In the past few years, the oil industry has seen an increase in wage and hour claims under the Fair Labor Standards Act (“FLSA”) from both the Department of Labor, and from private plaintiffs. The industry has been frequently challenged for its classification of its workers as independent contractors and for its day rate pay practices. Collective action wage and hour lawsuits can be very expensive to defend, so it’s always best to be proactive and constantly reevaluate to ensure your employment practices are in compliance with federal and state laws. With a new year approaching, now is the time to review your pay practices and make any necessary changes or improvements.
The biggest area of concern is the classification of workers. Under the FLSA, all non-exempt employees are owed overtime compensation for all hours worked in excess of forty (40) in a given workweek. Independent contractors are not covered under this law. There is a big misconception that simply classifying someone as an independent contractor and paying them accordingly makes that person an independent contractor and therefore exempt from the requirement of overtime compensation. In reality, a person’s status as an independent contractor is heavily dependent on the facts of his or her work engagement. Under the Fair Labor Standards Act, courts use the “economic realties test”. Among the factors considered by the courts are: (1) Is the work an integral part of the employer’s business? (2) Does the worker’s managerial skill affect the worker’s opportunity for profit or loss? (3) How does the worker’s relative investment compare to the employer’s investment? (4) Does the work performed require special skills and initiative? (5) Is the relationship between the worker and employer permanent or indefinite? and (6) What is the nature and degree of the employer’s control?
If a worker is not an independent contractor, he or she is entitled to overtime compensation unless exempt under the law. The most common exemptions under the FLSA are referred to as the “white collar” exemptions, and include the executive exemption, the professional exemption, and the administrative exemption. In the oilfield, the most common exemption used to defend a wage and hour claim is the administrative exemption. In Dewan v. M-I, LLC, 2016 WL 695717 (S.D. Tex. 2016), the oil industry successfully used this exemption when the Southern District of Texas ruled that Drilling Fluid Specialists, also known as “mud engineers” are exempt from the overtime provisions of the FLSA under the administrative exemption. However, this victory was short-lived as the United States Fifth Circuit reversed and remanded this decision back to the lower court, because it found there were genuine issues of material fact as to whether or not these workers were truly exempt.
If a worker is misclassified as an independent contractor and not subject to an exemption under the Fair Labor Standards Act, the potential consequences can quickly add up. A successful plaintiff seeking overtime compensation under the FLSA, will receive all back wages owed, plus an equal amount of liquidated damages, and reasonable attorney’s fees.
For all non-exempt employees, you should ensure that they are being paid overtime that is correctly calculated under the law. Additionally, you must also ensure that all proper records are being kept for each employee. Under the FLSA, a failure to keep proper records is a separate violation, in and of itself.
As 2017 comes to a close, there is no better time to reevaluate your employment policies and make any necessary changes or improvements so you are not caught off guard with any surprises in 2018. If you have any questions about the Fair Labor Standards Act, or any employment policy, you can contact me at firstname.lastname@example.org.