Added protection

Many roofing professionals are not covered against wage and hour-related claims

Employers recently have noticed explosive increases in employment-related Department of Labor (DOL) claims, especially relative to wage and hour legal action.

According to a 2010 survey conducted by San Francisco-based ethics and compliance specialist ELT Inc., of more than 1,800 human resource professionals, one-third responded that in one year their organizations were subjected to wage and hour-related claims. Typically, when DOL investigates such claims, it will review employer records and employee files. If DOL determines an employer did not properly classify an employee as exempt vs. nonexempt, pay the employee for overtime, maintain accurate time records, implement mealtime policies and compensate for all time worked, the employer could be subjected to fines and payment of back wages.

Wage and hour class action lawsuits outnumber most other employment risks. DOL reports its Wage and Hour Division has recovered more than $1 billion in back wages during an eight-year period.

A real risk

Despite the increasing number of wage and hour claims, few roofing contractors are prepared for them. During the past 12 months, my company consulted with 70 roofing companies and found an estimated 86 percent absorbed wage and hour litigation risk internally rather than transferring the risk to an insurance carrier.

Although roofing professionals purchase protection for their firms’ operational risks associated with their general liability, automobile and workers’ compensation exposures, they often overlook wage and hour litigation’s negative cash flow effects. It is important to note there is no coverage provided within property or general liability coverage to absorb the potentially costly litigation defense costs associated with wage and hour actions.

The downturn in overall production in the roofing industry has led to substantial downsizing by roofing contractors seeking strategies to contain overhead burdens.

Terminated employees often are frustrated with their previous employers and fearful for their families’ financial futures. A dismissed employee’s economic and emotional state of mind significantly increases wage and hour litigation exposure. Often, a terminated employee may have limited job opportunities in the roofing industry within his or her geographic area. This scenario frequently pushes a dismissed worker to take legal action because he or she feels betrayed by the employer. A wrongful termination case—even if there is no merit—easily can be flipped into a wage and hour claim after the terminated employee engages an attorney.

Plaintiffs’ attorneys have become quite astute at finding technical violations of wage and hour laws. The burden of proof for complying with DOL’s wage and hour regulations is on employers. A substantial amount of money from wage and hour lawsuits ends up in the hands of the plaintiff’s attorney while the claimant receives a modest sum. In most cases, the employer is required to pay a fee to the employee’s attorney plus the costs of defense. We have consulted with several insurance company underwriters who state the average cost to defend a wage and hour claim is $60,000.

A solution

There is a risk reduction solution available if you want to transfer wage and hour exposure to an insurance company. The coverage will absorb a portion of the legal defense costs associated with wage and hour legal actions. The premium for the protection varies based on underwriting factors, such as:

  • Number of employees
  • Annual revenues
  • Classification of employees
  • Recordkeeping practices
  • Accurate job descriptions

Typically, wage and hour coverage is an endorsement to an Employment Practices Liability Insurance (EPLI) policy. An EPLI policy protects employers from employment actions such as sexual harassment, discrimination and wrongful termination. However, the insurance market for wage and hour coverage is tightening, and some select insurers have pulled away from offering defense coverage. Some insurance carriers are likely to increase deductibles and premiums as wage and hour claims increase.

Employers who have effective wage and hour procedures minimize the probability of loss, will have access to more affordable defense coverage and will have lower deductibles, which will reduce out-of-pocket expenses.

The wage and hour defense limits vary among insurance providers. The range of defense expense protection can be anywhere from $50,000 to $200,000. An insurance underwriter typically will only offer higher limits of defense coverage for companies that have strong compensation disciplines in place.

A tactic to help contain the cost of wage and hour defense protection is to accept a higher deductible that will reduce the insurance carrier’s frequency of claims. With a higher deductible, you retain a modest portion of the risk internally while reducing your overall insurance costs.

As an added benefit, many EPLI and wage and hour policies allow you access to a human resources hotline. Many carriers contract with national employment law firms that offer consultation to the insured.

Containing the risk

It is important for you to have multiple strategies to contain wage and hour risk in addition to transferring the exposure. We recommend you engage a human resources consulting firm and/or a labor law attorney to perform a compliance review and assist with the creation of standard practices that comply with DOL wage and hour requirements. An upfront investment to strengthen your compensation programs and procedures can significantly reduce an unknown liability from multiple claimants in the future.

Some typical components of the compliance review include:

  • An audit of wage and compensation policies
  • Assistance with proper classification of exempt, nonexempt and independent workers
  • Proper structuring of commission, bonuses and incentives
  • Review of overtime pay calculations

Our firm witnessed firsthand roofing professionals who have had legal actions taken against them from multiple claimants as a result of wage and hour infractions. You do not want to be labeled by an aggressive plaintiff’s attorney as an employer that has weak administration of wage and compensation practices.

Decrease your risk

Roofing is a high-risk business. There is no need for your company to be unprotected from wage and hour-related risks. To help protect yourself, consult your insurance agent to structure a risk reduction plan that is right for your company.

Rob Foote is managing partner of Roofing Risk Advisors LLC, a division of Frank H. Furman Inc., Pompano Beach, Fla.



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