It's no secret that most E&O claims against agents arise from their clients' own uninsured claims. While the law regarding the duty to recommend insurance varies by both state and circumstance, if you happen to be aware of an uninsured risk your client faces, it is never a bad idea to suggest insurance that could protect her against that risk. Plus, there is clearly a side benefit to you: As your client's uninsured exposures are reduced, so too are your own E&O exposures.
Employment practices liability (EPL) continues to be a large source of exposure for businesses of all sizes. Claims involving sexual harassment, discrimination, the Americans with Disabilities Act (ADA), the Family and Medical Leave Act (FMLA), the Fair Labor Standards Act (FLSA) and wrongful termination continue to make headlines around the country.
Claims against small and midsize companies appear to be driving current growth. FLSA claims have experienced astronomical growth over the last decade or so. Consider that in 2002, 2,035 FLSA claims were filed, while in 2013 this number reached 7,764, which represents a record high.
Small businesses are particularly vulnerable to EPL claims. Most have neither personnel departments nor written personnel policies. There is often a close, family-like relationship between employee and employer. Work flow in small businesses can be uneven and difficult to schedule, and people at all levels are accustomed to staying at work until the job is done. And there is a good chance that many small businesses still do not have EPL insurance to protect against this exposure.
FLSA claims in particular are grabbing quite a bit of attention. FLSA is a federal law that focuses mainly on overtime rules and work week definitions. FLSA claims typically involve "wage-and-hour" disputes, which is the general description for cases concerning alleged non-payment of full and timely wages. Under FLSA, employees who work more than 40 hours per week are entitled to overtime pay unless they fall within one of the FLSA's categories of "exempt" employees.
It is a misconception that employees who are paid by the hour are automatically non-exempt (and entitled to overtime), and that salaried employees are exempt. In reality, an employee's status depends on job duties, not payroll titles or method of payment. But recently an even greater challenge has begun to present itself for employers: determining whether a worker is even an employee.
While employees are covered by the FLSA, independent contractors are not. Whether a worker is an employee or an independent contractor cannot be determined by the label bestowed upon the worker. Rather, this determination is typically made by courts using an economic-reality test. Even if both parties desired a contractor relationship, a court can retroactively declare the worker to have been an employee all along.
Today's business environment continues to present novel challenges to the application of employment laws. The growing use of handheld email devices and remote network access make it easier for employees to work more than 40 hours per week. Employers are asking their employees to do more with less, and job duties are in constant flux as a result. And as the baby boomers in the workforce continue to age, it is likely that more ADA, FMLA and age discrimination claims will be filed.
Most EPL policies offer limits of $1 million to $10 million. All policies cover wrongful termination, sexual harassment, discrimination, ADA and FMLA claims and retaliation. Although many exclude indemnity coverage for FSLA "wage and hour" awards—reasoning these are wages owed by an employer to an employee, and thus not insurable—they will cover the cost of defending the lawsuits, which can be extremely valuable in complex and protracted litigation.
The next time you meet with a client to review his or her insurance needs, consider having a discussion about EPL insurance. The more your clients are protected, the less likely you are to face an E&O claim when they are sued and don't have insurance to cover it.
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