By Carrie Cherveny, Esq. and David Chmiel
Employment Litigation – the Second COVID Crisis
The COVID-19 pandemic poses a secondary crisis for employers – employment litigation. In fact, it’s likely that the litigation has just begun. Generally, Employment Practices Liability Insurance (EPLI) is the insurance that responds to employee causes of action against an employer for employment related claims such as harassment, discrimination, and/or wrongful termination. Employers’ EPLI programs are especially important in an environment of heightened employee legal activity. However, not all EPLI programs are cut from the same cloth and coverage will vary by policy. Often, EPLI programs exclude coverage for Occupational Safety and Health Act (OHSA), bodily injury, criminal/fraudulent acts, third-parties, wage and hour (Fair Labor Standards Act - FLSA), and the Family and Medical Leave Act (FMLA). EPLI policies exclude coverage for actual or alleged violation of the responsibilities imposed by these Acts. However, most EPLI programs will cover employment claims for retaliation.
EPLI Coverage in a COVID working environment.
OSHA is the agency that oversees the body of laws regulating safety in the workplace. In addition to rules that apply to all industries (such as the General Duty Clause), OSHA also promulgates industry specific rules. OSHA rules require that employees seeking enforcement pursue their administrative remedies by filing a complaint directly with OSHA. Consequently, employees who believe they have been subjected to unsafe working environment with respect to COVID should seek remedies through OSHA. For example, employees of a meat-packing company filed a class-action lawsuit against their employer for unsafe working condition. The court rejected the case and stated that the employees must pursue their administrative remedies by filing a complaint through the Department of Labor (DOL) with OSHA.
Filing a complaint with OSHA will generally trigger an investigation into the employer’s safety practices. Most EPLI policies generally exclude government penalties and fines. Additionally, because most EPLI policies exclude OSHA claims, fees and costs (such as attorney or consulting fees) associated with a response to an OSHA investigation would likewise be excluded.
When an employee’s claim for failure to provide a safe working environment is not administered through OSHA, the employee may file a negligence or public nuisance lawsuit. In negligence and public nuisance claims, employees allege that the employer breached its duty to provide a safe working environment and consequently, the employee contracted COVID-19 and suffered a harm or damage. Coverage will likely hinge on the nature of the claims and allegations made against the employer.
Recent COVID related regulations provide employees with Emergency Paid Sick Leave which is regulated by the FLSA. The Department of Labor (DOL), enforces the FLSA. There have been a number of complaints filed with the DOL and lawsuits filed against employers for failure to pay Emergency Paid Sick Leave and Emergency Paid Family Leave.
Additionally, the recent and rapid changes in the working environment have led to significant claims for “failure to pay wages” under the FLSA. For example, employees working from home may not be logging all hours worked. Most often, employees claim that the employer has failed to pay wages and/or pay overtime.
Typical EPLI policies will exclude violations or alleged violations of state wage and hour laws and the FLSA. In some instances, a Wage and Hour endorsement has been added to the policy which provides a sublimit for defense costs to address these allegations (limits are generally between $50K - $150K with very few at $250K max.). Employers with EPLI policies that exclude FLSA claims may face significant financial exposure for these claims.
FMLA likewise has been in the spotlight during the COVID crisis. Among other qualifying events, FMLA provides job restoration rights to employees who personally, or may have an immediate family member, experience a serious health condition (as defined by the FMLA). Additionally, legislation passed during the COVID-19 crisis expanded the FMLA providing employees with “emergency FMLA” leave in response to day-care, camp, and/or school closures. Consequently, the FMLA has taken center stage in this COVID working environment.
Coverage for FMLA and related leave of absence claims varies by EPLI policy. Many EPLI policies have an FMLA exclusion or carve-out. In fact, many policies specifically exclude both defense costs and losses/settlements in connection with an FMLA claim. However, like OSHA claims, many EPLI policies will include coverage for “retaliation” in the event an employee claims that he/she experienced adverse action associated with seeking his/her rights under FMLA. Employers with EPLI policies that exclude FMLA coverage may face significant financial exposure for these claims.
Most especially in the beginning of the COVID crisis, many employers saw an immediate drop (or complete elimination) of all business activity and revenue. As a result, many employers immediately laid-off a portion or all of their workforce. Consequently, employers subject to the WARN Act were not able to provide the necessary and required advanced notice to employees. Additionally, employers have furloughed mass numbers of their employees. The WARN act requires qualified employers to provide specific and advanced notice regarding a mass layoff or furlough extending beyond 6 months.
Employees have filed suits and complaints against employers for failure to comply with the WARN Act requirements. In the current marketplace, numerous carriers have been trying to impose attaching new terms for mass layoff/reduction in force (i.e.-sublimit of coverage with higher retention threshold and coinsurance). Alleged violations of WARN Act are always excluded. However, WARN Act retaliation claims are generally covered.
EPL Insurance is a complex set of terms, conditions, and limitations. Employers should work closely with their broker to review their EPLI programs before they experience an employee claim.
Be timely and detailed in filing claims
As a rule, as soon as you ask the questions: “What is a claim?” or “How do I file?” that’s the time to file.
- All claims should be filed immediately – within 30 days.
- Provide comprehensive details, such as comparative numbers showing loss of income or costs for disinfection services, should be provided from the beginning of the loss to ensure a thorough review and let the coverage play out. Documentation is critical.
- The extent of coverage may vary by state as each monitor litigation
- Coverage is strictly a carrier decision based on their interpretation of policy language.
- The government is not mandating a blanket coverage for all lines.
Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your organization’s particular needs.