Pennsylvania Employment Lawyer & Attorney : Russell Krafft & Gruber Law Firm : Lancaster, York, Harrisburg

Employment Practices Liability Insurance (EPLI) may be a relative bargain in the continued “soft” insurance market and employers should consider adding or increasing insurance coverage to protect against employment claims. EPLI insurance is somewhat quirky and the following are some considerations when evaluating policies:

1. Coverage:  EPLI policies typically cover claims of wrongful discharge, workplace harassment and discrimination. Many offer a more comprehensive list of covered acts, including negligent hiring/supervision/evaluations, invasion of privacy, defamation and intentional infliction of emotional distress.  Coverage typically applies to claims made by full time employees so as to exclude those by part-timers, temporary, seasonal and independent contractors.  In comparing policies, look for one that has the most expansive coverage. 
2. Exclusions.  EPLI policies exclude many claims based on the statute that creates the legal right or the activity that gives rise to the claim. Exclusions apply to the Fair Labor Standards Acts; the National Labor Relations Act; the Worker Adjustment and Retraining Notification Act (WARN); the Consolidated Omnibus Budget Reconciliation Act (COBRA); the Employee Retirement Income Security Act (ERISA); the Occupational Safety and Health Act (OSHA); the costs associated with providing "reasonable accommodation" under the Americans with Disabilities Act (ADA); as well as  claims arising out of downsizing, layoffs, workforce restructurings, plant closures or strikes. Punitive damages are always excluded. Carefully evaluate the excluded claims in light of your business practices. In the case of multi-state operations, be aware that some state laws create substantial employment rights that must also be evaluated under the policy language.
3. Policy Limits and Deductibles: Policy limits and deductibles usually apply on a per claim and aggregate basis. For example, coverage may be limited to $250,000 for each separate claim with an overall aggregate cap of $1 million for all claims. Employers must formulate their insurance goals in setting the appropriate deductibles and limits. Some employers view EPLI insurance as catastrophic coverage and are willing to accept a high deductible that allows them to handle smaller claims themselves.  However, other employers are looking for more blanket coverage.
4. Defense Costs, Selection of Counsel and Settlement: Defense costs are usually included within the EPLI policy’s limits, which has good and bad points. Many times, the legal expense is the largest cost to an employer in dealing with merit less claims. However, including defense costs means that every dollar an employer spends defending a claim reduces the amount available for settlement or to pay a judgment.  Since the existence of insurance coverage must be disclosed as part of discovery in most law suits, a plaintiff’s attorney will factor insurance coverage into his or her case evaluation. The defense cost feature may influence plaintiffs’ counsel to try to settle early, rather than force an employer to incur litigation costs that will only erode the insurance dollars available for potential settlement.  Employment claims often have significant employee relations ramifications making settlement a particularly important issue. Insurers view employment claims the same as any other insurance matter by evaluating only the potential for liability and the amount of damages. The employer and insurer may be at odds over settling a case. EPLI policies address this stalemate by either giving the insurer the right to settle without the employer’s approval or, more frequently, giving  an employer control over settlement, but adding a “hammer clause”. These clauses are designed to limit the insurer’s potential exposure if the policyholder passes up an opportunity to settle a claim recommended by the insurer.  Hammer clauses provide that if there is an offer to settle a claim that the policyholder refuses accept, then the insurer will not be liable for a subsequent settlement or judgment in excess of a rejected settlement amount.  
5. Policy Types and Insurance Company Notification: EPLI policies are typically written on a “claims  made” basis meaning that the claim must be incurred during the coverage period and reported to the insurer during an extended reporting period. Since employment actions may take years to turn into a claims, an employer may be left with no coverage if the policy is dropped or tail coverage isn’t purchased.  Untimely notice to an insurance carrier can void coverage for and employment claim.

* Not intended to be Exhaustive.

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Obtaining a release from an employee that waives the myriad of federal and state employment law claims is an art and not a science. It requires balancing contradictory government regulations, harmonizing competing employee relations goals, and cajoling, a more than likely, disgruntled employee.

When a business pays money to a departing employee, it wants the matter over. However, the patchwork of government regulations and varying court decisions interpreting them make it difficult to obtain that degree of certainty. Sometimes employees challenge the validity of a release and try to pursue their claims. In some cases, regulations even allow an employee to keep the money while suing the employer.

The legal standard for obtaining a valid release generally involves assessing whether the employee's waiver of claims was "knowing and voluntary". In the case of claims under the Age Discrimination in Employment Act (ADEA), the U.S. Department of Labor used 9 pages of regulations to define when a waiver is knowing and voluntary. In other cases, Pennsylvania courts assess the knowing and voluntary release of discrimination claims based on the following factors:

• The clarity and specificity of the release language
• The employee's educational and business experience
• The time given the employee to deliberate before signing the release
• Whether the employee knew or should have known what rights he or she was giving up
• Whether the employee was encouraged to seek or sought legal counsel
• Whether there was an opportunity to negotiate over the terms
• Whether the employee was given consideration exceeding the benefits he was already entitled to receive.

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1. The Fair Labor Standards Act is Archaic.

The FLSA was enacted in 1938 with only minor amendments since then. It doesn't fit into today's economy. For example, Overtime is still described and viewed as a "penalty". It is designed to discourage employers from working employees for more than 40 hours per week and instead encourage them to hire more employees.

2. Understand the Mindset of a Wage and Hour Investigator.

The investigator is examining your business with the goal of finding areas of "noncompliance". The DOL publishes a Field Operations Handbook that instructs investigators on FLSA interpretations and how to conduct an audit. Remember, auditors are typically focused on certain compliance areas, industries or are investigating a complaint, but they won't tell you how you were chosen for an investigation, so don't waste time asking. They know a lot about the FLSA, just ask them. They generally don't know much about running a business. They know nothing about employee relations.

3. Assess Your Weaknesses.

Businesses should conduct a self-audit to determine areas of risk like those identified in my previous post. Your audit likelihood increases based on two factors:

• if you are in an industry or subject matter area targeted for a compliance initiative by the DOL. Current DOL initiatives are in the following areas:

1. Off the Clock Compliance,
2. Workers with Disabilities,
3. Healthcare, and
4. Garment Workers.

• if you have recently undergone a messy human resources issue like a termination or organizing campaign and you have an employee who may seek vengeance through a DOL complaint.      

3. Records are a Business' only True Defense

The DOL mandates certain recordkeeping and an employer's failure to keep adequate records of hours worked, wages paid and overtime is a violation of the FLSA. It is also very helpful to have job descriptions that attempt to establish any exemptions from overtime that my be applicable. An absence of documentation seriously undermines a business' ability to get through an investigation. Absent records, the investigator will interview employees about their hours worked and job duties.

5. Control Your Supervisors

Meet with and educate your supervisors in advance of any DOL interview. You also have a right to sit in on any DOL interview of a supervisor so exercise that right. You are not able to sit in on employee interviews, but if the DOL identifies a larger group of employees try suggesting that they use a written survey rather than an interview. This takes the ambiguity out of both the question and the answer.

6. Don’t be a Jerk.

As best I can tell, the Wage and Hour Division's compliance budget is almost $190 million dollars. Don't make them spend it all on you. If you tell them to get a subpoena, they will. And instead of one investigator, they'll send five. There are ways to be firm and courteous. Manage the investigation as best you can while still running your business. Here are a few simple tips:

• Establish a point person for dealing with the investigator and have all requests for information go through that person
• Give the investigator a place to work that is out of contact with employees but reasonably comfortable
• Try to get a summary of the audit and the document needs of the auditor, so that you can manage his or her expectations about providing them
• Make employees available for interview during work hours so they are not contacted at home
• Try to wrap up the audit in one or two days, if possible. Don't let the investigator think up more questions and come back again.

7. Investigators Don’t Always Play Fair

Employee interviews are the area where things can go horribly wrong. As every lawyer knows, a leading question is the best way to get the answer you want; particularly, if the witness is in an uncomfortable position of being quizzed by a government enforcement agent. Compare the following two questions and guess which one the investigator will ask your employees if you are a jerk to him:

• How many hours do you normally work in a week?
• You look like a really conscientious person, I bet you work one or two extra hours each week and don't even tell your employer?

8. Let’s Make a Deal

The field investigators have limited ability to compromise a claim when it is reduced to a specific dollar amount based on investigative findings. If things are going badly in an area, you still have the ability to strike a deal before the investigator leaves and does his or her final calculations. Even if the investigator comes up with a number, remember there is a chain of command that you can use for further negotiations. There are Area Administrators, Regional Administrators and the DOL's legal solicitors.

9. Expect Publicity for Noncompliance

As a means of justifying its enforcement activities, the DOL is much more likely use newspaper and website publicity that names the employer and the amount of a settlement.

    10.    Fix your Mistakes… They’ll be back.

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The Fair Minimum Wage Act of 2007, signed into law by President Bush on May 25, 2007 increases the federal minimum wage for the first time in 10 years. In a three-step process, the Federal minimum wage will increase to $5.85 on July 24, 2007; $6.55 on July 24, 2008; and $7.25 on July 24, 2009. Employers must pay the higher of the Federal or Pennsylvania minimum wage. In all cases, the Pennsylvania minimum wage rate is equal to or higher than the Federal minimum wage rate:

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The second installment of Pennsylvania's minimum wage increase takes effect on July 1, 2007. For most employers, the Pennsylvania Minimum Wage Act increases Pennsylvania’s minimum wage as follows:

·         To $6.25 per hour effective January 1, 2007.

·         To $7.15 per hour effective July 1, 2007.

·         To $7.25 per hour effect July 24, 2009.

There is delayed effective date for small employers. A small employer is defined as one who has an employee complement composed of the equivalent of 10 or less full-time employees. Small employers may use the following minimum wage implementation schedule:

·         To $5.65 per hour effective January 1, 2007.

·         To $6.65 per hour effective July 1, 2007.

·         To $7.15 per hour (the regular Pennsylvania minimum wage) effective July 1, 2008.

·         To $7.25 per hour (the Federal mandated minimum wage) effective July 24, 2009.

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Employers can take steps to minimize and/or manage their potential for "joint employer" status with a temporary agency. To avoid the creation of a joint employment relationship, the following is a list of some of the contractual and policy steps that should be undertaken:

• Right to Direct and Control Work of Temps - The right to direct and control the activities or the temporary employees should rest exclusively with the temporary agency.
• On Site Supervision - The temporary agency should have an on site supervisor to direct the work of the temps; otherwise, the default supervision will be the company's supervisors
• Disclaim Company Control - Company should not have the right to direct or control the activities or temps
• Disclaim Joint Employment Relationship  - Although it is largely window dressing, any agreement should state expressly that it does not create a join employment relationship
• Mandate Legal Compliance by the Temporary Agency - The legal compliance provisions set forth in the next section should be addressed
• Require Proper Payroll Reporting and Recordkeeping - Require that the agency be responsible for all payroll taxes, withholding and tracking of hours for FLSA compliance. Make certain that unemployment taxes and social security withholding are accomplished
• Require Evidence of Insurance - Obtain proof that the agency has appropriate insurance coverage for workers compensation, employment practice and liability insurance
• Obtain Indemnification from the Temporary Agency  - Obtain contractual indemnification which provides that the agency will pay damages and defense costs should the company be charged with employment law violations, unpaid taxes, unemployment or workers' compensation awards
• Limit Assignment of Temporary Workers - Limit the duration of assignment of a worker to your work site to no more than six months. Longevity of the placement is an indication of employment relationship; particularly, if temporary workers perform operations integral to the business. Companies risk creating "permatemps" who may seek benefits.
• Avoid Changing Employee Status - Except in the context of PEO's, don't outsource a group of employees to a temporary agency so that one day they are performing work as an employee and the next day as a temp.

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