misclassification claims

Misclassification claims are one of the two main types of wage and hour claims made by employees against their employers.

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Misclassification claims allege that an employer has misclassified an employee (as "exempt" from eligibility for overtime pay) and thus has failed to pay overtime wages to that employee in violation of the Fair Labor Standards Act (FLSA) of 1938. (The other type of wage and hour claim is known as "pay practices claims," which are composed of miscellaneous claims that are not wage and hour claims.) The FLSA established two broad classifications of employees, as follows: (1) exempt employees, who are those ineligible for, and thus "exempt" from, receiving overtime, and (2) nonexempt employees, consisting of employees who are not exempt and thus eligible to receive overtime pay. The following five categories of employees are "exempt" from receiving overtime pay: (1) executives, (2) administrative personnel, (3) professionals, (4) computer-related employees, and (5) outside sales employees. Insurers universally exclude indemnity coverage for both types of wage and hour claims (i.e., misclassification and pay practices) under employment practices liability insurance (EPLI) policies. However, a handful of insurers offer coverage for the costs of defending such claims, albeit subject to sublimits, typically $100,000 or $250,000.