The Top 5 Traditional Protection Methods for Wage and Hour Lawsuits and Why They Aren’t Enough

Maybe your business has been lucky, and it hasn’t been hit with one of these wage and hour lawsuits everyone else is complaining about. Or maybe you just got hit with one and are hoping it goes away. Yet another possibility is your business has already been hit once, the case is over, and you’re really hoping it won’t happen again. In any of these scenarios, you may have gone to great lengths (or redoubled your efforts) to prevent such a lawsuit. Following a traditional HR process improvement approach, your business may have revised policies, strengthened HR personnel, outsourced certain payroll functions, and even hired lawyers. 

Nonetheless, companies who have done all these things and seem to have done everything right often find themselves facing liability for some pesky wage and hour violation that no one caught. 

This is true of a vast majority of companies who are hit with a wage and hour lawsuit. Most of these companies don’t understand how the very thing they have tried so hard to prevent is happening to them (sometimes for the second or third time). So how can this keep happening?

Everything You’re Doing to Stop a Wage and Hour Lawsuit is Good, but It Probably Won’t Stop One

There are several reasons that companies can find themselves in a wage and hour lawsuit despite great efforts to avoid such a suit. The problem often is that businesses develop a false sense of security from engaging in traditional HR methods that have worked in the past to avoid legal risk, but that aren’t very effective for avoiding wage and hour risks. Wage and hour risks are unique and must be treated as such. 

Below we explain five of the traditional protection methods and explain why these methods don’t work in the wage and hour context. 

#1 We have a handbook that was recently updated, so we should be fine, right?

Wrong. While a handbook refresh can help avoid many traditional HR/legal risks, it does very little to combat a wage and hour lawsuit. In fact, most businesses who are sued in a wage and hour lawsuit these days have an updated handbook and it’s not helping them stop or prevent lawsuits. A handbook is the equivalent of having a lock on your home. It’s necessary protection, but it’s not going to deter a burglar. All California businesses live in a bad neighborhood when it comes to being sued. Your business needs more protection.

#2 We have a third-party payroll provider we use, so they should be covering us, right? 

Wrong. Most payroll providers process payroll and maybe help you set up your timekeeping system. Many businesses who get sued have a third-party payroll provider (often the big and most recognized providers), but this doesn’t help them in these lawsuits. Check your contract with your payroll provider. Almost all of them say the payroll provider is not responsible for legal compliance or lawsuits (even though they advertise compliance). Courts so far in California have let payroll providers off the hook at every turn and put the ultimate burden of compliance on the employer. Even in situations where the payroll provider has been involved in the violation at issue, they rarely take or have responsibility. Simply put, you can’t rely on a payroll provider for wage and hour compliance. 

#3 We have an HR department or outsourced HR that handles employment compliance, so that should do the trick, right? 

While it is good to have a knowledgeable HR department, professional, or service helping your business, this is often ineffective protection against wage and hour lawsuits. Even the biggest companies with well-staffed HR departments find themselves getting sued over and over again in wage and hour actions. We’re not trying to give HR a hard time. It is a very hard job. But managing a complex legal landscape where there are hundreds of different ways to violate the Labor Code and trigger millions in penalties is not what most HR professionals are trained or tasked to do. Nor is this anywhere close to the top priority of their job, which includes keeping the business thriving through recruiting, onboarding, retention, and terminating bad employees, which is plenty to focus on. The reality is that most HR professionals and departments aren’t equipped with the tools or given the responsibility needed to manage the type, complexity, and magnitude of risks presented by California’s wage and hour laws. Trusting HR to manage multi-million-dollar complex legal risk is like trusting your billing department with making sure you are following all the tax laws and aren’t going to get in trouble with the IRS. You need a CPA for that.

#4 We have a general employment firm or HR service that we use to keep us updated and in compliance; surely that has to be enough, right?

Unfortunately, this often doesn’t solve the problem either. Law firms and other HR services typically provide information to you about what the law is and then leave it up to the business to figure out how to comply with the law. Information is not protection. Unless your business is building compliance tools based on the information you are receiving and then regularly updating those tools, your HR knowledge is not being effectively transformed into protection. It’s like having someone in your local community who tells everyone what all the traffic laws are but not having any police on the streets to enforce the laws. Knowing the law is important but will not magically lead to compliance. Someone must be tasked with enforcing and carrying out the law.

#5 We have EPLI or another form of insurance that should cover us if we make a mistake on the wage and hour laws, and this is the protection we need, right?

The fact that a company has insurance is almost always not a big help, if any, in these cases. Most business insurance policies, including EPLI policies, don’t cover wage and hour at all and such actions are explicitly excluded from the policies. The liability exposure in wage and hour cases is so high given California’s oppressive laws and penalty structures that most insurance companies want nothing to do with these claims. Unfortunately, many insurance companies won’t really explain or highlight this exclusion when you are buying the insurance, and the coverage you think you are getting is not the coverage you need in a wage and hour case. A very small minority of insurance companies sometimes offer coverage for the defense costs only in a wage and hour case (often after a very large deductible is met). Beware of such policies as they don’t cover any of your actual liability and they often only pay for insurance lawyers that don’t specialize in wage and hour cases. As a result, these policies are often not worth the paper they are written on and lead to insurance coverage that is essentially worthless and, in some cases, ends up costing you more overall than the insurance is worth.

Better Risk Management Solutions for Wage and Hour Lawsuits

Businesses should avoid relying solely on any of these five would-be solutions for protection against wage and hour lawsuits. Given the high risk posed by wage and hour lawsuits, more strategic risk management solutions are required.

The first and most essential solution for protecting your business against wage and hour lawsuits is a competent employment law firm that specializes in wage and hour class and PAGA actions. If you have found yourself facing a wage and hour and/or PAGA lawsuit, you need experienced wage and hour counsel who can efficiently and cost-effectively assess and resolve these cases. The extensive experience and unique approach by the lawyers at Medina McKelvey, the founders of California Compliance Solutions, make them one of the most strategic and highly sought-after firms in the state for all stages of wage and hour litigation. One of their primary strengths is helping California employers prevent and manage wage and hour cases.

The second solution for protecting California employers against wage and hour lawsuits that is growing in popularity is training. There are some generic wage and hour compliance courses available to employers, but Cal Comply is currently the only company (that we are aware of at the time of writing this post) that offers wage and hour compliance training for employees and managers in California.

Our wage and hour training helps California employers stay informed, compliant, and proactive in addressing potential issues, reducing the risk of costly wage and hour lawsuits and the associated legal, financial, and reputational consequences. Cal Comply’s wage and hour training is the easy, cost-effective way to help prevent employment lawsuits by training every employee and manager on your wage and hour policies, confirming they know the law, certifying that they know your policies, and documenting their training. Click here to learn more.

Questions? Contact us.