NC Department of Labor Answers Questions on Interns and Wage Payment

With summer around the country, questions about interns and wage payments may come up.

See the following FAQ (originally published in NC DOL newsletter)

Got a Wage Claim? Don't Expect Insurance to Cover It Automatically. Read the Fine Print.

Employers who haven't checked the terms of their D&O policies may find themselves very sorry when it comes to coverage of wage claims. Recently, employer Jeff Tracy, Inc., found itself unable to prove that a wage class action was a "loss" under the terms of its D&O Policy issued by U.S. Specialty Insurance Co. according to a federal district court judge in California.

The D&O policy at issue in the Jeff Tracy case did not have any special endorsements to cover employee claims, such as the wage class action that cost Jeff Tracy over $400,000 in state assessments for various alleged misconduct including failing to pay the prevailing wage on public works projects, failing to inform employees of their classification under California state law, and making misstatements about how the employees would be paid. Not only did the policy not have a special endorsement, the policy contained an exclusion that the judge determined excluded the claims, namely that the policy did not cover any "claim" "for an actual or alleged employment practices wrongful act" or "for any actual or alleged violation of any provision of the Fair Labor Standards Act other than the Equal Pay Act, the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act, the Consolidated Omnibus Budget Reconciliation Act of 1985, the Occupational Safety and Health Act, ... or any other similar provisions of any federal, state or local statutory or common law or any rules and regulations promulgated under any of the foregoing." The insurer consistently denied coverage of the wage claims as not within the definition of "Loss" under the policy and as specifically excluded by the policy, in response to multiple notices of the wage assessment by the employer.

The opinion acknowledges that insurance policies are subject to special rules of construction. First, the law favors broad coverage to provide insured with the greatest possible protections and disfavors exclusions through narrow interpretation. Second, while the insured has the burden to establish coverage, the insurer has the burden to establish that the claim is specifically excluded. Furthermore, D&O policies generally favor requiring an insurer to reimburse the insured for the costs of a defense, rather than providing the insured with a defense.

This decision should serve as motivation for employers to review their various insurance policies and confirm what their policies cover and what what they do not cover. This is particularly important given the increase in wage claims over the past few years.

To read the decision of the Jeff Tracy, Inc. v. U.S. Specialty Insurance Company, etc., SA CV 08-361 AHS (RNBx) (May 5, 2009), click here.

"A New Sheriff in Town"

Hilda Solis - former Democratic member of Congress and the new Secretary of Labor - told the AFL-CIO, "You can rest assured that there is a new sheriff in town." The Administration and Congress have now given the sheriff a larger posse and a potful of money. The 2008 budget gave DOL $175.7 million for wage-hour enforcement; that rose to $193.1 for 2009, and the stimulus package in ARRA added another nearly $5 million. The 2010 tally is a whopping $227.7 million for this function alone; the total DOL budget request is $104.5 billion for discretionary and mandatory programs. If you want to see the details, look at the 81-page "budget in brief" at http://www.dol.gov/dol/budget/2010/PDF/bib.pdf; the wage-hour discussion is on page 36. Solis plans to add at least another 150 wage and hour field investigators, plus 100 more to focus on employers who have received stimulus payments. Additionally, you may have noted that the Administration has determined enforcement of laws and regulations targeting union corruption as "not a priority"; in fact, the overall DOL budget is less than 2009's, reflecting a reordering of what the agency deems important.

The DOL initiative is buoyed by the release of a General Accounting Office report charging that the Wage and Hour Division of DOL "has left thousands of actual victims of wage theft who sought federal government assistance with nowhere to turn." Secretary Solis has also pledged that those Department employees who were negligent or dishonest in the past will be dealt with. All in all, you can expect the agency to be persistent and exhaustive in its efforts, and the plaintiffs' bar will take note. FLSA filings were marginally down last year; don't expect that trend to continue. By the way: state agencies with wage enforcement responsibility are likely to echo, or even attempt to outstrip, their federal counterpart; for example, more than 3000 California employees of a Michigan-based construction company recently garnered an aggregate settlement of $8.5 million as a result of alleged nonpayment for hours spent performing gutter installation work. Gutierrez v. Schmid Insulation Contractors Inc., CV 08-6010 (C.D. Cal., 3/9/09). A prudent employer will take note and attempt to insure it isn't the first kid on the block to have one of these problems.

Swine Flu Outbreak Information and Resources for Businesses

With the recent concerns and extensive media coverage about the "swine flu" outbreak, all businesses would be well served to take time to get the most current information available, and to evaluate how this outbreak might impact their business.

Click here to learn more about how your business can prepare...