Oil-Drilling Consultants Are Independent Contractors

 

By Jeffrey Rhodes May 7, 2019
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​Consultants for an oil-drilling company should not have been awarded summary judgment on their Fair Labor Standards Act (FLSA) claims of unpaid overtime, as the employer properly treated them as independent contractors, the 5th U.S. Circuit Court of Appeals ruled.

Premier Directional Drilling, headquartered in Houston, specializes in directional drilling, in which it initially digs a vertical oil well and then, at a certain point, drills at an angle horizontal to the surface.

Premier uses directional drilling consultants (DDs) and measurement-while-drilling consultants (MWDs) to perform directional drilling. A DD advises the oil company's driller how best to effectuate the well plan that involves a directional drill. DDs generally do not operate the drill. An MWD takes measurements during the directional drilling that are given to the DD and provide a basis for the DD's opinion.

Premier kept some DDs on staff as employees and retained others as independent contractors. Employee DDs were paid a salary plus a daily bonus for each day on the job, plus a car allowance, per diem and benefits. Independent contractor DDs were paid by the job but received mileage for travel and were covered by Premier's general liability insurance while on the job.

Independent contractor DDs could not be promoted but could be elevated to higher pay classifications based on experience. They did not bid for their work but instead received calls from a coordinator who would offer them projects, which they could decline. Independent contractor DDs would occasionally call the coordinator to solicit assignments themselves.

In May 2016, a DD filed a collective action under the FLSA claiming that Premier misclassified him and similar DDs as independent contractors and willfully failed to pay them overtime compensation. Four other DDs joined the collective action. The district court determined that the plaintiffs qualified as employees, not independent contractors, under the FLSA. It ruled that Premier owed them $363,422 in unpaid overtime and damages.

[SHRM members-only toolkit: Determining Overtime Eligibility in the United States]

On appeal, the 5th Circuit determined that to establish an initial case, the plaintiffs had to prove that an employer-employee relationship existed during the unpaid overtime periods.

To decide whether an employer-employee relationship existed, the 5th Circuit considered five factors:

  • The degree of control exercised by the alleged employer.
  • The extent of the relative investments of the worker and the alleged employer.
  • The degree to which the alleged employer determined the worker's opportunity for profit or loss.
  • The skill and initiative required in performing the job.
  • The permanence of the relationship.

The court found that the first factor, degree of control, supported Premier's argument that the DDs were independent contractors. The DDs were free to accept or reject any project, and Premier did not dictate how DDs performed directional-drilling calculations, although it provided MWDs to assist them with these calculations.

The second factor, the extent of relative investments of the worker and company, supported employee status but had little significance concerning the outcome of the case. The third factor, the degree to which the company determined the worker's opportunity for profit or loss, supported independent contractor status. The workers determined the amount of revenue they received based on the extent of work performed.

The fourth factor was of particular importance to the court's analysis. This factor—the skill and initiative required in performing the job—strongly favored independent contractor status. Because DDs have to have extensive knowledge and perform services that hold potentially costly consequences, the court found that their skill heavily supported independent contractor status. The fifth factor, the permanence of the relationship, supported independent contractor status because only three of the five plaintiffs worked for Premier for 10 months or longer.

Based on these factors, the 5th Circuit found that the DDs were properly treated as independent contractors. It reversed the district court's opinion and entered judgment for Premier.

Parrish v. Premier Directional Drilling LP, 5th Cir., No. 17-511089 (Feb. 28, 2019).

Professional Pointer: Highly skilled workers qualify as independent contractors more often than workers who perform routine or mundane tasks. Nevertheless, whenever a company has both employees and independent contractors in the same job classification, a risk arises that the independent contractors may be able show that they are also entitled to the FLSA's protections.

Jeffrey Rhodes is an attorney with Doumar Martin in Arlington, Va.

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