From the Associated Press:
It’s amazing how many times Rodney Bean has heard the phrase “but everyone’s doing it” from oil and gas companies, big and small.
“Everyone” hires independent contractors instead of employees. “Everyone” pays a flat day rate instead of a salary or hourly wage.
When these companies get a notice from the U.S. Department of Labor, they call Mr. Bean, an attorney with Steptoe & Johnson PLLC, and he tells them, in the most respectful way: Yes, you’re right. Everyone is doing it. And they’re doing it wrong.
Mr. Bean is getting more and more calls these days, as the Labor Department’s Marcellus Shale Initiative enters its second year.
The agency began targeting oil and gas firms because the industry has shown a pattern of labor law violations, according to John DuMont, district director for the department’s Pittsburgh office. The firms tend to improperly label their workers as independent contractors, which allows the companies to avoid paying overtime. They also pay employees a day rate without calculating how many hours are worked in a week and without keeping proper records.
So far, the largest judgment from the initiative was issued against Groundwater and Environmental Services Inc., a New Jersey-based company, for violations found in an audit of its Cranberry and Fairmont, W.Va., offices.
The Labor Department audit concluded the environmental firm improperly classified 69 workers, who collected water samples from Marcellus Shale well sites, as professionals exempt from the Fair Labor Standards Act, even though they required no advanced knowledge to perform their jobs.
The exemption from minimum wage and overtime pay applies to “bona fide executive, administrative, professional and outside sales positions, as well as certain computer employees,” who are typically paid on a salary basis, the department said.
GES could not be reached for comment.
“If you’re in the shale gas industry, especially in Pennsylvania and West Virginia, then the U.S. Department of Labor has you under a microscope right now,” Mr. Bean said. The odds of getting audited are high, he warned, and for those audited, “it’s almost always bad news.”
By that he means that most audits uncover violations, which isn’t surprising, given how specific some employment laws are and the oil and gas industry’s higher-than-typical rate of violating those laws.
Still, an audit isn’t the worst thing that could happen, Mr. Bean cautioned. “Compared to a class action lawsuit, (it’s) really a walk in the park.”
There are also other agencies to consider.
Two years ago, the Labor Department signed an agreement with the Internal Revenue Service and 14 states promising to forward violations found during its audits to the other agencies. So it’s possible that a call from the Department of Labor might be followed by another from the IRS, investigating whether the company paid Social Security and Medicare taxes, or the state’s unemployment insurance bureau, wondering about its share.
Sometimes it’s a hard sell, but Mr. Bean is trying to get clients to realize that simply having a contract with a worker that says he’s an independent contractor doesn’t necessarily make it so in the eyes of the law.
It’s the nature of the relationship and who has control over costs, supplies, work requirements and job training that makes the determination.
As for day-rate workers, Mr. Bean tells companies to think of them as fish in a stream, with hooks and worms all around them. “If you want to find out who the fishermen are, Google day-rate violations.”
For plaintiff lawyers, day-rate claims could mean good business, since it’s an easy way to get a class action suit.
Charles Hammrick, CEO of Lightning Energy Services LLC, was considering switching some of the employees at the Bridgeport-based company to a day rate but was dissuaded after listening to Steptoe & Johnson attorneys outline the paperwork involved.
It’s not a decision the company would take lightly. In 2012, before Mr. Hammrick joined the firm, it was audited by the Labor Department under the Marcellus Shale Initiative and ordered to pay $11,470 in back wages to five employees.
Mr. Hammrick said the company, at the time, had both misclassified independent contractors and was paying day rates improperly.
A day rate is an attractive option for oil and gas service work because, depending on location and workload, it avoids paying workers when their services aren’t needed.
That’s why many companies in the industry pay this way, and that, in and of itself, isn’t the problem, according to Mr. Bean.
The problem is when an employer doesn’t keep track of a day-rate worker’s hours and doesn’t pay overtime if the hours total more than 40 in a work week.
Calculating how the administrative expense will siphon the savings of paying his workers a day rate, Mr. Hammrick is leaving everything as it is.
The Labor Department’s Pittsburgh office, one half of the enforcement duo for the Marcellus Shale Initiative, began doing audits last fall. The Wilkes-Barre office started a few months earlier.
Mr. DuMont estimates his investigators have audited between 100 and 150 companies so far and he hasn’t yet come across a company that knew it was doing something wrong.
Mr. Bean has found the same to be true.
“I don’t think there’s intentional misclassification. I think it’s an honest belief that you can classify a worker as an independent contractor and that’s what they’ll be,” he said.
Of the cases that the Labor Department has completed — more than 100 of them — only one company was found to have been willful in its violations and fined on top of the back wages. The rest were first-timers.
About a third of the completed investigations found no violations, but that number likely will decrease as cases where the Labor Department is waiting for companies to pay their fines and back wages are added to the list.
Altogether, the back wages paid thus far total less than half a million dollars.
“We’re still at the very beginning,” Mr. DuMont said. “I see it continuing for quite a while.”
In fact, the effort will likely extend beyond the Marcellus, to other states with shale basins where some of the same companies are using some of the same employment practices.
Most of the back wage penalties aren’t large — the majority range between a few hundred dollars to a few thousand — but Mr. DuMont thinks the initiative is a good deterrent.
“Even if somebody owes $1,000 versus $1 million, they know we’re looking at the industry,” he said. “The big players know we’re looking at everybody they’re subbing out to.”
The agency isn’t out for blood, Mr. Bean said. “They just want to get people paid.”
“On the one hand, these types of investigations and damages that flow from them do result in revenue from the government. And the other thing is, let’s be honest, this industry’s had a lot of violations,” he told companies during a recent webinar on the topic. “Somewhere in between the cynical viewpoint and the humanitarian viewpoint is the truth.”
Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.
Rig Count Interactive Map by Baker Hughes, an energy services company.
Shale Sheet Fracking, a Youngstown Vindicator blog.
The Ohio Environmental Council, a statewide eco-group based in Columbus.
Earthjustice, a national eco-group.
People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.
Concerned Citizens of Medina County, a grass-roots group.
No Frack Ohio, a Columbus-based grass-roots group.
Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.
Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.
Allegheny Front, environmental public radio for Western Pennsylvania.