Reed Smith Client Alerts

In a win for the energy industry, the Fifth Circuit just vacated and rendered summary judgment in favor of a drilling company on the issue of independent contractor status. With a highly anticipated decision that may chill the recent frenzy of some Fair Labor Standards Act (FLSA) collective action lawsuits, the Fifth Circuit settled the question of whether directional drillers are likely independent contractors and – perhaps more importantly – the factors to be given the most weight on the issue.

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.