Wage Litigation Rising Among Hospices

Hospice providers can face legal repercussions if they don’t strike the right balance in their payroll practices.

Miscalculated compensation or miscommunicated policies are among the most common reasons that hospices are facing legal concerns related to staff compensation, according to Russell Bruch, partner at Morgan Lewis. Bruch assists employers with legal wage and salary matters at the global law firm.

“Claims alleging off-the-clock work, failure to take required meal or rest breaks and failure to properly calculate the overtime rate of pay are some of the wage and hour issues that pose the greatest risk to companies in the hospice industry,” Bruch told Hospice News in an email. “Employees who were not paid correctly can bring their claims as a class or collective action on behalf of all similarly situated employees. Additionally, the U. S. Department of Labor can audit employers at random to ensure compliance.”


Risky situations

Hospices nationwide have implemented a variety of tactics to recruit and retain staff in a time of workforce shortages and high turnover.

To compete for scarce clinical resources, most hospices had to bump up wages and salaries, as well as offering sign-on and retention bonuses, among other compensation incentives.

Other benefit initiatives revolved around flexible scheduling and expanded paid time off policies.


Amid the uptick of these incentives, regulators may be more closely eying compliance with state and federal laws to ensure no legal lines were crossed, according to Tom O’Day, health care labor and employment attorney at the law firm Husch Blackwell.

“With all of the increases in base, incentive and other compensation over the last few years during the pandemic, lawsuits and legal action have increased,” O’Day said. “Employees, labor unions and plaintiffs’ attorneys are watching to make sure that hospices adhere to the letter of the law with respect to wage and hour issues. Even if you are not looking out for these things, employees, labor unions and plaintiffs’ attorneys are.”

“With all of the increases in base, incentive and other compensation over the last few years during the pandemic, lawsuits and legal action have increased,”

Tom O’Day, health care labor and employment attorney, Husch Blackwell

Rolling out a new bonus or incentive payment to nonexempt employees can come with a particular set of risks, according to Bruch. Hospices need careful consideration when determining overtime incentives and discretionary bonuses alongside regular pay rates, he stated.

On one hand, hospices must understand both state and federal wage and hourly laws when calculating overtime versus base pay rates, he said.

On the other hand, other incentives should factor into the regular rate calculation, such as non-discretionary bonuses, attendance bonuses, retention bonuses and shift differentials, Bruch added.

Employers also need a firm grasp on what constitutes a discretionary bonus, since this “often is the subject of litigation, because in the wage and hour law context ‘discretionary’ is a term of art,” Bruch said. “Once it is determined whether an incentive payment should be included in the regular rate, employers should work with their payroll team to confirm that they can perform the regular rate calculation correctly and properly display the information on the employee’s wage statement.”

Underlying factors in most hospice wage cases are often a misunderstanding or misrepresentation of worker compensation terms, O’Day said. This is what makes clear documentation of payroll policies a key piece to wage compliance for hospices, he explained.

“Formality and documentation is the best way to avoid risk,” O’Day said. “Wage increases, sign-on bonuses, retention bonuses and other incentives should be clearly laid out for employees in writing. The best defense against a claim by an employee is that the payroll policy or practice is documented, in writing and is clear to all on the front end of the relationship.”

Hospice that get the math wrong around minimum hourly wages are at risk of violating the federal Fair Labor Standards Act (FLSA). That law stipulates that employees who were not compensated correctly can recover back pay.

This includes “liquidated damages equal to the amount of back wages,” according to Bruch. It could also mean paying for employees’ attorney fees or additional penalties under applicable state laws, he said.

With wage violations, several states also require employers to pay as much as triple the amount of any actual lost pay.

“Depending on state law, damages can include penalties of two or three times the amount that the employee was owed, plus interest,” O’Day said.

Legal wage issues often hinge on whether employers deliberately exploited of workers. Regulators in these cases try to gauge whether these claims were isolated incidents or part of a larger scheme.

Case in point, the U.S. Justice Department recently indicted Eduardo Lopez, a former hospice executive and current senior vice president of a private equity firm, for violations of the Sherman Act. The Sherman Antitrust Act prohibits interference in trade and economic competition that attempt to monopolize any type of commerce, including health care.

Lopez was charged with “wage fixing” and agreeing to “suppress and eliminate competition” for nursing services between March 2016 and May 2019, the Justice Department indicated.

“Wage fixing is a crime that deprives workers of hard-earned wages. The Antitrust Division will be vigilant in protecting workers,” Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division said in a statement.

Violations of the Sherman Act can come with hefty financial penalties or criminal charges.

Fines for individuals are $1 million, whereas businesses face a $100 million fine. Sherman Act violations can also lead to jail time, with a statutory maximum 10-year prison sentence. Fines may double in Sherman Act cases, depending on the amount gained by an organization or losses incurred by victims.

Mitigating payroll risks

Employee wage claims have a two- to three-year statute of limitations, meaning that “exposure and risk remain on the books for quite a long time,” for hospice employers, O’Day said.

One way to mitigate risk and ensure compliance is to perform periodic internal audits of payroll practices in action, he indicated.

“Internal audits of payroll, overtime calculations and any misclassification of employees (as independent contractors or ‘exempt’ employees) are important,” O’Day told Hospice News. “Audits can be done under an attorney-client privilege to avoid prying eyes of a government agency, labor union or plaintiffs’ attorney. Hospices should work closely with legal counsel, internal finance staff and external accountants to ensure proper payroll policies and practices.

Hospices that remain compliant with wage rules are often those that instill required time recording training for employees that includes information on what qualifies as compensable work, Bruch stated.

Supervisors must also understand not only compensation policies, but their roles in monitoring and enforcing them, he said. Accountability should fall on both the employee and employer sides, Bruch indicated.

“It is important to make sure managers understand and consistently enforce the time recording and break policies as they are often the frontline for compliance,” Bruch said. “Employers also may want to consider having employees attest to having received meal and rest breaks before allowing them to clock out for the day.”

“It is important to make sure managers understand and consistently enforce the time recording and break policies as they are often the frontline for compliance,”

Russell Bruch, partner, Morgan Lewis

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