Sharing Economy, Joint Employer Definition Add to Increasing EPLI Exposure

By Denise Johnson | September 21, 2016

The sharing economy has blurred the line between employees and independent contractors, according to experts who spoke during Marsh’s New Reality of Risk webinar yesterday.

The webinar, Managing Wage and Hour and Employment Practices Risks, focused on how employers can navigate these types of claims even as new issues and sources of risk arise.

Fair Labor Standard Act (FLSA) claims have skyrocketed, according to Kelly Thoerig, employment practices liability coverage leader at Marsh. Wage and hour claims includes a broad class of claims related to pay and classification practices, she said. Claims filed under this federal law have a lower threshold for establishing a collective action and automatic statutory attorneys’ fees are applicable should the case be successful. In addition, damages under the FSLA double if a company is found to have willfully violated the Act.

Plaintiffs can choose which law is most favorable, according to Thoerig. Thus they can choose to file a claim under the FSLA, or under state laws, like California, where the law is broader and may have different rules. In addition, they have the option of filing a claim under common law which typically have longer statute of limitations.

Certain businesses are at a higher risk for these types of claims. Businesses that have many non-exempt or hourly employees and/or low wage employees tend to see more of these types of claims, Thoerig said.

Industries at high risk for FSLA claims include:

  • Retail
  • Food and beverage
  • Construction
  • Healthcare
  • Financial services
  • Technology
  • Staffing agencies

According to Thoerig, 57 percent of settlement dollars come from the technology, financial and food service sectors and the majority were paid out in New York and California.

Thoerig said that certain categories of claims tend to be seen the most, including allegations relating to unpaid overtime, improper classification, missed or late meals, improper tips or time sharing.

Employer strategies to mitigate FSLA claims, according to Thoerig, include staying abreast of changes in laws, conducting wage and hour audits, staying vigilant in the classification of employees and risk transfer options.

Joint Employer Standard

According to Wendy Mellk, a New York-based principal at the law firm of Jackson Lewis, the National Labor Relations Board (NLRB) ruling in Browning Ferris Industries of California, Inc. created a new joint employer test. While the decision is on appeal, the result of the decision is increasing litigation in this area.

The National Labor Relations Act defines joint employers as two separate legal entities that share the ability to control conditions of employment, such as the hiring, firing and supervising of employees.

Mellk also noted that the NLRB is focusing their efforts on franchisors, like McDonald’s, alleging that both the franchisees and the corporation are joint employers. In addition, she explained that the head of the Labor Department’s wage and hour division, David Weil, has written a book on the subject, “The Fissured Workplace”, that explains how larger companies distribute their risk to smaller companies who may be less compliant with employment regulations.

This focus could impact companies who contract with many vendors, essentially broadening the definition of joint employer relationships.

Mellk said this had an “instant impact on DOL investigations.”

She recommended that businesses have a clear understanding on how the relationship with a vendor will work. This includes addressing such things as training, supervision and complaints. The firm should have this understanding in writing/contract form. Workers should be provided with an explanation of who they work for and how various work-related issues will be addressed, she said. Mellk stressed that practice should follow the agreement, meaning there should be consistency with what the agreement states. Lastly, firms should analyze the agreement and determine the risk and reward to handling various aspects of the employment process.

She further recommended that contractor agreements contain specific statements regarding the management of employees and detail which firm retains sole rights to hire and fire employees. Each company should have its own procedures and policies with respect to employees, Mellk said. She cautioned that firms who choose to retain the right to control employees may be on the hook for future labor-related claims.

Global Perspective

Ann Longmore, multinational leader of Marsh’s FINPRO Practice, said that globally, rules differ even when addressing the same employment issue. She provided an update on various countries, including China, where there is an increasing number of collective employee actions being filed. The claims there are being brought by younger employees, in the 25-35 age range. The country is also seeing higher value disputes brought by senior managers and technicians.

Singapore recently established an Employment Claims Tribunal that goes into effect in April 2017 to handle their increasing labor claims, Longmore said.

Trends seen globally include significant awards for discrimination and sexual harassment claims, claims filed across multiple jurisdictions, greater protections for whistleblowers and more employees researching EPLI trends via the internet.

Thoerig said that here in the U.S. the hot button trend in 2016 is transgender discrimination. Other top issues include equal pay and website accessibility.

The experts agreed that the sharing economy has blurred the lines between employees and independent contractors. Mellk offered some recommendations for firms seeking to avoid misclassification. These include:

  • Erring on the side of caution;
  • Using a centralized decision making system;
  • Employing independent contractor agreements;
  • Asking independent contractors to carry insurance.

According to Thoerig, the “key to remember is that the EPLI policy is typically written under the named perils basis.” Wage and hour claims are usually excluded under EPLI policies, she explained.

Globally, Longmore said that while there has been an increase in EPLI purchased in the U.S., that isn’t the case elsewhere. Larger global employers interested in this coverage are either procuring local policies, self-insuring, or seeking out policies from London insurers for outside EPLI cover. The reason, she said, is that the policies tend to be more economical and offer broader coverage than U.S. issued policies.

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