Provisions Protect Against Frivolous Overtime Litigation
By Annette A. Idalski and Ray Abilmouna
ATLANTA–Oil and gas companies often rely on workers contracted or employed by third-party invoicing, staffing and/or marketing companies. Due to the increase in the number of class and collective action overtime lawsuits filed across the country, including in Texas, and what appears to be a new strategy by plaintiff’s lawyers to lump in oil and gas companies as a potential employer, the energy industry should take extra precautions to protect itself against this frivolous litigation.
Oil and gas companies generally provide insulation from these lawsuits via indemnification provisions included in their master service agreements with staffing companies, and as third-party beneficiaries to staffing companies’ arbitration agreements incorporating class and collective action waivers. However, these protections may not be enough in some states, depending on state and local law.
This article addresses the potential issues with seeking to enforce arbitration agreements between staffing companies and their workers by non-signatory oil and gas companies as third-party beneficiaries, and the safer course of action of oil and gas companies promulgating their own arbitration agreement.
Can a non-signatory oil and gas company enforce a worker’s agreement to arbitrate between himself or herself and staffing company? This question largely depends on the terms of the arbitration agreement, the allegations and claims brought by a worker in a lawsuit, and the laws of the jurisdiction governing the underlying lawsuit or the arbitration agreement’s choice of law provision.
Settled legal doctrines provide that a non-signatory may enforce an arbitration agreement and compel a party to arbitrate his or her claims arising from the agreement if, for example, the non-signatory is a third-party beneficiary or if the state law doctrine of equitable estoppel applies. Generally, for the third-party beneficiary doctrine to apply, it will largely depend on the express terms of the arbitration agreement conferring the benefits of the agreement to the non-signatory. The agreement need not specifically name the intended beneficiary in order for a third party to be entitled to benefit from that agreement, but rather if the intent to benefit the third party appears either from the agreement itself (i.e., identifying a class or category of persons) or from some evidence that the person claiming to be a third party beneficiary is an intended beneficiary.
But what if the agreement is completely silent conferring any benefit to the staffing company’s clients? For example, what if an arbitration agreement expressly applies to claims between the parties (i.e., staffing company and worker), and the staffing company’s subsidiaries or affiliated entities, officers, directors and employees, but is otherwise silent on the topic on the staffing company’s clients (i.e., the oil and gas companies to which the staffing company provides workers)? In that instance, some courts have found that to be insufficient to confer a benefit to the staffing company’s clients.
Likewise, while the state law doctrine of equitable estoppel varies from jurisdiction to jurisdiction, the general concept of equitable estoppel is such that a party is prohibited from relying on the terms of an agreement containing the arbitration provision in asserting his or her claim against a non-signatory or when the party (i.e., worker) raises allegations of interdependent and concerted misconduct by both the non-signatory (i.e., oil and gas company) and one or more signatories (i.e., staffing company) to the agreement.
This area is complex, evolving and varies by jurisdiction, but the overall takeaway from arbitration jurisprudence is that the terms of an arbitration agreement matter, and if the parties intend to benefit the staffing company’s clients, the agreement should say so. The arbitration agreement should explicitly identify the class or category of persons entitled to enforce arbitration. Thus, oil and gas companies should evaluate the terms of the arbitration agreements promulgated by staffing companies and ensure that the language contained therein provides cover.
Alternatively, the best course of action is for oil and gas companies to promulgate their own arbitration agreements to be signed by workers sourced by staffing companies before placement on their projects. The arbitration agreement should also provide cover to their affiliated entities as well as the staffing companies as third-party beneficiaries. Indeed, this is becoming the more common practice.
In addition to identifying a class or category of persons entitled to enforce the arbitration agreement as third-party beneficiaries, there are a number of other pertinent provisions to consider incorporating into arbitration agreements, including:
- Cost-sharing provisions;
- Class and collective action waivers;
- Delegation clause;
- Covered claims;
- Choice of law; and
- Keeping agreements updated and current.
Cost-sharing provisions should be carefully drafted to cover fees and costs associated with arbitration to withstand claims of unconscionability. Plaintiffs may attempt to resist having their claims compelled to arbitration by contending, inter alia, that the cost-sharing provisions of their arbitration agreements are unconscionable. In other words, do not make the agreement one-sided. Notwithstanding potential unconscionability, courts generally will hold that where an arbitration agreement contains a severability clause, the remedy for a specific unenforceable term in an arbitration agreement (e.g., a cost-sharing term) is not to deny arbitration entirely, but to sever the offending portion and compel arbitration.
Including class and collection action waivers prevents class and collective action lawsuits altogether. Such a provision forces individuals to prove the merits of their own claims separately, and may result in the claims never coming to fruition because the case becomes less appealing for a plaintiff’s attorney to pursue.
A broad delegation clause delegates gateway questions of arbitrability to the arbitrator. It delegates issues for the arbitrator and not the court to decide, such as the scope or enforceability of an arbitration agreement, whether the parties agreed to arbitrate, or whether their agreement covers a particular controversy.
A broad provision also should be included for the types of claims covered under the arbitration agreement. It is worth noting that not all claims can be compelled to arbitration. For example, claims under the California Private Attorney General Act of 2004 (PAGA) cannot be compelled to arbitration without the state’s consent. Likewise, class-action waivers likely will not prohibit the Equal Employment Opportunity Commission or Department of Labor from bringing suit on behalf of the government, potentially for the benefit of numerous individuals.
The choice of law governing the arbitration agreement should be carefully considered, as some jurisdictions are more favorable than others toward compelling arbitration under the legal doctrines third-party beneficiary and equitable estoppel.
Finally, arbitration agreements need the be kept current by routinely reviewing and updating agreements, taking into account the latest arbitration jurisprudence.
Oil and gas companies should take steps now to protect themselves against these very costly, frivolous overtime claims. At a minimum, companies need to determine whether workers are subject to arbitration agreements with the staffing/invoicing companies and whether the terms of the agreements provide cover. The best course of action is for oil and gas companies to promulgate their own arbitration agreements and require contracted workers to sign the agreement before placement on their projects.
ANNETTE A. IDALSKI is a shareholder and the national chair of Chamberlain Hrdlicka’s labor and employment practice in Atlanta. She represents employers throughout the United States against federal and state wage and hour class actions, and other labor and employment litigation. Idalski holds a B.S. from Central Michigan University and a J.D. from St. Mary’s University School of Law.
RAY ABILMOUNA is an associate in Chamberlain Hrdlicka’s labor and employment practice in Houston. His primary practice focus is on the defense of matters involving wage and hour class actions, discrimination, harassment, and pregnancy and medical leave. Abilmouna holds B.B.A. degrees from the University of Houston and a J.D. from the University of Houston Law Center.
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