Drilling Down on Day Rates

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Labor Department, Plaintiffs’ Lawyers Are Targeting the Oil Patch

If you’re in the oil fields of Texas, North Dakota or another drilling area, you’ve probably seen those highway billboards inviting workers to call a plaintiffs’ attorney for help in obtaining lost wages. Day rates and a different understanding of what constitutes overtime in the oil patch are the problem, and it’s resulting in a lot of well-intentioned companies receiving hefty penalties and orders to pay back wages.

Thousands of jobs have been created in U.S. oil fields over the past few years, and the boom has spawned a gold rush for investors, as well as for the men and women who work in the oil fields. Even with the recent squeeze on oil prices, the boom is expected to continue for many years, and most oil companies have shared the prosperity with their workers, with some field hands earning more than $100,000 a year.

Despite the big paychecks for workers, companies can get into expensive trouble with the U.S. Department of Labor. With drilling companies, problems emerge, not because workers are underpaid, but because of the way they are paid. We’ve seen companies that thought they were being extremely generous, surprised to find themselves challenged in a Labor Department enforcement action because they didn’t follow the letter of the law in how they paid workers.

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“If a field hand works more than 40 hours in a week, federal law says that he or she must be paid overtime of 1.5 times the normal hourly rate.”

Drilling Down on Day RatesOil Field Layoffs Spur More Lawsuits

The recent downturn in prices has resulted in layoffs, and that’s spurred more workers to call those numbers for the billboard lawyers or tip off the Department of Labor in hopes of winning an award. And even before the fall off in prices, companies in the oil patch were being targeted both by the Labor Department and plaintiffs’ attorneys, who have discovered that what some oil companies consider a traditional way of doing business actually skirts the Fair Labor Standards Act, which sets out rules for overtime pay and other aspects of how hourly workers are paid.

The oil industry has a long history of paying workers a “day rate,” a flat, daily wage for long hours. Drilling is a grueling, 24-hour-a-day process, and there are even scenarios where two workers will work 12-hour, seven-day shifts to keep a drill running. It’s hard work, and companies have rewarded workers with generous pay, bonuses and hefty per-diems for lodging and travel. The problem is that labor laws, particularly the Fair Labor Standards Act, weren’t written to accommodate the industry’s traditional way of doing business.

In a nutshell, here’s the problem: If a field hand works more than 40 hours in a week, federal law says that he or she must be paid overtime of 1.5 times the normal hourly rate. Companies can’t just pay a flat day rate for long hours, no matter how generous.

Drilling Down on Day RatesPenalties Can Be Severe

Plaintiffs’ lawyers have discovered this rich vein of potential violations. While they will take individual cases, collective actions are more lucrative, and they aren’t hard to find because if a company violated overtime rules for one employee, it probably did so for all of its employees.
Department of Labor action typically starts with an audit, which may be triggered by an employee complaint. The Labor Department has the power to levy substantial penalties, especially if a violation is shown to be willful. If an action is willful, the statute of limitations on violations extends from two years to three years, meaning drilling companies will owe current and former employees for all the overtime they should have been paid over that period. In nearly all cases, employees awarded back wages received double that amount as liquidated damages.

And their attorneys’ fees are paid by the employer.

Proving cases isn’t difficult. The standard basically is, you knew or should have known. As an employer, the assumption is that you will do the research on how to pay employees legally or consult a legal or human resources expert. And if you don’t, your ignorance won’t generate sympathy from the Department of Labor or the courts.

What Can Employers Do?

If you have any doubts about whether your company is in compliance, consult legal counsel with experience in this area because it’s just a matter of time before a plaintiffs’ lawyer or a Department of Labor auditor comes calling.

Companies that find they have not paid employees for overtime must pay them whatever is owed, going back at least two years.

It will be expensive because bonuses will be folded into the worker’s normal pay rate, meaning you’ll pay overtime based on a regular wage that reflects the bonus. Some employers have asked employees to sign a waiver promising not to sue for damages when they cut a check for the back wages, but this is not enforceable.

Best Practices

Here’s how to stay out of trouble going forward:
• Be proactive; don’t wait to become a target. Have your wage and hour plan audited by a wage and hour lawyer who has significant experience in the Fair Labor Standards Act and pay plans.
• You can still control overtime and have a predictable labor budget. Your legal counsel can show you creative — and legal — ways to structure pay.
• If you receive an audit notice from the Department of Labor, call legal counsel immediately. We’ve seen well-intentioned employers, who thought they had nothing to hide, allow Department of Labor inspectors to come in with full access to their records and property. This is an invitation to trouble.
• If you are going to rely on a human resources consultant to implement a creative strategy, be sure the consultant will indemnify you and stand behind the advice given. Make sure that a lawyer reviews any contract you sign with the consultant or Professional Employer Organization.
• Beware of settlements with employees or their lawyers. Unless they are approved by the Department of Labor or a court, you could still be on the hook for more damages.
• Describe to employees in offer letters how they will be paid, including overtime. This demonstrates your intent to comply with the law.
• Keep accurate time and pay records, and ensure that employees sign and turn in accurate records. This is the law — employers are responsible for accurate recordkeeping. It is not the employee’s responsibility.
• Pay stubs should state separately regular and overtime hours.
• All hours over 40 hours a week are overtime and must be paid at that rate.
• Ensure that bonuses or other extra compensation are added into the regular, hourly rate when calculating overtime.

Annette Idalski

Annette Idalski

Finally, get a qualified legal opinion on your pay plan. If you can say that your pay plan relied on a legal opinion of an attorney qualified in wage and hour law, it’s unlikely that any violations would be considered willful. And your attorney can keep you abreast of new regulations and other developments in labor law.

Annette A. Idalski is a shareholder at Chamberlain Hrdlicka in Atlanta. She practices exclusively in the areas of labor and employment litigation and counseling. Contact her at annette.idalski@chamberlainlaw.com.

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