Many risk managers in the coming months, when asked about what their concerns are in the Employment Practices Liability (EPL) coverage space, will most likely move away from topics like diversity and the implementation of updated HR policies/procedures. Instead, they will transition into the viability of the Wage & Hour solution given the pending (US) Department of Labor ruling which is expected this July.
If you have not read about this proposal, the following overview is from Paul Siegel at Jackson Lewis and I find his summaries on any EPL/Wage & Hour (W&H) matters to always be informative and streamlined compared to other reports and articles:
DOL NEW WHITE COLLAR REGULATIONS AND WAGE/HOUR GROUP CAPABILITIES
Greater wage-hour exposures than ever soon will be confronting employers. Increased risk will follow the Department of Labor’s issuance of its “Final Rule” regarding professional, executive (managerial) and administrative “white collar exemptions.” Expected in July 2016, the Final Rule is expected to increase the required federal minimum salary level for the white collar exemptions from $23,660 to an estimated $50,440, more than a 50% increase. The DOL estimates that 43 million workers would be transformed from exempt to non-exempt. The DOL has not yet signaled whether, and to what extent the exempt duties tests will be revised. In 2004, the USDOL sought to clarify the test for exempt status, but courts and later Secretaries of Labor made the tests less clear and the exposures far greater.
At this time, we recommend that employers and their insurance carriers evaluate the cost and risk of these changes. Many formerly exempt workers suddenly will fall below the new salary threshold of approximately $50,440, and will be overtime eligible. Among the possibilities are increasing base salary and possibly reducing bonuses or variable compensation; reclassifying workers as overtime eligible and requiring time keeping; reassigning work to rescue workloads and thus work time; requiring employees to sign individual arbitration agreements with class action participation waivers to diminish class action exposures; and, finally, considering a wage and hour audit to prepare for the upcoming changes and to assess previous classifications or practices which may have been problematic.
The potential red flags for clients if these changes take shape are clear:
- Pressure on profits for those that have a large concentration of employees that would be affected by the new salary threshold for exemption
- Internal costs for reconfiguring systems/software to track this new classification system
- Amending internal controls/manuals/procedures to be compliant with the new DOL framework
The Marketplace: W&H coverage is now available in the US, London, and Bermuda, and here is some updated insight on Bermuda as the underwriting appetite has changed over the past few months:
Rates have come down significantly during the past 12 months and retentions are currently as low as $1M, depending on headcount size and loss history. There are approximately 50 bound programs on island right now either on a standalone or blended W&H/EPL basis. All of them are on indemnity and defense contracts. Programs of $100M have recently been built in Bermuda with affirmative punitive damages coverage.
Going forward, we advise clients to continue to maintain an offensive mindset around this new product.