Wage and Hour Claims: A Look Back on The First Half of 2014

September 08, 2014

As the mid-point of 2014 fades into the rearview mirror, it is clear that wage and hour claims continue to be a hotbed of litigation impacting large and small companies across industries.  In turn the protection those companies can receive, or fail to receive, from their insurers for these claims, remains an important area of attention for any general counsel or other officer in charge of risk.

We’ve highlighted some of these issues in our prior blog entries:  Insurance Coverage For Wage And Hour Litigation Claims dated August 1, 2012, Insurance Coverage For Wage & Hour Claims Arising Out Of Superstorm Sandy dated November 7, 2012, A Recent Development In “Wage and Hour” Insurance dated May 23, 2013, and Lessons from a Recent Wage & Hour Ruling dated November 11, 2013.

In the first half of 2014, three wage and hour lawsuits and/or settlements have caught our attention.

First, on June 4, 2014, Hilton Worldwide, Inc., among other defendants, was sued in a putative wage and hour class action lawsuit alleging violations of the Fair Labor Standards Act (“FLSA”) and the California Labor Law Act.  See Nelson Chico v. Hilton Worldwide, Inc. et al., Case No. BC541043 (Cal. Super. Ct., Los Angeles County).  Second, on July 15, 2014, the United States District Court for the Western District of Washington preliminarily approved a settlement in Paz v. Sakuma Brothers Farms, Inc., No. 2:13-cv-01918.  See Order Preliminarily Approving Settlement, Directing Issuance of Class Notice, and Scheduling Fairness Hearing, Docket No. 31.  If finally approved, the $850,000 settlement will be the largest farm worker wage and hour settlement on record in Washington State.  See Ashley Stewart, Farm Workers Get a Big Payout, but State Labor Protections Still Failing, The Seattle Globalist (June 25, 2014), http://www.seattleglobalist.com/2014/06/25/farm-worker-sakuma-settlement-labor-regulation/27057.  Finally, in August, 2014, LinkedIn agreed to pay approximately $6 million in back overtime and damages to 359 current and former employees as a result of a U.S. Department of Labor investigation into alleged violations of wage laws.  See Amanda Becker, LinkedIn, U.S. Labor Dept. Settle Overtime Case for $6 Million, Reuters (Aug. 4, 2014), http://www.nasdaq.com/article/linkedin-reaches-59-mln-settlement-with-us-labor-dept-for-overtime-violations-20140805-00003.

Calendar year 2014 has also seen developments in judicial jurisprudence regarding insurance coverage for wage and hour claims.  For example, in New Hampshire Ball Bearings, Inc. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 2014 WL 935120, the United States District Court for the Central District of California granted summary judgment in favor of an insurer regarding coverage for both defense and indemnity of an underlying wage and hour action under an EPL policy.

As is typical in coverage cases related to wage and hour claims, the decision resulted from analysis of key definitions and exclusions contained in the policy, including the definition of “Employment Practices Violations” and the policy’s FLSA exclusion.  The court determined that the facts of the complaint did not qualify as an Employment Practices Violation and that the FLSA exclusion further acted to bar coverage.  Id. at *5.  Significantly, the policyholder also relied on California Dairies, Inc. v. RSUI Indemnity Co., 617 F. Supp. 2d 1023 (E.D. Cal. 2009) (a decision discussed in our prior blog entries referenced above) to argue that certain claims under the Labor Code have been held to be dissimilar to FLSA claims and therefore not excluded by language excluding all FLSA or similar claims.  In a footnote, the court rejected this argument, not by disagreeing with the holding of California Dairies, but rather by differentiating California Dairies based on the language of the policy exclusion at issue in the instant action.  Id. at n.1.  The manner in which the court addressed this argument drives home two important points.  First, policyholders with some version of an FLSA exclusion can still rely on California Dairies.  And second, as we have noted in our past posts, the language of the policy at issue is paramount.  Because the policy language relevant to wage and hour claims is not uniform across policies, policyholders should not take carrier denials of wage-hour claims merely because of the existence of an FLSA exclusion at face value.

The lawsuits, settlements, and judicial decision discussed herein demonstrate that wage and hour claims remain a significant threat to companies of virtually all sizes.  Additionally, whether there is insurance coverage for such claims remains a fact-specific inquiry.  As such, companies should take the following steps to put themselves in the best position possible to reduce their risk of financial harm from wage-hour claims:

1. Evaluate corporate policies and operations that may impact wage and hour issues in an attempt to prevent claims in the first place;
2. Collect, organize, and safeguard all of the company’s potentially relevant insurance policies;
3. Consider retaining outside coverage counsel to audit the company’s current insurance portfolio to confirm the company has the most complete and cost-effective coverage available for these types of claims;
4. Consider whether it is appropriate for your company to purchase a specialty policy designed to cover wage and hour claims even though these policies typically cover only defense costs and provide low limits of liability;
5. If the company becomes aware of facts or circumstances that could give rise to a wage and hour claim, or is served with a wage and hour lawsuit, give prompt notice to all of the company’s liability insurers, absent a rare circumstance that may justify refraining from providing such notice;
6. If a wage and hour claim is brought against your company, consider involving coverage counsel from the outset since actions taken by a company at the outset of litigation and throughout its defense may bear on the ultimate likelihood of recovering insurance proceeds;
7. Evaluate all aspects of a wage and hour claim to determine if there is a potentiality of coverage for any aspect of the claim, triggering the insurer’s defense obligations; and
8. Don’t take an insurer’s denial of a wage and hour claim at face value, but instead seek an independent review of the carrier’s position.