Employment Practices Liability: Wage and Hour | What Restaurateurs Need to Know
In the current climate, lawsuits from employees or ex-employees are becoming increasingly common. Over the last 20 years, there has been a 400% increase in employee lawsuits across all industries—with a 260% increase in wrongful termination suits1. The financial repercussions of these lawsuits can be financially crippling to a business owner if not properly covered.
Average court costs and legal fees2.
- When settled out of court: $10,000 to $50,000
- When the case is dismissed: $10,000 to $15,000
- When the case goes to trial: $150,000 to $200,000
Looking at the restaurant industry specifically, owners today face many risks in their standard day-to-day operations. Lawsuits against restaurants have doubled in the past decade, most likely due to the complex nature of Wage and Hour claims and the lack of understanding that many employers have regarding the law3. So, if you’re a restaurant owner, how can you protect yourself and your business from this exposure?
An often overlooked line of insurance coverage for protection against these claims is Employment Practices Liability Insurance (EPLI). A properly placed, stand-alone EPLI policy provides coverage for court costs, legal fees, and potential compensation for losses due to an employee lawsuit.
EPLI claims commonly seen in the restaurant industry include:
- Wrongful Termination
- Harassment - 1st and 3rd party
- Discrimination - 1st and 3rd party
- Emotional Distress
- Wage and Hour
Wage and Hour
One of the most common coverage gaps found in the restaurant industry is Wage and Hour (WAH). WAH provides defense costs relating to claims alleging that an employer failed to pay overtime to an employee deemed eligible under the Fair Labor Standards Act (FLSA).
Recently, there have been several high-profile Wage and Hour class action lawsuits that have led to large judgments in favor of the plaintiffs (employees). Given this, and the fact that wage violation lawsuits have increased 200% in the last 10 years, many EPLI policies will exclude coverage for these claims.
It is important for every restaurant owner to talk to their insurance advisor to make sure they have WAH included in their EPLI policy. It is also important to note that a sub-limit between $100,000-$500,000 is often applied.
Common Wage and Hour Violations
- Misclassification of overtime-exempt employees
- Misclassification of independent contractors
- Disputes driven by employers’ alleged failure to pay for off the clock work (pre and post shift work)
- Unpaid rest and meal breaks
- According to the FLSA, breaks lasting under 20 minutes are compensable while meal periods of 1.5 hours or longer are generally non-compensable.
- Improper record keeping
- Improper overtime calculation
- Improper salary deductions for missed work
- Failure to pay minimum wage
- Failure to pay overtime
Protecting Against Wage and Hour Claims
Best practice for a restaurant owner is to engage a labor attorney to review their overall operations and make sure they are in line with the FLSA. Below are some additional proactive measures an owner can take to ensure there are no disputes.
- Maintain accurate and complete employee records
- Have an employee handbook that outlines all the guidelines related to payroll
- Keep track of all pay records on a weekly basis
- Make sure all employees are properly classified
- Keep track of all changes related to time records
- Keep all data easily accessible in an electronic format
The descriptions of coverages listed in this article are brief and subject to the provisions, limitations, and exclusions that can only be expressed in your policy and related endorsements. For additional information of how Swingle Collins & Associates can assist in meeting your coverage needs, please contact your dedicated risk manager. The information contained in this article is provided for informational and educational purposes only. It contains general information on insurance issues and may not reflect the most current developments in insurance coverage and is unlikely to apply in all factual scenarios. The information does not include all the terms, coverages, exclusions, limitations or conditions that may be contained in the actual insurance contract language. The policies themselves must be read for those details. Sample policy forms will be made available upon reasonable request. Thank you.
1 “Employment Practices Liability Insurance: Start Here.” TrustedChoice.com, Web.
2 Jacobs, Crystal. “The Restaurant Industry Has a Glaring EPLI Coverage Gap.” PropertyCasualty360, 6 Mar. 2020, Web.
3 Spiggle, Tom. “Why Are Restaurants Sued So Often for Breaking Wage and Hour Laws?” The Spiggle Law Firm, 3 July 2019, Web.