DOL’s Recent Guidance on the “Economic Realities” Test and Effects on Independent Contractor Misclassification in the Energy Industry

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

Paying hot-shot drivers by the load or mile? Contracting out repair work to vehicles or machinery? Are individuals who regularly perform work integral to your business being paid through accounts payable? Have welders that you regularly call for work? Under new guidance published by the U.S. Department of Labor (DOL), what might be considered standard or normal practices in the energy industry could expose employers to claims and the risk of significant damages under the Fair Labor Standards Act (FLSA).

Classifying workers as independent contractors has certain business advantages, including exemption from the FLSA’s requirements. However, the DOL has created an enforcement initiative focusing on whether such workers have been misclassified as independent contractors under federal wage laws. On July 15, 2015, David Weil, who assumed the post of Wage and Hour Division Administrator in May 2014, issued Interpretation No. 2015-1, explaining the Department’s stance on independent contractor classification, specifically clarifying its interpretations of each element of the “economic realities” test used by courts to determine employee/independent contractor status. 

This new guidance from the DOL has particular significance to the energy industry, in which the use of independent contractors is a common practice that reaches into and affects various facets of daily business and operations. With energy industry companies already in the crosshairs of challenges to its methods of compensation, understanding the nuances of the DOL’s recently pronounced position is important for all in the industry.

The guidance begins by pointing to the FLSA’s broad definition of “employ” as “to suffer or permit” an individual to work and opines that the vast majority of workers should accordingly be classified as employees in order to achieve the FLSA’s statutory purpose. Notably, the DOL is likely to use the same interpretation of the “economic realities” test in determining independent contractor status under the Family and Medical Leave Act, as the two statutes have the same definition of “employ.” 

According to the DOL, the ultimate goal of the “economic realities” test is “not simply to tally which factors are met, but to determine whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor).” Under the test, no single factor is determinative, but rather each should be viewed in light of all facts and circumstances.

Factor 1:  Is the Work Integral to the Company’s Business?

Initially, determine whether the work being performed is integral to the company’s business. The question here is: “Are the worker’s duties primarily related to the products or services that the employer provides?” If the answer is yes, then the work is integral, and it is more likely the individual is an employee and not an independent contractor. DOL investigators and plaintiffs’ lawyers are very likely to contend that oilfield workers such as hot-shot drivers, welders, and mechanics are “integral” workers since they deliver, assemble, or repair crucial parts and components that keep the work on the well going or make it possible in the first place. Similarly, DOL investigators and plaintiffs’ lawyers will argue that “primarily related” is such a broad and flexible standard that nearly everyone who affects an oilfield company’s ability to serve its customers should satisfy this part of the test. Also, the DOL takes the position that being one of a large group of workers, or performing work away from the company’s premises, does not affect this analysis.

Factor 2: To What Extent Is the Worker Invested in the Company’s Business?

Next, examine how invested the worker is in the company’s business. For example, did the worker purchase equipment or other assets of the company? If the investments are minor compared to the company’s overall investment—such as a driver who owns his work vehicle or a mechanic who owns his tools, compared to an employer’s investment in a project that may reach into the millions of dollars—this factor is less indicative of an independent contractor relationship.

Factor 3:  How Permanent Is the Relationship?

The third consideration is the permanency of the work relationship. Keep in mind that the traditional definition of an independent contractor is an individual who works a single job, with the option to continue performing work for the same company or to find work elsewhere. If the worker does not have this type of independence, the risk that the worker should be classified as an employee escalates. Thus, even if work is seasonal or an assignment lasts only for a few weeks or months, the worker may nevertheless be deemed an employee.

Factor 4:  What Degree of Control Does the Company Exercise Over the Worker?

Another significant issue is the degree of control the company exercises over the worker. A technician or inspector who controls his own schedule, hours, or daily duties is more likely an independent contractor. However, according to the DOL, a company’s lack of direct supervision over workers who work in the oilfield is not determinative, so long as the company directs other meaningful aspects of the work.

Additional factors that can aid the determination of independent contract status are whether the worker’s duties require special skills or initiative and whether the worker has an opportunity for profit or loss depending on the exercise of his or her managerial skill.

Federal investigators are committed to ferreting out non-compliant employers in industries in which the DOL has identified worker misclassification as a chronic issue. In light of this new guidance from the DOL, companies that apply 1099 treatment to certain workers or have independent contractor agreements designating them as such should be proactive in confirming their classifications are correct under the FSLA.

Written by:

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

Ogletree, Deakins, Nash, Smoak & Stewart, P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.