On Monday, the United States Energy Information Administration released a Drilling Productivity Report. The report projects that total oil output from seven major U.S. shale regions will fall by 118,000 barrels per day to about 4.95 million barrels per day in December. This is the largest monthly decline on record. The Bakken and Eagle Ford Shale regions are anticipated to show declines next month, marking the 10th straight month of declines in those formations. Total U.S. shale production is projected to fall for an eighth consecutive month in December.
The slowdown in production in the Eagle Ford Shale coincides with a surprising uptick in litigation, specifically, lawsuits over unpaid overtime and wages. In fact, through the first 10 months of this year, 72 such lawsuits were filed in the United States District Court for the Western District of Texas in San Antonio. This is a dramatic increase from the 28 lawsuits filed in 2014 and the 10 filed in 2013. The actions are brought under the Fair Labor Standards Act. Many blame the downturn in shale production for the increase in lawsuits.
The lawsuits vary. Some allege a failure to pay overtime, others allege misclassification as exempt from overtime, and others allege misclassification as independent contractors. According to Cynthia Ramos, the San Antonio district director of the U.S. Department of Labor, “[u]sually what we see is employers are not familiar with the law and they don’t know what their responsibilities are, so therefore they run into a lot of problems.”
This lack of knowledge comes at a cost. The Department of Labor has taken a keen interest in the oil and gas industry. The Wage and Hour Division’s effort seeks to inform workers of their rights and ensure Fair Labor Standards Act compliance among oil and gas companies and other related businesses, including but not limited to trucking, lodging, haulers of water and stone, staffing service providers, and other types of oil and gas supporting trades.
In the Department of Labor’s 2015 fiscal year, which ended September 30th, the agency’s Southwest region, encompassing Texas and 10 other states, collected $22.3 million in wages on behalf of 4,700 workers. This figure included the Department of Labor’s Wage and Hour Division, which recovered $18.3 million in back wages for more than 1,000 Halliburton field-workers, who were not paid overtime when they worked more than 40 hours per week. Employers in this industry should be aware of the potential pitfalls of worker misclassification, wage and hour violations, and other FLSA violations. The use of independent contractors involves particular risks, with government agencies and class action lawsuits frequently alleging that such workers are employees. A finding of worker misclassification can result in liability for failure to withhold taxes, failure to follow wage and hour laws, failure to provide benefits, and failure to provide unemployment and workers’ compensation coverage. Companies with questions about current practices should seek experienced legal counsel when in doubt.