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September 11th, 2013

by Total Food Service

Guard Your Restaurant Against Wage and Hour Lawsuits


by Robert Fiorito
According to industry reports, wage and hour lawsuits have become a major cause of concern for businesses. Wage and hour claims occur when an employee accuses his or her employer of failing to pay overtime wages.


Successful restaurants understand the importance of evaluating and updating their menus based on season, consumer appetites, and simply to stay current; however, what a successful restaurant also needs to understand is the importance of treating the ‘behind the scenes’ factors of their operations in a similar fashion.

Data from the Annual Workplace Class Action Litigation Report shows that wage and hour lawsuits have surpassed every other form of workplace class actions in recent years.

Why are wage and hour lawsuits increasing? According to Law360, a legal news website, the rise in wage and hour lawsuits can be attributed to four main factors:

  • An increase in employees working from remote locations due to new technology
  • Large potential for restitution and attorneys' fees
  • An easy class certification process
  • Inconsistencies in state and federal labor laws
  • Protecting your business

It's essential for every business, particularly small or mid-sized businesses that may not have an in-house legal team, to make sure they are covered in the case of a wage and hour lawsuit. Employment practices liability insurance can greatly reduce your exposure if you get the right coverage.  Check with your insurance broker to confirm your coverage and receive help in finding a policy that provides the coverage you need.

Many insurance carriers specifically exclude wage and hour claims in EPL insurance, while others may insist that coverage for loss is barred in cases of wage and hour claims due to the Fair Labor Standards Act, which precludes coverage in the case of "alleged violations of the Fair Labor Standards Act ... or any similar federal, state or local statute. These days we feel fortunate to receive a sub-limit of coverage for wage and hour claims under the EPL policies we have written for our clients, and if we do, typically it will only apply to legal costs, not actual settlement amounts.

Avoiding wage and hour lawsuits

In addition to making sure your business is covered for wage and hour lawsuits, it's important to ensure you're following smart business practices that will reduce the potential for claims. 

Evaluate your Policies & Procedures

Creating a clear framework for your overtime operations will cut down on confusion and opportunities for wage and hour claims to arise. It might also be wise to have a third party perform an audit of your business in order to see if you're following proper procedures. 

Classify your Employees

An error in employee classification can lead to wage and hour claims and result in IRS audits and penalties. Businesses must: 

  • Differentiate between independent contractors and employees 
  • Designate employees as either exempt or non-exempt. If an employee is exempt, that means their wages do not have to meet federal regulations for either salary or overtime.

However, business owners must prove that an exempt employee meets a number of specific criteria in order to assign them this status. State Regulation. Businesses must also take state regulations into account. In addition to federal law, standards regarding overtime wages can differ from state to state. For example, a state may have a higher level of minimum wage than Federal law. In most cases, an employer must pay whichever rate is higher. 
Wage and hour claims can stem from numerous situations, such as: 

  • Overtime
  • Minimum wage 
  • Meal and rest periods 
  • Training time and travel 

Make it a priority to educate your staff about proper regulations and reporting methods. If employees have been briefed on policies regarding wages and hours, it will result in less confusion and fewer opportunities for claims. Finally, encourage your employee to take their questions and concerns regarding wage and hour issues to a member of your senior management team. It's better to have an open dialogue with employees before their concerns turn into formal grievances and litigation. Not only will this cut down on possible legal costs, but it will result in a better working environment.

Robert Fiorito, serves as Vice President, HUB International Northeast where he specializes in providing insurance brokerage services to the restaurant industry. As a 20-year veteran and restaurateur himself, Bob has worked with a wide array of restaurant and food service businesses, ranging from fast-food chains to upscale, "white tablecloth" dining establishments

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