Independent contractors are used frequently in the energy sector. Attacking this arrangement, employee-side lawyers have been arguing that these contractors are, actually, employees and therefore owed overtime pay in addition to the pay to which they agreed at the outset.
The job at issue in this case was the directional driller. A District Judge in Texas issued a blow to energy companies in November 2017 when he used the five non-exhaustive factors test to find that directional drillers were employees of the drilling company. Those factors are: (1) the degree of control exercised by the alleged employer; (2) the extent of the relative investments of the worker and the alleged employer; (3) the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer; (4) the skill and initiative required in performing the job; and (5) the permanency of the relationship.
After the drilling company appealed the District Court’s decision, the Fifth Circuit Court of Appeals held that four of the five factors actually weighed in favor of independent contractor status.
The appellate court determined that the District Court erroneously focused on immaterial facts, such as the drilling company’s requirements that the directional drillers report when and where they were working, follow a well plan, and abide by the company’s safety procedures and policies. The Fifth Circuit reasoned that such requirements were essential to the job but not dispositive of the drilling company’s control over the directional drillers. Emphasizing the high degree of independent judgment and discretion exercised by the contractor, the appellate court recognized that the directional drillers could freely follow the well plan as they saw fit and “made that plan work.”
The Fifth Circuit was also not convinced by the contractors’ argument that they were “employees” because they were practically “prevented” from working for others. Instead, the appellate court reasoned that “[p]reventing subcontracting is an exercise of control, but it is not dispositive here. Many times… it is not unreasonable for a company to want to hire a specific person. This is especially the situation when the [independent contractor] is being hired for his advanced skill and specialized expertise.”
The appellate court also found that the skill and initiative factor weighed in favor of independent contractor status. Although the lower court considered this factor as neutral simply because the contractors exercised the same skill and initiative as the drilling company’s directional driller employees, the Fifth Circuit disagreed, holding that it “decline[d] to require plaintiffs, as putative [independent contractors], be more skilled than their employee counterparts.”
With regard to the final factor, the Fifth Circuit found that the contractors’ skills were the tipping point in favor of independent contractor status: “Such a valuable skillset shows how the permanency of the relationship may, in reality, be not all that permanent.”
Although the plaintiffs’ employment bar will likely claim that this decision has limited value, the Fifth Circuit’s reasoning offers energy companies some necessary relief when contracting in the oilfield.
The cite for the case is Parrish et al. v. Premier Directional Drilling, L.P., No. 17-51089 (5th Cir. Feb. 28, 2019).
Client Alert 2019-057
