The National Labor Relations Board (Board) announced on June 21, 2022, that it intends to engage in rulemaking with respect to several subjects. One of those which was revealed to be a subject of rulemaking was joint-employer status under the National Labor Relations Act (Act).Continue Reading The National Labor Relations Board is Engaging in Rulemaking, Again
Our prior post discussed how Democrats in the House of Representatives sought to amend the Federal Labor Standards Act (FLSA) as part of new proposed legislation called the “Wage Theft Prevention and Wage Recovery Act”. It concluded that the legislation, if enacted, would increase both the frequency and severity of not only FLSA collective actions but also of investigations and enforcement actions by the Department of Labor’s Wage and Hour Division.
Many businesses assessing potential new or growing FLSA and regulatory exposures may be wondering if their liability insurance policies will respond to protect the company and its officers and directors from wage and hour claims. The short answer is, it depends.
While many policies expressly limit or exclude FLSA-related wage claims, or only provide for a small cost of defense, coverage may be available, and companies should carefully review all potentially applicable policies for sources of coverage. We discuss several key issues to consider when assessing wage and hour insurance below.
- Most EPL Policies Limit or Exclude Coverage for Wage and Hour Claims, but Don’t Assume That Exclusions Apply to All Wage-Related Allegations.
Many companies assume that all workplace-related litigation will be covered by insurance but are surprised to find out that most employment practices liability (EPL) policies exclude claims under the FLSA and similar state and local wage laws. This carve out from EPL policies can be significant—the Department of Labor (DOL) reports that in the 2021 fiscal year alone this one federal agency assisted more than 190,000 workers, recovered more than $230 million in back wages, and initiated nearly 25,000 compliance actions. Common wage and hour claims include, among others, “donning and doffing” claims, failure to pay overtime, employee misclassification, and failure to reimburse business expenses. In addition to the DOL, many states have their own robust wage and hour departments, often within their respective attorneys general offices, and this does not even take into account the incredibly active state and federal private litigation companies face in the wage and hour area.
The rise in wage and hour risk and exposure has led insurers to limit coverage under EPL policies by either outright excluding those claims or limiting coverage to costs of defense only, sometimes subject to small sublimits. However, all “wage and hour” exclusions are not created equal, and businesses should not assume that a wage-related exclusion will always apply to all forms of alleged labor code violations.
Take for example Southern California Pizza Co. v. Lloyd’s, London, 40 Cal. App. 5th 140 (Ct. App. 2019), in which a company sought coverage for a suit alleging, among other things, that it violated California labor code sections governing reimbursement of work-related expenses. The company’s EPL insurer denied the claim under the policy’s FLSA exclusion, except for a limited grant of coverage under a wage and hour endorsement providing $250,000 in defense costs. The company challenged the insurer’s interpretation of the FLSA exclusion, which applied to claims that arise out of, are directly or indirectly connected or related to, or in any way allege violations of any state “wage and hour or overtime laws.”
The court agreed with the company’s narrow interpretation of “wage and hour” to exclude only claims that allege a wage, hour, or overtime law violation and seek wages as relief. Because the underlying claims alleging failure to reimburse business-related expenses were “nonwage” tort claims under California law, they fell outside the scope of the exclusion and triggered the insurer’s duty to defend outside the limited coverage under the wage and hour endorsement.
Like all insurance claims, the labor code violations at issue in the Southern California Pizza were judged based on the actual policy language and facts alleged in the underlying suit. Because exclusionary language must be interpreted narrowly against the insurer and in favor of coverage, policyholders should not assume that the insurer’s preferred (i.e., broad) interpretation of wage and hour exclusions is correct without fully evaluating the specific facts, law, and policy language at issue in a particular claim.
- Supplemental or Standalone Wage and Hour Coverage May Be Available.
Even if recovery may be possible under EPL policies that include a wage and hour exclusion, companies may still be able to purchase express coverage for FLSA claims. The first example is a wage and hour endorsement or rider to an existing EPL policy. But those endorsements are typically “defense only” and will not indemnify the company for any settlements or judgments. In addition, wage and hour endorsements that provide defense coverage may be subject to a relatively low sublimit (like the $250,000 in defense coverage in South California Pizza).
Secondly, some carriers may be willing to write wage and hour coverage that includes both indemnity and defense coverage as part of a standalone policy. Wage and hour policies, usually through the Bermuda market, typically carry higher self-insured retentions and are targeted towards a specific class of small to medium-sized businesses based on loss history, exempt and non-exempt employee headcount, and other factors.
In addition to assessing availability of wage and hour coverage, companies should carefully review the language of the policy to understand how a covered EPL claim would play out in practice. One of the biggest issues aside from sublimits or scope of exclusionary language applicable to FLSA claims can be control of the defense, as most EPL policies allow the insurer to control the defense, including selection of insurer-approved defense counsel. Experienced coverage counsel and brokers can often negotiate around these provisions to protect the company’s preferred choice of counsel by endorsing the policy with preapproved counsel and, if needed, applicable rates, at the time of placement or renewal. Given the significant reputational harm that can go along with losing wage and hour claims, control over the selection of counsel should not be overlooked.
- Consider All Potentially Applicable Policies.
Many companies purchase standalone EPL policies to protect against workplace-related risks, but that is not the only possible source of recovery. While professional liability or workers’ compensation policies are unlikely to respond to wage and hour claims, endorsements may be added to general liability policies to provide coverage for certain employment-related wrongful acts.
Directors and officers (D&O) and similar management liability policies also can include EPL coverage, either through standalone coverage sections or by endorsement, and may be triggered by ERISA-type claims, government investigations, or DOL enforcement actions related to workplace misconduct. In addition, D&O policies may also respond where individual officers or directors are targeted in FLSA suits attempting to hold them personally liable for causing wage and hour violations. See, e.g., Foday v. Air Check, Inc., No. 15-CV-10205, 2018 WL 3970142, at *4 (N.D. Ill. Aug. 20, 2018) (president who wrote company’s handbook, performed daily quality assurance inspections, and knew about disputed time card rounding practices could be held personally liable for FLSA violations). This is especially true under Side-A only D&O policies that provide broader coverage for non-indemnified claims for individuals that may not be subject to employment-related exclusions.
Finally, aside from identifying all sources of potential wage and hour coverage, those policies should be reviewed in tandem with in-house and outside risk professionals to ensure that there are no coverage gaps, including coordination of employment-related definitions, coverage grants, and exclusions, between D&O and EPL policies. The time to address any gaps, modify or supplement coverage, or negotiate different terms is at the time of policy placement or renewal, which will avoid surprises or unintended consequences in the event of a wage and hour claim.
Please join Hunton Andrews Kurth LLP for a complimentary webinar:
OSHA 2022 – Mid-Year Report
Thursday, June 23, 2022
3:00–4:00 pm ET
2:00–3:00 pm CT
12:00–1:00 pm PT
Please join labor and employment attorneys, Susan Wiltsie, partner, and Reilly Moore, associate, in a discussion on the current state of OSHA regulatory initiatives, enforcement efforts, agency trends and other developments, including COVID-19.
Susan F. Wiltsie, Partner, Hunton Andrews Kurth
Reilly C. Moore, Associate, Hunton Andrews Kurth
For additional information available here:
Earlier this month, the U.S. Supreme Court in Southwest Airlines Co. v. Saxon unanimously held that a ramp supervisor who frequently handled cargo for an interstate airline company was exempt from coverage under the Federal Arbitration Act (FAA) because she belonged to a “class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1.
In reaching this conclusion, the Court’s analysis was twofold. First, it defined the “class of workers” by looking at “the actual work that the members of the class, as a whole, typically carr[ied] out.” In this regard, the Court defined the class of workers as those individuals who physically loaded and unloaded cargo on and off airplanes on a frequent basis.
Next, the Court examined whether this class of workers was “engaged in foreign or interstate commerce.” The Court held that it was, as airline employees who physically loaded and unloaded cargo on and off planes traveling in interstate commerce were “intimately involved” with cross-border commerce.
Although both sides argued for a broader or narrower application of the exemption, the Court remained unpersuaded. The ramp supervisor argued that the “class of workers” should be broadly defined to include all employees who carried out the “customary work” of the airline, rather than cargo loaders more specifically. The Court rejected this industrywide or companywide approach, which would exempt “virtually all employees of major transportation providers” – from cargo loaders to shift schedulers to those who design the airline’s website.
The Court also rejected the airline’s argument that only workers who physically moved goods or people across foreign or international boundaries – such as pilots, ship crews, and locomotive engineers – were “engaged in foreign or interstate commerce.” Unlike in other cases where the Court found a lack of necessary nexus to interstate commerce – such as in the intrastate sale of asphalt to be used on highways, or providing localized janitorial services to a corporation engaged in interstate commerce – here the case law was clear that airplane cargo loaders plainly performed activities within the flow of interstate commerce. The Supreme Court’s decision clarified the analysis of whether a worker qualifies for the FAA’s transportation worker exemption. However, the scope of this exemption will continue to be hotly litigated in cases involving other types of workers such as, for example, “last leg” delivery drivers and food delivery drivers, where, as the Court noted, “the answer will not always be so plain.”
We are pleased to announce that the Labor and Employment team at Hunton Andrews Kurth LLP has been recognized as practice leaders in Immigration and Labor and Employment by the 2022 Legal 500 US Guide. Twelve individual lawyers on HuntonAK’s Labor and Employment and Immigration Team also were acknowledged.
- Immigration, Tier 3
- Labor and Employment Disputes (Including Collective Actions): Defense, Tier 3
- Labor-Management Relations, Tier 3
Individual recommended attorneys:
- Ian Band, Immigration
- Sara Harlow, Immigration
- Suzan Kern, Immigration
- Adam Rosser, Immigration
- Lieselot Whitbeck, Immigration
- Ryan Bates, Labor and Employment Disputes
- Emily Burkhardt Vicente, Labor and Employment Disputes
- Brett Burns, Labor and Employment Disputes
- Roland Juarez, Labor and Employment Disputes
- Chris Pardo, Labor and Employment Disputes
- Scott Nelson, Labor and Employment Disputes
- Kevin White, Labor and Employment Disputes
In addition to the team awards, the 2022 Guide recommended 37 practice areas and 89 individual attorneys across the Firm.
Please read the firm press release for additional details.
Congratulations to all!
On June 15, 2022, the U.S. Supreme Court issued its decision on Viking River Cruises, Inc. v. Moriana (Case No. 20-1573) reversing the California Court of Appeal’s decision to affirm the denial of Viking’s motion to compel arbitration Moriana’s “individual” PAGA claim and to dismiss her other PAGA claims.Continue Reading BREAKING: Supreme Court Reverses California Court of Appeal in Viking River Cruises v. Moriana
Earlier this year, the Office of the General Counsel (GC) of the National Labor Relations Board (Board) issued an Advice Memorandum in Case 05-CA-281089 instructing Board Region 5 to issue a complaint alleging that the employer, LT Transportation (a shuttle bus transportation provider), violated Section 8(a)(1) of the National Labor Relations Act, when it banned nonemployee union organizers from boarding its shuttles because of their identity as union organizers. The GC also directed the Region to use the case as a vehicle to argue that that two Board precedents, UPMC, 368 NLRB No. 2 (June 14, 2019) and Kroger, 368 NLRB No. 64 (2019), should be overruled because, in the view of the GC, they narrowed employee rights set forth in two U.S. Supreme Court cases, NLRB v. Stowe Spinning Co., 336 U.S. 226, 233 (1949) and NLRB v. Babcock & Wilcox Co., 351 U.S. 105 (1956).
Stowe and Babcock
In Stowe, the United States Supreme Court held that an employer violated Section 8(a)(1) of the Act by discriminating against nonemployee union organizers when it permitted outside community groups to use a meeting hall on the employer’s private property, but prohibited nonemployee union organizers from using the same meeting hall. In Babcock, the Supreme Court formally established a framework for analyzing whether an employer has unlawfully excluded nonemployee union representatives from its private property, which included the discrimination exception established in Stowe.
The cornerstone of the discrimination exception is whether an employer excluded nonemployee union organizers from its private property, but did not exclude other “similarly situated” individuals or organizations. See Stowe, 336 U.S.at 233.
The NLRB GC’s Position Concerning UPMC and Kroger
The GC interprets UPMC as improperly limiting the discrimination exception established in Stowe and Babcock by permitting employers to prohibit nonemployee union organizers from engaging in certain conduct on private property. In UPMC, the Board interpreted the discrimination exception to apply to the identities of individuals, rather than the conduct of such individuals. The Board, relying on the “similarly situated” component of Stowe, determined that an employer was free to permit, or prohibit, certain conduct on its private property, so long as it did not allow non-union persons to engage in conduct similar to that which the employer prohibits union organizers from engaging in on its private property.
The union organizers’ conduct in UPMC was comprised of (1) sitting at tables in the employer’s cafeteria that held union flyers and pins, (2) eating lunch, and (3) talking with the employer’s employees about the union. Id. at 1-2. The Board in UPMC determined that the union organizers’ conduct was “promotional activity,” which was prohibited by the employer. Id. at 9-10. In the Advice Memorandum, the GC disagrees with the UPMC Board’s fact determination that the union organizers’ conduct was “promotional activity.” While the Advice Memorandum does not contain a fulsome legal analysis of how the UPMC holding conflicts with the discrimination exception set forth in Stowe and Babcock, the GC urges the Region to argue that UPMC improperly narrows the discrimination exception.
As with UPMC, the GC interprets Kroger to improperly limit the discrimination exception. In Kroger, the Board affirmed that an employer engages in unlawful discrimination within the meaning of the discrimination exception when it treats union-related activities less favorably than similar activities that are not union-related, and ruled that the purpose behind the activities is instructive when determining whether the activities are “sufficiently similar” to invoke the discrimination exception.
In the Advice Memorandum, the GC again urged the Region to argue that Kroger be overruled because Kroger takes into account not only the conduct engaged in by union organizers, but the purpose behind the conduct. The GC concludes that, because Kroger looks to the purpose behind the conduct, it improperly narrows the discrimination exception by permitting an employer to deny access to nonemployee union organizers who are engaged in conduct similar to that engaged in by, for example, a charitable organization, where the purpose behind the union organizers’ conduct (organizing employees, for example) differs from the purpose behind the conduct of the charitable organization (fund raising, for example). Again, however, the Advice Memorandum does not contain legal analysis supporting the GC’s contention that the discrimination exception precludes consideration of the purpose behind the conduct when determining whether the conduct is sufficiently similar.
In the Advice Memorandum issued in the LT Transportation case, the GC determined that the employer’s conduct fell within the discrimination exception as applied in UPMC and Kroger. After learning that nonemployee union organizers had been (1) boarding LT Transportation’s shuttles; (2) speaking with LT Transportation’s employees—the shuttle drivers—about terms and conditions of the drivers’ employment; and (3) discussing union organizing in a nondetailed manner with the drivers, counsel for LT Transportation informed counsel for the union that LT Transportation would take legal action against the nonemployee union organizers who boarded LT Transportation’s shuttles. Because LT Transportation effectively banned nonemployee union organizers from boarding LT Transportation’s shuttles, the GC determined that the prohibition was aimed directly at the identity of the nonemployee union organizers as agents of the union, and thus fell squarely within the discrimination exception. While the GC’s position in LT Transportation is not unexpected, the Advice Memorandum provides insight into the goals of the GC, which appear to include expanding the Act at the expense of employer private property (and other) rights. However, because the Advice Memorandum lacks a fulsome legal analysis of how UPMC and Kroger conflict with the contours of the discrimination exception set forth in Stowe and Babcock, it raises questions about whether the GC’s goals are in line with Supreme Court precedent and the Act itself.
Congratulations to our team and eleven attorneys for Chambers USA 2022 rankings!
The team was recognized in the following areas:
- Immigration – District of Columbia – Band 3
- Labor & Employment – California – Highly Recommended – Band 2
- Labor & Employment – District of Columbia – Band 4
- Labor & Employment – Texas – Band 5
- Labor & Employment – Virginia – Band 1
Individual recognitions were received by:
- Ian P. Band (District of Columbia)
- M. Brett Burns (California)
- Terence G. Connor (Senior Statesperson – Florida)
- Juan C. Enjamio (Florida)
- Kurt G. Larkin (Virginia)
- Scott M. Nelson (Texas)
- Chris Pardo (Massachusetts)
- Kurt A. Powell (Georgia)
- Adam J. Rosser (District of Columbia)
- Holly H. Williamson (Texas)
- Susan Wiltsie (OSHA Nationwide – USA)
Please read the firm press release for more information.
The EEOC recently issued long awaited guidance on how an employer’s use of software, algorithms, and artificial intelligence will be treated by the Commission under the Americans with Disabilities Act (ADA). In issuing this guidance, the Commission focused on employers administering software that uses algorithmic decision-making or artificial intelligence in making employment decisions before and during employment. The Commission outlined three general areas in which the use of such technology may violate the ADA: (1) an employer not providing a reasonable accommodation that is necessary for a job applicant or employee to be rated fairly and accurately by the technology ; (2) an employer administering the technology to “screen out” job applicants; and (3) an employer using the technology to make disability related inquiries and medical examinations.
Reasonable Accommodations. Generally speaking, under the ADA, an employer must grant an applicant or employee reasonable accommodations that would allow the individual to perform the essential functions of the job. For reasonable accommodations, the EEOC has flagged an employer’s use of algorithmic decision-making tools to assess job applicants or employees as a potential area of concern under the ADA. Indeed, if an applicant or employee explains to the employer that a medical condition would make it difficult to use the software, the individual has requested a reasonable accommodation requiring the employer to engage in the interactive process and find a suitable accommodation for the individual. By way of example, when the documentation shows the disability might make a test more difficult or reduce the accuracy of the assessment, the employer may be required as a reasonable accommodation to provide an alternative testing format or a different type of skill assessment that more accurately judges the applicant’s or employee’s skills. Under the Commission’s guidance, an employer can be held responsible pursuant to the ADA for the actions of software vendors acting on the employer’s behalf.
“Screening Out” Individuals. Another scenario in which the ADA could apply to software using algorithmic decision-making or artificial intelligence is to “screen out” individuals. “Screening out” occurs when a disability prevents a job applicant or employee from meeting – or lowers their performance on – a selection criteria, and the applicant or employee loses a job opportunity as a result. For example, a “screen out” may occur when a chat bot which is programmed to reject all applicants with an employment history gap excludes an applicant who has a gap in employment because of a disability. In warning against such practices, the EEOC explicitly cautions against using “bias free” software as a shield because such software may not be programmed to assess discrimination under the ADA.
Disability and Medical Related Inquiries. Lastly, the EEOC zeroed in on circumstances in which an applicant has not been extended an offer of employment. At that stage of the employment lifecycle, an employer may run afoul of the ADA if it utilizes software that seeks information about an applicant’s physical or mental impairments or health, a practice that is generally prohibited by the ADA.
All of this begs the question of what employers should do when utilizing software to make employment decisions before and during employment. Luckily, the EEOC provided a non-exhaustive list of “promising practices” which include, but are not limited to, informing all applicants who are being rated using software that reasonable accommodations are available, using algorithmic decision-making tools that only measure the abilities or qualifications truly necessary for the job, and confirming with a vendor before using its software that the tool does not ask job applicants or employees questions that are likely to elicit disability or medical related information. Yet, even with the EEOC’s guidance, the use of software employing algorithms and artificial intelligence is a new and developing area of the law. As a result, Employers will want to consult with employment counsel before developing or hiring a vendor to administer software utilizing algorithms or artificial intelligence to make employment decisions.
Earlier this month, Democrats in the House of Representatives introduced the “Wage Theft Prevention and Wage Recovery Act” (“Act”). This proposed legislation seeks to amend the Federal Labor Standards Act (“FLSA”) in several key ways.
First, the Act would require all employers to provide regular pay stubs and initial salary disclosures.
Second, the Act would change wage recovery by requiring payment at an employee’s agreed-upon wage rate, rather than at the minimum wage or minimum overtime wage rates, which the FLSA has never done and has traditionally been within the purview of state laws. This would explicitly include rates set forth in collective bargaining agreements.
Third, the Act would change final paychecks by requiring full payment of any remaining salary to be provided the earlier of the scheduled payday or 14 days of termination.
Fourth, the Act would require employers to keep employee records for five years, and permit inspection of such records within 21 days of any employee request.
Fifth, the Act would change FLSA collective actions from an “opt-in” model to an “opt-out” model, similar to most current class actions and a significant departure from the way FLSA representative actions have ever functioned.
Sixth, the Act would invalidate and prohibit all arbitration agreements and class action waivers arising under the FLSA, overturning Supreme Court precedent.
Finally, the Act would increase both civil penalties and recoverable damages for nearly all violations.
Coming on the heels of Congress passing a law prohibiting the enforcement of pre-dispute arbitration agreements in sexual assault and sexual harassment claims a few months ago, the Act appears to be part of a broader trend disfavoring the use of arbitration agreements, in addition to creating various additional federal rights. If successfully enacted, this legislation would upset otherwise well-settled legal doctrines, such as those surrounding the Labor Management Relations Act, and increase both the risk and severity of FLSA collective actions.
Beyond additional threat of litigation, this Act would likely increase the frequency and scope of investigations and enforcement actions by the Department of Labor’s Wage and Hour Division (“Division”). For example, this legislation would require the Division to enforce collective bargaining agreements and other contracts, which it has not done previously. Some have commented that these requirements would strain the already overburdened agency, such that increased actions would not be an immediate outcome. Others, such as bill co-sponsor Bobby Scott (D-Va.), have noted that the Chair of the House Appropriations Committee, Rosa DeLouro (D-Conn), is an avid bill sponsor, and would be well-placed to ensure that the Division has the resources required to begin targeting employers for enforcement.
While no immediate steps are required, as it remains to be seen whether the bill will pass the House and move to the Senate, this proposed legislation is a helpful reminder that it is far easier to build a plane on the ground than it is to try to build it in the air. Employers will want to ensure compliance with applicable state law on employee records, pay practices, and pay disclosures, as well as monitor compliance with collective bargaining agreements and other employee contracts, well in advance of this bill’s theoretical passage.