ENERGY COMPANIES BEWARE!

1. ENERGY COMPANIES BEWARE! Christian D. Hammond, Esq. chammond@duffordbrown.com

2. During the 12 months ending • March 31, 2012, the number of Fair Labor Standards Act (FLSA) lawsuits filed in federal court was 7,064 • In 2000, that number was 1,854 • According to the Department of • Labor (DOL), 80% of employers are not in compliance with FSLA • In 2012, top 10 FLSA settlements • totaled $292 million notes:

3. The DOL is pursuing a multi-year • enforcement initiative specifically focused • on oil & gas companies and vendors • providing services to such companies • Back wages for 2 years, or 3 years if • violations were willful • Liquidated damages equal to • amount of back wages • Reasonable attorney’s fees and • costs • In some jurisdictions, punitive • damages may also be available for • retaliation claims • Easy to obtain conditional • certification of class action notes:

4. Why should energy companies be • concerned? • An oil & Gas equipment • manufacturing company paid almost • $700,000 to 133 roughnecks and • crane operators for getting it wrong! • Major focus for investigators by • state and federal government • agencies • Liability for misclassification can • add up quickly and could include • many different penalties Misclassification of Independent Contractors

5. General Rule: If an employer controls • not only the end result but also means and • manner of achieving the result, likely not an • independent contractor. But if the employer controls only the end result and not how that result will be achieved, more likely to be independent contractor. • No bright line test; instead, numerous • factors are considered and balanced. Misclassification of Independent Contractors

6. FLSA defines “employee” as “any • individual employed by an employer.” • Economic realities test: is the worker • economically dependent on the • business to which he/she renders • services, or is the worker, as a matter • of economic fact, in business for • him/herself? • Courts generally look at (1) the • degree of control exerted by the • alleged employer over the worker; • (2) the worker's opportunity for profit • or loss; (3) the worker's investment in • the business; (4) the permanence of • the working relationship; (5) the • degree of skill required to perform the • work; and (6) the extent to which the • work is an integral part of the alleged • employer's business. Misclassification of Independent Contractors

7. Factors common to other tests: • Is the worker told where, when, and • how to perform the work? • Does the company set hours? • Does the company determine the • sequence of the work? • Does the company supply the tools • needed to perform the work? • Does the worker provide regular • reports to the company? • Does the company pay the worker • individually versus an LLC or other • entity? • Is the worker paid by the job or task, • or by the hour? Misclassification of Independent Contractors

8. Who pays the worker’s expenses? • Is the relationship terminable at • will? • Does the company provide more • than minimal training? • Is the worker entitled to any benefits • from the company? • Does the company issue a Form • 1099 or a Form W-2 to the worker? • Is the worker expected to work • exclusively for the company? Misclassification of Independent Contractors

9. DOL: “These violations reflect one of • the problems we’ve found in the oil • and gas industry – employees are • improperly classified as exempt from • FLSA…” • Common misunderstandings: • paying a “salary” does not • equate to exempt status • job title is not important • college or advanced degree • does not necessarily mean • exempt • highly compensated employees • are not necessarily exempt Misclassification of Employee as Exempt

10. Both of the following tests must be • met to be exempt: • Salary Basis Test: employee • must receive predetermined • amount which amount is not • subject to reduction because of • violations in the quantity or quality • of work performed • Exceptions to this rule • Duties Test: Employee’s duties • must satisfy all factors under one of • six recognized exempt categories • Please see Self-Audit handout Misclassification of Employee as Exempt

11. Why you must do calculations • correctly: • Staffing firm providing temp • employees to energy industry paid • $2 million to 2,267 employees for • failing to include per diem pay in • overtime rate • Hospital paid more than • $4 million in back wages and • liquidated damages to more than • 4,500 employees because the • hospital failed to include workers’ • incentive pay when calculating • overtime pay • Another company paid more • than $75,000 to 139 workers for • failing to include non-discretionary • bonuses in overtime rate • calculation Improperly Calculating a Non-Exempt Employee’s Overtime Rate of Pay

12. Problems with paying day or shift rate • An employee’s regular rate of pay for • the purposes of overtime calculations • may include: • Hourly pay • commissions • incentive bonuses • non-discretionary bonuses • shift differentials • fair value of employer-provided • board and lodging Improperly Calculating a Non-Exempt Employee’s Overtime Rate of Pay

13. But does not include: • discretionary bonuses • gifts • vacation pay • holiday pay • reimbursed expenses included • on employer’s behalf • profit sharing payments • insurance premiums Improperly Calculating a Non-Exempt Employee’s Overtime Rate of Pay

14. Off-the-Clock Work: • Common inadvertent violations • include: • asking a non-exempt • employee to work during his/her • lunch break • asking a non-exempt • employee to complete a task • after he/she has clocked out for • the day • failing to pay a non-exempt • employee for work done after • hours or on weekends, such as • answering emails from home • engaging exempt and non- • exempt employees in work- • related conversations when • he/she is on unpaid leave Failing to Pay Non-Exempt Employees for All Hours Worked

15. Compensable Work Time: • Travel time – • Smith v. Aztec Well Servicing, Co • Waiting time, on-call time, sleeping • time • Training and meetings • Rounding hours worked • Company agreed to pay • almost $230,000 in minimum • wage and overtime back wages • to 82 workers because its time- • keeping system improperly • rounded the employees’ time • worked in favor of the employer • “Donning and doffing” clothing • Sandifer v. U.S. Steel Failing to Pay Non-Exempt Employee’s for All Hours Worked

16. Private sector employers cannot allow • employees to “bank” extra hours worked • and use as comp time in lieu of overtime • pay unless the time is used in the same • workweek as it is earned • If used in the same workweek, the • amount of comp time should be 1-1/2 • hours for each hour over 40 hours • worked • Pending bill in Congress – The Working • Families Flexibility Act ( H.R. 1406) Improper Use of “Comp” Time

17. Critical to maintain accurate time • records to ensure compliance with FLSA’s • requirements and to provide a defense • to claims for unpaid wages. • Burden of proof in unpaid wages • litigation • What about keeping records for • exempt employees? • Employer has the duty to keep • accurate records and this duty cannot be • delegated to employees • Should maintain time and pay records • for a minimum of 3 years Inadequate Time Records

18. If you have questions about any of • these issues, please do not hesitate to • contact me at • 303-861-8013 • or • chammond@duffordbrown.com

19. With 25 attorneys, Dufford & Brown, P. C. • is a full service civil practice law firm • founded in 1960. In addition to providing counseling to companies and • individuals on virtually all aspects of • employment law and representing • companies and individuals in • administrative proceedings and lawsuits, Dufford & Brown's attorneys also represent business and individual clients on oil and gas issues, natural resources, corporate formation, securities, mergers and acquisitions, real estate, special districts, contract preparation and review, corporate and general litigation, family law, estate planning, probate and other legal matters. Dufford & Brown, P. C. 1700 Broadway, Suite 2100 Denver, CO 80290-2101 303.861.8013 www.duffordbrown.com