NEWS, EVENTS, PUBLICATIONS & EMERGING ISSUES

SW&M EMERGING ISSUE
February 26, 2010

HAZARDS OF WAGE & HOUR CLAIMS

Although any lawsuit brought against a credit union raises concerns about the potential degree of exposure, credit unions should be wary of some unique challenges presented by wage and hour claims in particular.

Among other things, we remind credit unions that wage and hour claims:

• …are subject to California’s Private Attorneys General Act.
  
  Briefly, California’s Labor Code Private Attorneys General Act of 2004 (“PAGA”) allows private citizens to essentially act as labor law enforcement by suing to recover civil fines and penalties for violations of certain California Labor Code provisions. This means that aggrieved employees (as defined in PAGA) can enforce Labor Code provisions that have traditionally been enforced by the State Labor Commissioner and its Division of Labor Standards Enforcement (“DLSE”). We note that the fines or penalties imposed on an employer under PAGA are in addition to any other monies owed to the employee(s), such as unpaid overtime, unpaid meal premiums, bounced check fees, and attorneys’ fees and costs.
  
  Furthermore, credit unions should also be aware that PAGA authorizes employees to bring civil actions both personally and on behalf of other current or former employees, without needing to be certified as a class action. This “representative action” approach greatly expands employees’ ability to recover large penalties while diminishing due process protections for employers.
  
  
• …may be excluded from CUNA Mutual (or other) coverage.
  
  As you may know, losses resulting directly or indirectly from “employment practices,” including refusal to hire or promote, termination, harassment and discrimination, are generally excluded from the basic Credit Union Bond Coverage offered by CUNA Mutual or other insurers. However, you should also be aware that even if your credit union has obtained separate Employment Practices Liability (“EPL”) coverage for employment claims, EPL policies frequently exclude certain types of employment claims, including wage and hour claims.
  
  We encourage our clients to conduct a thorough review of its insurance policies to be aware of these types of “gaps” in its coverage, and exercise caution in light of the potential exposure. Additionally, your credit union should regularly review its policies, practices and procedures with respect to wage and hour matters, and ensure that your human resources employees are up to speed with respect to compliance and fair wage practices.
  
  
• …can, in extreme cases, expose managers and/or directors to personal liability.
  
  Although California state courts generally do not find supervisors and owners liable for their employer’s wage law violations, individual executives and supervisors can face personal liability under the federal Fair Labor Standards Act (“FLSA”). In Boucher v. Shaw, a federal 9th Circuit court case, former employees of a hotel and casino company sued the manager-owners of the company in their individual capacities for unpaid wages. The Court found that, despite the fact that the company had gone into dissolution under Chapter 7 bankruptcy, the individual managers could still be held independently liable for the unpaid wages as “employers.”
  
  While this case turned on specific facts and circumstances, it highlights the need for strong indemnification policies for managers and/or directors.
  

While not an exhaustive list, these are only some examples of the far-ranging implications of wage and hour claims. If your credit union has questions regarding wage issues, or may be exposed to a wage and hour claim, please contact our office for assistance.

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