Since the economic downturn of 2008, there has been a steady uptick in the number of employment-based lawsuits against small businesses, some of which are based on the employers’ alleged mis-classification of a worker’s status.  Are they exempt or non-exempt?  Does this type of work properly qualify to be classified as an independent contractor?  These are just some of the thorny issues HR departments and business owners confront on a daily basis.  Regrettably, most employers don’t truly understand the differences in these worker classifications. 

According to a recent article in Human Resource Executive Online, the problem is a costly one.  “How do you ensure that you’re not misclassifying employees as independent contractors? How do you know that you’re not misclassifying nonexempt employees as exempt?  It turns out that many employers don’t have those answers.

“A significant number of employers would currently be found to be in noncompliance” with DOL regulations, says Bertrand Spunberg, senior vice president and management liability product head at Hamilton, Bermuda-based Hiscox.

The risk is amplified by the slew of laid-off workers looking to file lawsuits against their former employers. For some, legal action is perceived as a better option than searching for jobs in the difficult job market.”

This is where employment-practices liability insurance coverage may be appropriate.  Such coverage may help a company minimize the risk from such losses as well as correct past mistakes in order to maintain compliance with the ever-changing Department of Labor regulations. 

DISCLAIMER: Because of the generality of this update, and based on particular situations, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice, financial advice and/or the advice of a licensed insurance or certified human resource professional.

© Connelly, Carlisle, Fields & Nichols 2012