The Department Of Labor’s FLSA regulations leave a lot of employers confused over regulations determining whether a worker is an independent contractor, or a regular employee eligible for overtime pay. The consequence for unknowingly violating the law is a choice between a fortune in penalties and fines or a protracted law suit at enormous legal costs. Almost every private small business which ever faced the potential of a misclassification challenge from the DOL has immediately elected to convert their independent contractors to regular employees, resulting in significantly increased labor costs tied to benefits and overtime pay. Until recently!
Companies in the oil and gas industry may consider the recent – and rare – victory of a Texas company against the redoubtable Department of Labor a collective win! The oil and gas industry is required to keep a detailed accounting of all individuals entering or leaving the oil fields so that all workers can be accounted for in the event of a disaster. This requires ‘around the clock’ monitoring. Standard industry practice is to use independent contractors to provide this service. The DOL views these individuals as regular employees, and has forced many companies to classify these individuals as W-2 employees, offer benefits and pay overtime. Three years ago, one company refused to comply. After three years of legal battles, a federal judge struck down the Department of Labor’s order to pay $6.2 million in fines and back pay. This is the first time that the DOL lost a Fair Labor Standards Act case dealing with misclassification since the law was enacted 75 years ago in 1938! After all, how many businesses can match the financial resources of a government agency and/or have the stomach for a protracted legal battle?
Going into the details, Gate Guard Services, a South Texas oil-field services company has been battling the DOL’s order to classify the gate attendants it deployed as employees and not independent contractors. These individuals maintain logs of vehicles entering and departing the client’s drilling operations from their RVs (recreational vehicles) parked at the site. They are compensated $100 to $175 per day, and may monitor the site for as long as 24 consecutive hours. The 400 guards deployed by the company were not monitored. During slow periods, the individuals are free to read, use the Net and watch TV. This ‘self-directed” work environment further added to the complexity of determining when overtime rates would kick in!
The judgment has landmark value in giving small businesses the incentive to protect their industry-specific methods and practices. Of course, the government is expected to appeal, so we may not have heard the last on this.
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