defense cost coverage, which, of course, can be valuable because hiring the right lawyers and going to court can cost millions of dollars.

That said, there are niche policies that cover wage and hour violations, but typically they’re designed for the employers with thousands of workers and involve large retentions of $1 million or more, putting them out of reach for most companies. As in much of the insurance world, the devil is in the details.

Spencer Mahoney is a CCIG insurance advisor. Reach him at 720-212-2051 or SpencerM@thinkccig.com

CCIG is a Denver-area insurance brokerage with the full-service capabilities of a national brokerage. We do more than make sure you have the right policy. We also help you manage your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence.

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