Insurance won't cover FLSA overtime penalties

by on April 2, 2009 · 0 Comment POSTED IN: HR Info Center

Employer couldn’t claim ignorance of FLSA overtime laws

Some employers believe that if they violate FLSA overtime regs, their legal liability insurance will cover the cost of back wages and fines. But that’s not necessarily so, said a court.

Facts of the case

A school district failed to pay overtime to two office staffers who regularly exceeded 40-hour work weeks. The employees sued under FLSA overtime rules, and won their case. The district was ordered to pony up back pay plus penalties.

The district made a claim on a legal liability insurance policy it had taken out. But the insurer refused to cover the claim. The district sued the insurance company and lost its case.

In issuing its opinion, the court said that according to the policy, the company will indemnify the district against a “loss” of money incurred by the district because of a “wrongful act.”

The policy defined “wrongful act” as an “error or omission.” The district claimed it had made a mistake and therefore met the “error or omission” criteria. But the insurer showed that on a number of earlier occasions, the district had been warned that it may have been in violation of FLSA overtime laws.

The court ruled that the district, not its insurance company, had shirked its responsibility. There’s a difference between committing a “wrongful act” that’s covered by legal liability insurance, and having poor judgment – which isn’t covered.

Cite: Reedy v. Quebecor Printing Eagle, Inc., U.S. Court of Appeals, 8th Circuit, No. 02-3637, 6/30/03.

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