October 2018 Exclusive Story
Oil Production, Refining Output Hit New Heights
PITTSBURGH, PA.–If it seems like the oil and gas industry has been hit particularly hard by wage and hour lawsuits over the past few years, well, that observation is both right and wrong. The oil and gas industry has seen a dramatic increase in Fair Labor Standards Act (FLSA) filings. But so, too, has nearly every other industry.
While 2017 numbers are still being tabulated, there were 8,308 FLSA filings in 2016 alone. Compare that with 2006, when there were slightly more than 4,000 filings. In 1996, there were less than 1,700. This represents a more than 450 percent increase in only 20 years. The oil and gas industry has seen similar trends, as federal records show oil and gas companies are among the top violators of FLSA wage laws today.
Still, after years of steadily increasing filings, the number of lawsuits continues to come as a shock to many in the industry. Why is that? Have the laws suddenly changed regarding overtime? Are companies suddenly doing something wrong? These lawsuits did not appear at this rate years ago, so today’s oil and gas workers must simply have it out for employers, right?
In reality, the industry is plagued with a series of long-held misconceptions about wage and hour laws that are in dire need of correcting. This article presents four common myths related to wage and hour laws in the oil and gas industry. Employers need to learn the facts. Perhaps even more importantly, they need to learn what to do next to avoid becoming another statistic in the rising number of FLSA filings.
Four Common Myths
The first myth is that changes in the law are driving the surge in wage and hour litigation. This myth is commonly accepted not just in the energy sector, but across nearly all industries when it comes to wage and hour litigation increases.
The FLSA as we know it was passed in the 1930s and has not changed much since. In the early 20th century, work was primarily driven by manufacturing, and as a result, the rules set forth in the FLSA worked relatively well with little need for litigation. And while the law has not been fundamentally changed in decades, the way people work today certainly has. The job of software engineers or the concept of remote work could never have been imagined by legislators when the assembly line was still a relatively new concept. That has been the primary reason for the increase in the number of wage and hour disputes between workers and employers, not because of any changes in the law.
But litigation in the oil and gas industry is not necessarily being driven by new types of jobs. Many field workers have similar jobs as those from 50 years ago. What has changed is that the number of oil field workers–and the money they are making–has soared during the past decade-plus, and caused increased scrutiny from the U.S. Department of Labor, not to mention more opportunities to bring claims from the plaintiff’s bar. Since damages can be so tremendous, with back wages of potentially three years, liquidated damages and attorneys’ fees all on the table, there is plenty of incentive to bring litigation against employers.
A second myth is that an employer who pays a salary and/or day rate for all hours worked is free from facing liability. Just because an employer pays employees what it considers fair wages through either a salary or a day rate (even if that rate is more than what a worker would otherwise earn via an hourly rate) does not mean they will avoid legal battles. It is quite the opposite, actually.
By default, all workers are non-exempt workers, and it is the employer’s burden to demonstrate, consistent with applicable tests, that a worker is properly classified as exempt from overtime. The most common FLSA exemption tests to prove this, known as the white-collar exemptions, require the employer to meet a duties test, salary-basis test and salary-level test. The exemptions do not apply to manual laborers or other “blue-collar” workers who perform work involving repetitive operations with their hands, physical skill and energy.
Another myth holds that the best way to see whether a worker is exempt or non-exempt is to look at past industry practices. Just because an employment practice is generally accepted as the norm in any given industry does not mean it is the way businesses should operate. “Industry norm” is certainly not a recognized legal defense to worker classification, for example.
When wage and hour laws are violated, more often than not, it is not an intentional act by an employer, but rather a misunderstanding of the rules. Unfortunately for employers, good faith alone may not be enough to avoid liquidated damages. Most often, a careful reading of the FLSA will make it clear which employees are exempt and which employees are non-exempt. However, if concerns or questions still remain, employers must consult with experienced counsel to help them understand the level of risk in classifying a worker as exempt. Attorneys look closely at past court decisions and applicable tests/standards, along with Department of Labor guidance, to determine the amount of risk in classifying a worker as exempt.
A final myth is that employers who do not offer workers exempt status are at a competitive disadvantage. This myth is the cause of considerable agony for many employers in the oil and gas industry. They fear that employees will go elsewhere if they are not able to ensure the guaranteed pay of a salary or day rates. If only more employers recognized that they can actually pay workers at a non-exempt hourly rate and still get them to reach the same compensation level as exempt workers or non-exempt day rate workers, there wouldn’t have been this many litigation issues in the first place.
The fact is, employers can pay non-exempt workers varying forms of compensation to get them to the compensation levels of an exempt worker or non-exempt day rate worker, as long as appropriate overtime adjustments are made. Indeed, some companies lawfully pay day rates with appropriate overtime premium pay adjustments.
In addition, when it comes to bonus payments, employers can pay non-exempt workers various forms of incentive compensation, such as a production bonus, to augment their hourly pay. However, when it comes to non-discretionary bonus payments, unless the bonus is paid as a percentage of total compensation, appropriate overtime adjustments must be made under federal law. As always, state law may differ.
It is critical that employers consult with counsel to assess which methods of compensation are allowed by the FLSA and which are not.
Believing myths and making assumptions are two of the main reasons businesses have faced so much wage and hour litigation over the past decade. And given that employee compensation is such a fundamental part of business operations, it is time for those in the oil and gas industry to change their outdated perceptions. Though it is true that federal and state wage and hour laws can be complex, it is a myth that these issues cannot be avoided without a bit of simple planning and legal consultation.
Christian Antkowiak is a shareholder at Buchanan Ingersoll & Rooney in Pittsburgh, Pa. His experience includes defending multistate class and collective actions, and serving as advisor to general counsel and human resources professionals who seek legal expertise and practical opinions. In trials, arbitrations and appellate matters throughout the country, Antkowiak defends employers in a variety of business sectors, including energy, healthcare, manufacturing, transportation, direct broadcast satellite service, retail and financial. His clients often call on him to assist in drafting employment agreements for key executives, as well as non-compete, non-disclosure and non-solicitation agreements.