Misrepresentation of an Employee’s Exempt Status May Trigger a Defense Under EPLI Policy for “Disseminat[ing] False Information,” (i.e., Misrepresentation)

Insurance coverage under an EPLI policy with coverage for Inappropriate Employment Conduct, defined to include an “employment-related misrepresentation to . . . an employee,” may be triggered by conduct as well as statements that misclassify an employee as exempt from wage and hour laws when they are not.  Professional Security Consultants, Inc. v. United States Fire Insurance Co., No. CV 10-04588 SJO SSx, 2010 WL 4123786 (C.D. Cal. Sept. 22, 2010) (J. Otero) (Allegations that the employer “[d]isseminated false information . . . that . . . [employees] were not entitled to overtime compensation” (id. at *3) evidenced potential coverage.).

It does not matter whether damages are sought in connection with the lost overtime payments or whether damages were connected with the employment-related misrepresentation since that issue will only be adjudicated if the case proceeds to judgment.  So long as the facts alleged evidence a potential for coverage at the time the complaint asserts relief, the possibility that a damage remedy will be premised on “misrepresentation” apart from “lost overtime payments” compels a defense. 

Broad Exclusions for FSLA Law Violations, Both Nationally And By State Statutes, Will Only Bar Coverage For Wage And Hour Claims But Not Distinct Fact Allegations Of Negligent Misrepresentation

EPLI policies that limit wage and hour exclusions to those under the FSLA exclusion may not extend to distinct state remedies where separately pled.  But the reverse rule applies where the EPLI policy expressly excludes loss amounts owed under federal, state, or local wage and hour laws.  Tritech Software Systems v. U.S. Specialty Insurance Co., No. CV10-00094-R (VBKx), 2010 WL 5174371 (C.D. Cal. Dec. 13, 2010) (J. Real). 

EPLI Policies May Provide Coverage for Wage and Hour Claims Which Include “Invasion Of Privacy Of An Employee”

The definition of “personal injury” in an EPLI policy frequently includes coverage for “invasion of privacy of an employee.”  An employee may not be able to prove a right to collect overtime payment when pursuing personal activities during business hours.  An investigation that seeks to reconstruct employee activities may unearth information maintained on personal as well as business computers, smartphones, and other electronic communications devices such as Androids and iPads, that call into question an employee’s version of his/her overtime records.  This investigation may itself trigger a defense under the EPLI policy’s “invasion of privacy” coverage. 

In Netscape Communications Corp. v. Federal Insurance Company, No. 08-15120, 2009 WL 2634945 (9th Cir. (Cal.) Aug. 27, 2009) the court found a defense arose under a far narrower offense – “oral or written publication, in any manner, of material that violates a person’s right of privacy.”  Therein, Netscape’s internal distribution of the collected information was both a violation of “a person’s right of privacy” and a “publication” because “the underlying complaints sufficiently alleged that AOL had intercepted and internally disseminated private online communications.”  Id. at *1. 

Under the logic of this case, privacy invasion premised upon “intrusion upon seclusion” may be implicated by interception of private online communications, searches of GPS tracking information on employee cell phones, or review of emails to track their content, triggering a defense for “Inappropriate Employment Conduct” defined to include “any invasion of privacy of an employee.”