Dwight A. Howes contributed to the content of this post.
Plaintiffs’ counsel have recently been challenging whether the pay practices of oilfield service contractors comply with the overtime provisions of the Federal Fair Labor Standards Act (“FLSA”) or analogous state laws. These lawsuits challenge the use of “day rate” compensation for employees of oilfield service contractors, arguing that use of a day rate violates the FLSA or analogous state statues which require that any work over 40 hours per week by non-exempt employees must be paid at an overtime rate of time-and-a-half. When a non-exempt employee works more than three 12-hour shifts per week under such a “day rate” system, Plaintiffs argue that they are entitled to overtime compensation.
Reed Smith has advised employers in such situations and defended one of the first such challenges to a day rate system. We are aware of at least three similar lawsuits. Given the high turnover rate among oilfield service contractor employees in a competitive market, we anticipate that when Plaintiffs’ counsel has identified a day rate situation, they have then sought to discover from the involved employees the identification of other employers using the same system. Thus, litigation over this issue will likely spread.
We suggest that all employers using a day rate system, and oilfield service contractors in particular, review their pay practices applicable to non-exempt employees to determine if there are any issues regarding compliance with the FLSA and/or similar state statutes. While there are strategies available to minimize potential liability, the best strategy is to avoid the problem altogether by eliminating any day rate compensation system. Be aware, though, of the need for careful management of transitioning from day rate to hourly compensation to avoid or minimize liability from past practices. Reed Smith can provide advice on compliance as well as strategies to minimize potential exposure through its employment law specialists.