At Willis, a WTW business, our Financial, Executive & Professional Risks (FINEX) team works closely with experts across the wage and hour insurance space to better understand the many facets of our industry. In our “Wage and Hour Professionals Series,” we feature a range of voices — from wage and hour underwriters to labor and employment litigators, coverage counsel and others — each offering their take on what’s shaping the landscape. We aim to shed light on how shifting legal and societal trends are impacting wage and hour risk, wage and hour litigation and the industry at large.
In this article, Dennis M. Brown, Shareholder at the leading labor and employment law firm Littler Mendelson, provides some meaningful insights on the legal and claims landscape in the wage and hour space.
What impact, if any, does the Loper Bright Enterprises v. Raimondo, et al. decision have on Fair Labor Standards Act (FLSA) regulations?
Dennis Brown (DB): In Loper Bright Enterprises, the Supreme Court struck down what was known as “Chevron deference” when analyzing the validity of federal regulations. Under the Chevron test, courts were required to give federal agencies great deference when interpreting ambiguous statutory provisions within the agency’s area of expertise. Such deference made it extremely difficult for employers to successfully challenge FLSA regulations, even when the interpretation changed simply as the result of a new administration. Following Loper Bright Enterprises, however, courts have been much more willing to rule that the Department of Labor erred in its rulemaking capacity when interpreting the FLSA. For example, a recent federal appellate decision rejected the DOL’s tip credit rules, giving the agency no deference in its interpretation of the FLSA.
Similarly, multiple courts have enjoined or narrowed the DOL’s attempt to increase the minimum salary threshold for exempt status, with at least one court noting that the DOL had overstepped its authority because the FLSA is primarily concerned with job duties and not the salary threshold. In light of Loper Bright Enterprises, we anticipate the DOL will be much more careful before implementing any sweeping changes in wage and hour rulemaking. This will have the effect of reducing the whiplash employers often feel when a new administration takes power in Washington.
From a labor and employment law perspective, what are the top five best practices employers should consider implementing to minimize their wage and hour risk?
DB: In no particular order, the top five things (actually six) that employers can do to minimize their wage and hour risk are the following:
What impact, if any, has the implementation of mandatory arbitration agreements had on the frequency and severity of wage and hour claims?
DB: Mandatory arbitration agreements, especially those containing class/collective and representative action waivers, have had a hugely significant effect on both the frequency and severity of wage and hour claims. Since the Supreme Court’s decision upholding arbitration agreements with class and collective action waivers in Epic Systems v. Lewis, we have seen a noticeable drop in the number of wage and hour claims filed in state and federal courts, as well as a reduction in the severity of such claims where class or representative actions were pursued. Put simply, an employer can shield itself from class or representative action liability by implementing a mandatory arbitration agreement with the appropriate waiver language. The value of such agreements to employers was further enhanced following the Court’s 2021 decision in Viking River Cruises, Inc., v. Moriana, where the Court held that private attorneys general actions, sometimes referred to as “representative actions,” were also subject to mandatory, individual arbitration, reversing the California Supreme Court’s decision to the contrary. As argued in the Harvard Law Review, mandatory arbitration has had the effect of reducing employment claims including wage and hour claims by as much as 98% in certain jurisdictions.
While Plaintiff’s attorneys continue to be creative and attempt to find new ways around mandatory arbitration, it has been difficult for them as arbitration agreements generally arise under the federal arbitration act, and as federal law they cannot be subverted by state laws to the contrary. It is not an exaggeration to say that mandatory arbitration has been a game changer for employers in defending against wage and hour litigation.
Do you think the use of AI will have an impact on wage and hour compliance? If so, in what ways?
DB: Yes. AI has the potential to transform the field of wage and hour compliance, but there are risks. On the upside, AI is a tremendous tool for automating not only front-end timekeeping compliance, but equally important, for providing real-time oversight of timekeeping records. AI will be extremely useful in finding risks and faults in employee timecards and electronic time entry systems, especially in environments where the population of employees is too large for any consistent review of time records. If trained properly, AI tools can manage the time entry system to stop most common time-keeping errors before they are submitted to payroll. AI can also be utilized to scan actual time punch records and compare them with payroll data to catch hidden errors that often go undetected until employers are faced with a dreaded class or collective action.
AI can also be useful in catching classification errors (exempt vs. non-exempt or employee vs. independent contractor) as it can use natural language models to compare job descriptions and actual job duties with case law and state and federal regulations. Employers have reported that utilizing AI for these simple comparative tasks has cut exposure to misclassification claims by more than 60%.
But, there are risks. Most employers don’t truly understand how the AI models function, and thus reliance on them can be tricky if claim defense is required. Who will be able to testify as to how the “black box” of AI actually works and how it accurately calculated employee hours or punch data? AI also has been known to “hallucinate” in order to render data or opinions that appear to be what the user wants to see. These can be real-world problems if the veracity of the AI results or model are questioned in litigation.
What percentage of wage and hour claims are class action claims versus single plaintiff claims?
DB: While exact statistics are hard to come by, most estimates are that more than 90% of all cases filed in state or federal court for wage and hour violations are class, collective or representative actions. This is partly due to the fact that several of the larger states have internal agencies that handle a large number of the individual claims. It is also true, however, that most individual wage and hour cases may not support litigation on their own but identify a systemic pay or policy issue that applies to multiple employees at the same employer. As such, wage and hour claims are much more likely to result in class-wide liability than almost any other type of business risk the employer is likely to face.
WTW hopes you found the general information provided here informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
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Dennis M. Brown is an experienced litigator with a special emphasis on complex litigation. He represents clients in state and federal courts and before the Equal Employment Opportunity Commission, the Department of Fair Employment and Housing and the California Labor Commissioner. In addition to handling state and federal litigation and trial work, Dennis also handles arbitration and mediation.
