In the rapidly growing oil and gas industry, wage and hour violations have become more common as companies seek ways to lower their labor costs. In response, the Wage and Hour division of the Department of Labor (“DOL”) has focused its investigations and enforcement initiatives on oil and gas employers to address one violation in particular: misclassifying workers as independent contractors. This practice is especially pervasive in the oil and gas industry, where much of the work is sub-contracted out to smaller companies.
Under the Fair Labor Standards Act (“FLSA”), nonexempt employees must be paid at least the minimum wage for all hours worked, plus overtime pay at a rate of one and one half times the regular rate for hours worked in excess of 40 in a workweek. Some employers try to sidestep these obligations by classifying workers as independent contractors, rather than employees. Of course, hiring independent contractors, when done correctly, certainly eliminates many costs and workplace restrictions. Independent contractors are not subject to the overtime provisions of the FLSA, and employers can also avoid tax obligations otherwise owed to employees.
But it is the actual employment relationship—not the label—that controls whether an individual is an employee or an independent contractor for the purposes of the FLSA. Although there is no single way to make this determination, the bottom line is that defining employee status can be complex, and simply handing a worker a 1099 rather than a W-2 will not suffice. It all depends on the circumstances surrounding the employment relationship as a whole. Workers are employees if they are economically dependent upon the employer, rather than in the business for himself or herself. One of the various tests applied by the courts, the “economic reality test,” considers the following factors: (1) the permanency of the relationship; (2) the degree of skill required; (3) whether the worker contributes services that are an integral part of the business; (4) the employer’s control over the worker; (5) the worker’s opportunity for profit or loss; and (6) the worker’s investment in materials and equipment.
When undetected, worker misclassification denies individuals crucial benefits and protections such as family and medical leave, unemployment insurance, workers’ compensation, and the minimum wage and overtime pay. Additionally, it exposes employers to serious liability—back wages, liquidated damages, and attorneys fees—when violations are found. For example, an oil and gas equipment manufacturer paid nearly $700,000 in back wages to misclassified employees following an investigation by the DOL’s Wage and Hour Division. Another company, Morco Geological Services, Inc., recently agreed to pay $595,000 in back wages to employees for minimum wage, overtime, and record-keeping violations. Specifically, the investigation reported that the employees, new mud logging technicians, were only paid $75 per day for working 24-hours shifts.
Over the past decade, this industry has faced a 71% increase in employment, leaving much room for wage and hour violations. The DOL has stepped up its enforcement initiatives by signing memoranda of understanding with state government agencies to organize investigations, providing compliance assistance information to employers, and reaching out to employees to increase awareness of worker misclassification.Source: Naveena Sadasivam, Oil and Gas Companies Are Rigging Wages and Cheating Their Workers (September 27, 2014), http://www.truthdig.com/report/item/oil_and_gas_companies_are_rigging_wages_and_cheating_their_workers_20140927.