NU Online News Service, March 31, 3:19 p.m. EDT
Insurers have been slow to respond with coverage for wage-and-hour lawsuits that have been an escalating threat to companies of all sizes over the past decade, Advisen Ltd. said in a new study.
The 21-page report, "The Threat of Wage-and-Hour Lawsuits," examines the drivers of these suits and explores recent developments in wage-and-hour litigation. Additionally, it includes a survey of insurers that provide possible coverage.
Typically, wage-and-hour suits involve allegations that employers have failed to pay wages for time worked, or failed to pay at rates required by law.
According to Advisen, the Department of Labor (DOL) estimates that 80 percent of employers are not in compliance with applicable wage-and-hour laws.
Now outranking discrimination lawsuits, measured by both number of filings and size of settlements, employment practices lawsuits have become an unforeseen calamity for companies across all industry sectors, the firm said.
Alterations made to the Federal Labor Standards Act (FLSA) by the DOL in 2004 were originally intended to clarify definitions to make it easier for companies to comply. Instead, it brought focus to the issue and sparked awareness among the plaintiff's bar, according to the report.
Advisen noted that the DOL and certain state labor departments have stepped up enforcement efforts in recent years, and the DOL has ramped up its Wage-and-Hour Division under the Obama administration.
These elevated regulatory efforts not only result in more fines, but precipitate class action civil lawsuits by employees allowed under the FLSA and equivalent state labor laws, Advisen said.
"Publicity surrounding changes made to the Federal Labor Standards Act in 2004 has been a catalyst for class action lawsuits," John Molka III, author of the report, said in a statement.
"On top of that, enforcement efforts by the U.S. Department of Labor have further stimulated class actions. American businesses are exposed to very large losses from these suits, but the insurance industry has been slow to respond with coverage for this risk," said Mr. Molka.
Although every sector is susceptible, the retail sector has been targeted in many of the largest suits, the report found. Wal-Mart alone has been named in more than 80 wage-and-hour class action civil suits and has agreed to settlements in the hundreds of millions of dollars.
In 2008, Wal-Mart Stores Inc. agreed to pay between $352 million and $640 million to settle 63 wage-and-hour lawsuits filed in 42 different states. The lawsuits accused the company of cheating hourly workers by forcing them to work through breaks and not paying them.
A class action lawsuit filed on behalf of Wal-Mart workers in Minnesota in 2008 was settled for $54.3 million, including back pay, for requiring hourly employees to work off the clock as well as payments for other violations of the state's wage and hour laws.
Advisen noted it tracks more than 6,000 significant employment cases and events. These records total more than $12 billion in loss and they include hostile work environment, whistleblower/retaliation, and discrimination and harassment.
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