It is no secret that wage and hour cases are on the rise. As several news sources have recently reported, this issue is of particular concern in the oil and gas industry. According to the Federal Judicial Center, in 2015 there were a record 8,957 cases filed asserting claims under the Fair Labor Standards Act ("FLSA"), the federal law that establishes minimum wage, overtime, and recordkeeping requirements for employees employed in the United States.
In response to the rising tide of FLSA claims, employers should immediately address the following three issues:
Determine whether your workers are employees or independent contractors.
This requires the careful application of a number of factors to the particular circumstances of the working relationship between the company and the worker. Complicating this issue further is the fact that different government agencies utilize different standards to make this determination. In some cases, misclassifying an employee as an independent contractor can have significant financial consequences, as the employer may be liable for employment taxes, unpaid overtime, and benefits.
Properly classify exempt employees.
It is the employer's burden to prove that the employee meets the requirements for a statutory exemption from the minimum wage and overtime requirements of the FLSA. Doing so requires that employers stay up to date on changes to the law, [1] including regulations relating to these exemptions. One current example is the narrowing window on "white collar" exemptions which could "dramatically expand the number of employees entitled to overtime pay." The Department of Labor has indicated its intention to revise current regulations. (See DOL's Proposed Overtime Rule Will Change White Collar Exemptions).
Calculate nonexempt employee overtime correctly.
Employers must avoid basic pitfalls when calculating overtime and the regular rate of pay for purposes of calculating overtime for nonexempt employees. For example, non-discretionary bonuses must be included in the regular rate of pay for calculating overtime. Additional issues may also arise when employees are paid "day rates" instead of overtime compensation (this is a common issue in the oil and gas industry). Employers must also ensure that their overtime compensation policies comply with both federal and state law as certain states' wage and hour laws are more strenuous.
The data suggests that wage and hour claims will continue to rise and government enforcement actions will continue to increase. Reviewing your employment and compensation policies now, before a lawsuit or an enforcement proceeding is initiated, is a crucial first step to defending against wage and hour claims or, better yet, avoiding such claims altogether.
[1] A case decided by Judge Melinda Harmon in the Southern District of Texas, Houston Division, in late February 2016 offers hope to employers that courts will consider employer arguments that employees like "mud engineers" may be properly classified as exempt employees in some circumstances. (See Dewan v. M-I, LLC, 2016 WL 695717 (S.D. Tex. 2016)).
