5 Things You Need to Know About Rising FLSA Claims in Energy
Apologies to my attorney friends out there but nothing makes me yawn like a discussion on labor law. But if you’ve been following the news lately you can’t ignore some of the headlines regarding FLSA or (Fair Labor Standards Act) claims and lawsuits in our industry. Headlines such as “Halliburton paid $18.3 million in back wages after federal inquiry to more than 1,000 workers nationwide” and more recently, “EOG Resources sued for overtime”. This is a big deal folks!
I. The Rise in FLSA Claims and Lawsuits is Real
According to data compiled by Androvett Legal Media in Texas, “there were 814 FLSA lawsuits filed in the Southern and Western districts (which includes Houston) in 2015, compared to 617 such cases a year earlier.” And 2016 will almost certainly be a record breaking year. Rest assured, this issue is a hot topic at every major employer in the industry.
II. The Reason This is Happening
So what’s going on here? It’s probably no coincidence that the recent layoffs in our sector are correlating to the increase in lawsuits. It would be easy to make a comparison of trends every time there was a major spike in any industry’s layoffs vs the number of lawsuits. However, there’s a bit more to it than that. According to lawyers at Seyfarth Shaw there are several factors at work here including “new federal labor regulations (see below), the fight for minimum wage hikes and an intense focus on independent contractor classification and joint employer status”. In addition, there have been highly publicized class action lawsuits recently against companies like Uber that challenge their independent contractor-based business model that could also be influencing the rise in claims.
III. How the Labor Landscape is Changing
What most HR and employment law professionals are aware of is that the Department of Labor made a Final Ruling on May 18, 2016 for changes to white collar exemptions in overtime. The change increases the “white collar” minimum salary level from $455 per week (the equivalent of $23,660 per year) to a new level of $913 per week (the equivalent of $47,476 per year) which will take effect on December 1, 2016. The FLSA still provides an exemption from both minimum wage and overtime pay for employees employed as bona fide “executive, administrative, or professional” personnel. The risk however, is that employers including the staffing agency industry, could be misclassifying some contractors as exempt employees with no overtime pay when they should in fact be treated as non-exempt hourly employees with overtime pay because.
The penalties for violating FLSA requirements are significant; including paying unpaid overtime compensation for up to two years (or possibly three years in some cases), as well as an additional, equal amount as liquidated damages, and recover of reasonable attorneys’ fees. Considering many oil and gas industry workers earn fairly high wage rates, these penalties could often be over six figures for a single violation.
Finally, the Department of Labor, its attorneys and employees are targeting the staffing agencies and indirectly their clients via co-employment liability. It is therefore necessary for all companies to review their employment contracts for contractors and ensure compliance with the new FLSA requirements.
IV. Job Classifications at Risk
Day-Rate Workers – Employees with day-rate employment contracts earn a set base rate per day, regardless of time worked. With steady employment this normally isn’t a problem, but as oil and gas workers have been asked to work more and more hours as business ramped up over the past several years, this means that day-rate employees are working longer hours, yet earning a lower average hourly wage. This opens the door to litigation risk.
Overtime Exemptions for White-Collar Workers – Under federal law, employers are allowed to classify an individual as being either exempt from overtime or eligible for overtime, based on a job duties test and the individual’s annualized salary. However, if an employee is misclassified (and we’re learning that this may potentially be prevalent in our industry), the risk could be significant.
Independent Contractors or 1099 Employees – The misclassification of independent contractors may be the biggest area of concern for the energy sector. The IRS estimates there have been billions of dollars in lost tax revenue due to the misclassification of independent contractors, so you can bet that federal as well as state workforce agencies are making vigorous regulatory and enforcement efforts here.
V. What Can Employers to Do to Mitigate Risk?
Faced with the spike in FLSA litigation, energy industry employers have started to change their day-rate pay structures. Defense lawyers have advised companies to revise their compensation policies to protect themselves and human resource departments are quickly revising their salary-level and job duties tests.
Businesses that are concerned about the potential for misclassification liability of independent contractors will need to conduct comprehensive analysis for potentially restructuring and then re-documenting workers, possibly redistributing them to an experienced workforce management company that can help monitor and maintain compliance.
Staffing agencies need to pay close attention to how they are classifying their contractors based on their clients’ job descriptions while tracking all labor hours. And clients with large supply chains of staffing agencies should investigate advanced contingent labor management practices to ensure compliance.