W&H: how Bermuda can help

Wage and hour claims (W&H) can be a costly pitfall for many small to medium-sized enterprises (SMEs) and larger firms, as well as an unwelcome surprise due to the misconception that W&H is covered by employment practices liability policies (EPL).

With the effects of employment legislation and COVID-19, combined with growing employee awareness of W&H laws, it is an increasingly important area of risk for businesses to address. The Bermuda market is primed and uniquely placed to address the significant protection gap in the US.

In 2020 the top 10 US W&H settlements totalled $294.6 million. While this is a decrease from 2019’s $449.05 million (the fourth-highest amount in a decade), 2020 brought the highest number of certified class and collective action suits when compared to other areas of workplace law.

In the last 15 years alone there has been a 450 percent increase in W&H filings. Despite the disruption of the global pandemic, courts issued more rulings on W&H certifications in 2020 than were issued in each of the past five years. This pattern is not expected to abate any time soon.

Table 1: Allegations leading to W&H claims

Misclassification of employees (eg, employees as independent contractors)

Inaccurate payment of wages

Failure to pay wages for “off-the-clock” work

Donning and doffing (changing in and out of work clothes)

Non-compliance with meal and break period requirements

Miscalculation of wage and overtime rates

Failure to reimburse for business-related expenses (eg, travel)

Table 1 shows some of the most common violations under the US Fair Labor Standards Act (FLSA), which established minimum wage, overtime pay, record-keeping, and youth employment standards for employers to uphold in the private, federal, state, and local government sectors.

Couple the FLSA with individual state laws, and you have a complex risk landscape for employers to navigate. This is specifically true when looking at California and the Private Attorneys General Act (PAGA).

Introduced in 2004 as a response to the lack of state capacity to oversee the enforcement of certain labour laws, PAGA enables workers to act as private attorneys general and file lawsuits against employers for labour violations. Through PAGA, employees can pursue civil penalties just as a state agency would, adding increased weight to an employee’s ability to enforce California’s labour laws.

There are few limitations as to who can pursue a PAGA claim. Many employment contracts in California state that employees must resolve employment disputes through arbitration or require employees to forgo their right to join a class action against their employer.

PAGA claims override such contractual stipulations. This has contributed to the dominant trend of increased class action suits, leading to California becoming “a breeding ground for W&H class action litigation”, according to a report by the class action litigation group at Seyfarth Shaw.

Seyfarth further noted that “new case filings have continued to grow to the point where multiple W&H class actions are filed in California every day”. Not far behind is Florida, which has seen a considerable rise in W&H suits in recent years.

It is projected that wage disputes and the enforcement of labour laws will be made a priority and will become a regulatory focus within the Department of Labor, which may be shifting towards a more worker and plaintiff-friendly position. This development could possibly foster an environment where W&H claims become even more prevalent.

Growing demand

Combine this with the increased employee awareness of W&H laws, once reserved for specialist legal publications, and the accessibility of avenues employees can take to challenge their employers, and 2021 is poised for an influx of litigation and claims.

COVID-19 and the introduction of remote working have created further complexities for SMEs and larger firms within the context of W&H. The failure to pay hourly employees minimum wage or overtime topped the list of W&H violations.

However, remote working has made the hours worked at home or in the office even more difficult to calculate and monitor, resulting in businesses becoming more vulnerable to collective or class actions. The picture may be further complicated as companies move to a more flexible approach, exploring whether staff work in the office or from home.

Considering the legislation, ramifications of remote working, and governmental priorities, it is clear that employers will be seeking increased support from the insurance industry to develop solutions as the employment liability landscape evolves. We have observed this to be particularly true in the retail, hospitality, manufacturing, financial institutions, and healthcare industries.

In order to meet this growing demand, we must recognise and address the need for modernisation. The process for W&H policy submissions is currently document-heavy and not fit for purpose. This is where data and technology can revolutionise and streamline the procedure. Such developments will benefit the end client and industry participants alike, improving efficiency across the board in the placement and purchase process.

Bermuda’s position as an incubator of technological advancements and centre of innovation makes it the ideal region to reform the manual and paper-driven process and develop data-driven solutions.

Its proximity to the US means that the Bermuda market is in the ideal position to address the growing demand from businesses ranging from SMEs to larger firms, and can keep abreast of the regulatory changes that will affect employers most.

The trajectory is clear. W&H is set to become an increasing area of focus in the employment liability space. Following a year with the highest class action certification conversion rate in a decade, with 84 percent granted in Federal courts, there is everything to suggest that 2021 will follow suit.

As the home of specialist expertise, technology, and the leading market for W&H solutions, Bermuda is ready to help businesses navigate and mitigate this risk.

Colin Kelley is executive vice president and head of the liability division at Ed Broking Bermuda. He can be contacted at: colin.kelley@edbroking.com