Energy Companies Beware!

Wage & Hour
Traps and How
to Avoid Them
Christian D. Hammond, Esq.
[email protected]
• During the 12 months ending
March 31, 2012, the number of Fair
Labor Standards Act (FLSA) lawsuits
filed in federal court was 7,064
• In 2000, that number was 1,854
• According to the Department of
Labor (DOL), 80% of employers are
not in compliance with FSLA
• In 2012, top 10 FLSA settlements
totaled $292 million
• The DOL is pursuing a multi-year
enforcement initiative specifically focused
on oil & gas companies and vendors
providing services to such companies
Why the Surge
in Lawsuits and
DOL Audits?
• Back wages for 2 years, or 3 years if
violations were willful
• Liquidated damages equal to
amount of back wages
• Reasonable attorney’s fees and
• In some jurisdictions, punitive
damages may also be available for
retaliation claims
• Easy to obtain conditional
certification of class action
Why should energy companies be
• An oil & Gas equipment
manufacturing company paid almost
$700,000 to 133 roughnecks and
crane operators for getting it wrong!
• Major focus for investigators by
state and federal government
• Liability for misclassification can
add up quickly and could include
many different penalties
Trap #1
Misclassification of
Independent Contractors
Trap #1
• General Rule: If an employer controls
not only the end result but also means and
manner of achieving the result, likely not an
independent contractor. But if the
employer controls only the end result and
not how that result will be achieved, more
likely to be independent contractor.
• No bright line test; instead, numerous
factors are considered and balanced.
Misclassification of
Independent Contractors
• FLSA defines “employee” as “any
individual employed by an employer.”
• Economic realities test: is the worker
economically dependent on the
business to which he/she renders
services, or is the worker, as a matter
of economic fact, in business for
• Courts generally look at (1) the
degree of control exerted by the
alleged employer over the worker;
(2) the worker's opportunity for profit
or loss; (3) the worker's investment in
the business; (4) the permanence of
the working relationship; (5) the
degree of skill required to perform the
work; and (6) the extent to which the
work is an integral part of the alleged
employer's business.
Trap #1
Misclassification of
Independent Contractors
Factors common to other tests:
• Is the worker told where, when, and
how to perform the work?
Does the company set hours?
Trap #1
• Does the company determine the
sequence of the work?
• Does the company supply the tools
needed to perform the work?
• Does the worker provide regular
reports to the company?
• Does the company pay the worker
individually versus an LLC or other
• Is the worker paid by the job or task,
or by the hour?
Misclassification of
Independent Contractors
Who pays the worker’s expenses?
• Is the relationship terminable at
Trap #1
• Does the company provide more
than minimal training?
• Is the worker entitled to any benefits
from the company?
• Does the company issue a Form
1099 or a Form W-2 to the worker?
• Is the worker expected to work
exclusively for the company?
Misclassification of
Independent Contractors
DOL: “These violations reflect one of
the problems we’ve found in the oil
and gas industry – employees are
improperly classified as exempt from
Trap #2
Common misunderstandings:
• paying a “salary” does not
equate to exempt status
job title is not important
• college or advanced degree
does not necessarily mean
• highly compensated employees
are not necessarily exempt
Misclassification of
Employee as Exempt
• Both of the following tests must be
met to be exempt:
• Salary Basis Test: employee
must receive predetermined
amount which amount is not
subject to reduction because of
violations in the quantity or quality
of work performed
Exceptions to this rule
• Duties Test: Employee’s duties
must satisfy all factors under one of
six recognized exempt categories
Please see Self-Audit
Trap #2
Misclassification of
Employee as Exempt
• Why you must do calculations
• Staffing firm providing temp
employees to energy industry paid
$2 million to 2,267 employees for
failing to include per diem pay in
overtime rate
• Hospital paid more than
$4 million in back wages and
liquidated damages to more than
4,500 employees because the
hospital failed to include workers’
incentive pay when calculating
overtime pay
• Another company paid more
than $75,000 to 139 workers for
failing to include non-discretionary
bonuses in overtime rate
Trap #3
Improperly Calculating a
Non-Exempt Employee’s
Overtime Rate of Pay
Problems with paying day or shift rate
• An employee’s regular rate of pay for
the purposes of overtime calculations
may include:
• Hourly pay
• commissions
• incentive bonuses
• non-discretionary bonuses
• shift differentials
• fair value of employer-provided
board and lodging
Trap #3
Improperly Calculating a
Non-Exempt Employee’s
Overtime Rate of Pay
But does not include:
• discretionary bonuses
• gifts
• vacation pay
• holiday pay
• reimbursed expenses included
on employer’s behalf
• profit sharing payments
• insurance premiums
Trap #3
Improperly Calculating a
Non-Exempt Employee’s
Overtime Rate of Pay
Off-the-Clock Work:
• Common inadvertent violations
Trap #4
• asking a non-exempt
employee to work during his/her
lunch break
• asking a non-exempt
employee to complete a task
after he/she has clocked out for
the day
• failing to pay a non-exempt
employee for work done after
hours or on weekends, such as
answering emails from home
• engaging exempt and nonexempt employees in workrelated conversations when
he/she is on unpaid leave
Failing to Pay NonExempt Employees for All
Hours Worked
Compensable Work Time:
Travel time –
Smith v. Aztec Well Servicing, Co
• Waiting time, on-call time, sleeping
Training and meetings
Rounding hours worked
• Company agreed to pay
almost $230,000 in minimum
wage and overtime back wages
to 82 workers because its timekeeping system improperly
rounded the employees’ time
worked in favor of the employer
“Donning and doffing” clothing
Sandifer v. U.S. Steel
Trap #4
Failing to Pay NonExempt Employee’s for
All Hours Worked
• Private sector employers cannot allow
employees to “bank” extra hours worked
and use as comp time in lieu of overtime
pay unless the time is used in the same
workweek as it is earned
• If used in the same workweek, the
amount of comp time should be 1-1/2
hours for each hour over 40 hours
• Pending bill in Congress – The Working
Families Flexibility Act ( H.R. 1406)
Trap #5
Improper Use of “Comp”
• Critical to maintain accurate time
records to ensure compliance with FLSA’s
requirements and to provide a defense
to claims for unpaid wages.
Trap #6
• Burden of proof in unpaid wages
• What about keeping records for
exempt employees?
• Employer has the duty to keep
accurate records and this duty cannot be
delegated to employees
• Should maintain time and pay records
for a minimum of 3 years
Inadequate Time Records
If you have questions about any of
these issues, please do not hesitate to
contact me at
[email protected]
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