Employers struggle to control wage-and-hour litigation

Wage-and-hour lawsuits are becoming a major concern for employers as more suits are filed, observers say.

The complexity of federal and state laws, the relative ease of winning class action certification and workers laid off as a result of the weak economy have led to more litigation in recent years, observers say.

For example, the Department of Labor said there were 40,000 wage-and-hour complaints during fiscal 2010, up about 15% from the roughly 35,000 complaints in fiscal 2009.

Many claims fall into two major categories: misclassification of workers as exempt, and unpaid overtime, observers say.

However, employers can minimize the chances of litigation by taking steps that include periodic audits to determine whether employees are being properly classified, as well as careful record-keeping.

When employers are sued, experts say settling the case may be the wiser course.

Wage-and-hour litigation is the fastest-growing type of class action, legal experts say.

“If you asked me what was the headache that kept folks up at night five years ago when it comes to workplace-related lawsuits, I’d say employment discrimination lawsuits,” said Gerald L. Maatman Jr., a partner with law firm Seyfarth Shaw L.L.P. in Chicago.

“Today, the headache that keeps people awake at night” is wage-and-hour litigation, he said.

“If you’re interested in saving money and avoiding the courthouse, I think that’s the No. 1 issue right now,” Mr. Maatman said. “Every year we think we’re at the top of the bell curve, but we haven’t reached that yet.”

“It’s one of the biggest threats to employers from an employment law standpoint,” said Brian T. McMillan, a shareholder with Littler Mendelson P.C. in San Jose, Calif. “Plaintiff attorneys have kind of stumbled upon what is now the litigation du jour,” which can mean “enormous liability” for employers as well as plaintiffs’ ability to recover attorney fees, he said.

Among reasons for the lawsuits’ growth is establishing a class action under the Fair Labor Standards Act is relatively easy under the federal rules of civil procedures, said Paul J. Siegel, a partner with Jackson Lewis L.L.P. in Melville, N.Y.

The FLSA, which was created in 1938 to protect industrial workers from exploitation, guarantees employees time-and-a-half-pay for hours worked beyond a 40-hour week, unless they are salaried and fall into one of three main exempt categories: professional, executive or administrative.

Observers say even if the time at issue is just a few minutes per worker, a class action can add up to substantial costs for employers when multiplied by thousands of workers.

“While hopefully few people are discriminated against, everybody receives a paycheck, and therefore can be in a group together,” Mr. Siegel said.

“Success begets copycats,” Mr. Maatman said.

Successful litigation in the early part of this decade has attracted attorneys to the area, Mr. Maatman said. In addition, plaintiffs attorneys realized “it didn’t take money to be able to bring these sorts of cases” the way it does to bring large-scale cases alleging discrimination or violation of the Employee Retirement Income Security Act, where plaintiffs must invest in expert testimony and pay for it from their own pocket, he said.

Expert testimony unnecessary

“They can do without an expert” in wage-and-hour suits and “can get a class certified pretty quickly,” Mr. Maatman said. “So when a client walks into their office and says, “This is how I was paid,’ they can sue on behalf of that client and anyone else in the common payroll system,” he said.

Furthermore, unlike discrimination cases that must first be presented to the Equal Employment Opportunity Commission, a plaintiff attorney can see a client on Monday and file suit on Tuesday, said Mr. Maatman. It is a “much, much more user-friendly system for the plaintiffs’ system,” he said.

The weak economy also has played a role in rising litigation as laid-off workers go after their previous employers, said Lawrence S. McGoldrick, of counsel at Fisher & Phillips L.L.P. in Atlanta.

The complexity of the rules, which vary among the state and federal laws and are easy to inadvertently break, also are a factor, legal observers say.

“There is no turnkey solution that you can just plug in,” said Phillip Schreiber, a partner with Holland & Knight L.L.P. in Chicago.

“It’s hard to be in full compliance, even for a good employer,” Mr. McGoldrick said.

“When you consider whether or not an individual is properly classified as an exempt vs. nonexempt for overtime, it’s nothing that they can just look up and get a definitive answer for,” Mr. McMillan said. “The decision rests upon a specific case-by-case actual analysis as to what the particular employer does day in and day out, so it’s difficult, even as a lawyer, to provide guidance.”

The nature of today’s jobs also is a factor.

“You have employees who are not working in centralized locations where they can be monitored” and their hours worked tracked easily, said Michael C. Schmidt, a member of law firm Cozen O’Connor P.C. in New York.

Working with email and BlackBerrys “tend to be outside the traditional norms, which makes it harder for employers to control and record those” specific hours worked, he said.

In addition, budget-stretched state and federal governments are targeting independent contractors to make sure the contractors pay their fair share of payroll taxes. They are not just looking to do justice but “also seeking to get back revenue,” said Mr. Schmidt.

The Labor Department also has been active on the issue, observers say.

Location matters,

The employer’s location also makes a difference, legal experts say.

“An employer needs to consider where in the country your facilities are located,” said Mr. Siegel. “If you’re in California, if you’re in Florida or New York City, you’re going to see far more” wage-and-hour activity than in other parts of the country. In some cases, it is a reflection of local laws; and in others, of the local bar, Mr. Siegel said.

Many point to California as being particularly difficult for employers.

Mr. McMillan said the state “has just so many specific wage-and-hour rules and regulations that a lot of employers that have all the intent of wanting to comply with the law don’t often know about all the specific rules, and therefore it’s difficult for them to comply with all the technicalities.”

Insurance coverage is not widely available, observers say. According to a December study by Sterling, Mass.-based Betterley Risk Consultants Inc., some insurers offer only defense coverage or defense and settlement insurance, but both often are subject to sublimits.

If you have questions, comment or concerns regarding this article or your insurance program, please contact one of our protection coaches at 877-994-6787 or email us at insure@siaonline.com.

Limit The Effects Natural Disasters Have on Your Life

As the fun and sun of summer arrives, so does the threat of many natural disasters. Happenings like earthquakes are always a threat, but floods, wildfires, hurricanes, tornadoes, and such are more apt to strike in the warmer summer months. There are three very important steps you can take to limit the effect natural disasters have on your life and property and expedite your recovery process.

1. Planning. There are some basics that any natural disaster plan should include:
• Always have several escape routes mapped out. Each family member should know where to meet, who to call for help, and where to call to signal their safety to other family members. Your family safety plan should be posted in a central location and the escape route and emergency contact numbers should be reviewed every six months.
• If possible, store irreplaceable items and documents like birth, marriage, death, and divorce certificates; passports; deeds; social security cards; expensive jewelry; and heirlooms in a safety deposit box during high-risk seasons if you live in an area frequently hit by natural disasters. You may also put video or photo documentation, a listing of serial numbers, appraisals, and receipts for these items in your safety deposit box.
• Scan your photos to your computer. You can store your photos with an online storage service or make a CD to place in your safety deposit box.
• You should have an emergency overnight bag ready to go for every person and pet in your family and always keep a credit card, emergency cash supply, and personal identification with you during high-risk seasons.

As far as disaster-specific planning goes, here are some key points:

Earthquake planning. Follow the directions from tornado planning. You might also want to place an emergency kit in your vehicle and at your place of employment. Check to make sure your child’s school is also well-prepared.

Wildfire planning. Wildfires can begin unnoticed and spread rapidly with little forewarning. An effective evacuation plan is vital in many cases. If you do have forewarning, then stay tuned to the emergency broadcasts and follow the evacuation directions from local authorities. Remember to take your emergency evacuation bag with you.
If you’re under a warning, but haven’t been advised to evacuate yet, then you might have time to turn off your gas lines and propane tanks, soak your roof and shrubs with water, move flammable furniture to the center of rooms, and move large valuables to the safest location possible.

Flood planning. Many people live in possible flood areas and don’t realize it. For example, those living in areas that recently had a wildfire and those living downstream from a dam could have problems with flash flooding. Those living in or near a construction area could find their risk of flooding increased due to changes in water flow patterns. You can assess your risk of flooding by contacting your local building authority and your insurance agent. Since basements aren’t usually covered by typical flood insurance policies, those with a basement need a plan on moving their valuables to upper-levels. Do make sure that you have an escape plan, as discussed above, in place for your family.

Tornado planning. Unlike many other disastrous events, leaving your home during a tornado warning is seldom a wise move. Everyone in your family should know where they should go during a tornado warning. While a basement is ideal, not everyone has one. You can use a central room; preferably one that doesn’t have windows or overhead objects. Be sure your emergency kit and phone numbers are in your designated room.

Hurricane planning. Most people in areas prone to hurricanes are already on high alert during hurricane season, but do keep in mind that hurricanes and the stormy remnants are often unpredictable. The flood planning from above is applicable to hurricane planning. Additionally, you’ll want to have a supply of nails and plywood ready to go so that you can board-up your home before evacuation. Remember, if your local authorities issue an evacuation, then you need to heed it.

2. Prevention
Aside from living in an area not prone to natural disasters, there isn’t much you can do to avoid them. However, unlike most other natural disasters, wildfires can sometimes be prevented. You can personally prevent fires by being careful when using open flames, maintaining your chimney flue, and not throwing cigarettes outdoors. Of course, wildfires can happen regardless of your personal care with fire.
You can help to prevent flames from impacting your home by creating a defensible space. In fact, some insurers are now inspecting properties for defensible space before issuing or renewing policies. Your insurance agent, local agricultural organizations, and federal agencies like the American Red Cross and FEMA are valuable information sources on creating defensible spaces. The damage of flooding can also be limited by planning water diversions and landscaping as protective devices.

3. Insurance
Last, but certainly not least, you should make sure your existing insurance is providing adequate protection. For example, your regular Homeowners policy most likely won’t provide coverage if a boulder falls or rolls into your home since such would be considered an earth movement and need to be covered by Earthquake insurance. Another example would be your regular Homeowners policy not covering damage from a water or sewage system outside your home breaking, or damages from a flash flood, as these would fall under Flood insurance. If you obtain Flood insurance, keep in mind that the coverage won’t become effective for 30 days and your basement usually still won’t be covered.

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July 1, 2011 California Tax Decrease

That’s right, effective July 1, 2011 Californians will experience a decrease in California city and county tax, as well as California vehicle license fees. Here are all the details…

As a follow up to the CRA alert on June 13 with regard to the status of the state sales tax rate and vehicle license fee, both will be reduced Friday. The Legislature and Governor were not successful in their attempt to extend the higher tax rates for additional years.

As a result, effective July 1, the 1 percent sales and use tax rate increase that was approved with the state budget and effective April 1, 2009 will expire, lowering the statewide base tax rate from 8.25 percent to 7.25 percent. In areas where there are voter-approved district taxes, the total tax rate related to sales and purchases will be the statewide base tax rate of 7.25 percent plus the applicable district tax.

Also, the current Vehicle License Fee (VLF) will drop by .5 percent from the current 1.15 percent rate.

For more information on the California city and county sales and use tax rates visit the BOE’s website at http://www.boe.ca.gov/news/2011/77-11-H.pdf.

If you have any questions, comments or concerns, you may contact the Total Protection Team at 951-600-5751 or Email us at insure@siaonline.com.