FLSA and Marcellus Shale

Employment Issues in the Gas Drilling Industry

Natural gas extraction in the Marcellus Shale region of Pennsylvania has brought millions of dollars and thousands of jobs to the area, however this growth has come at steep price of multiple employment lawsuits, in which oil workers have claimed they are owed over time and related damages pursuant to the Fair Labor Standards Act.

The United States Department of Labor's offices in Pittsburgh and Wilkes-Barre conducted a multiyear study concerning FLSA violations in the region's oil and gas industry. [1] This study revealed that from 2012-2014, employers paid $4,498,547 in back wages to 5,310 employees.[2] Wage and Hour Division investigators attributed the FLSA violations to the unique structure of the industry. The oil and gas industry is highly divided. Large oil companies such as Chesapeake Energy, Citrus Energy and Anadarko Petroleum identify drilling sites, secure the mineral rights and find sources of labor to extract the oil. These companies typically hire contractors who perform drilling, geological services and oilfield support services. Contractors, will often employ subcontractors for specialized areas of labor such as welding, safety inspection, pipe maintenance and chemical testing.[3] Multiple smaller companies and contractors may be employed at a single site. The fractured nature of the industry can create a downward economic pressure on smaller contractors and subcontractors, who are operating at narrow profit margins. Companies further down the contracting chain often feel pressured to keep their prices competitive. The cost cutting may come at the expense of labor and wages. According to Dr. David Weill, administrator of the Wage and Hour Division, "Given the fissured landscape, this is an industry ripe for noncompliance."[4]

Most of these cases involve workers who challenge their classification of exempt from FLSA requirements. It was a common practice for companies to classify oil workers as administrative employees to whom the Fair Labor Standards Act does not apply. As oil employees increasingly challenge their classifications in court, businesses must reevaluate their personnel and wage policies in order to avoid costly litigation. In the larger picture, the Department of Labor has launched an Employee Misclassification Initiative in 2011. Additionally, on September 15, the agency granted nineteen states $10.2 million in grants in order to "implement or improve worker misclassification detection."[5] These recent developments coupled with a regional boom in the oil and gas industry, indicate a large shift in this field, and major changes in employment practices to come.

 


[1] Hawkins, Joanna. "News Release." WHD : US Labor Department Helps More than 5,300 Pennsylvania and West Virginia Oil and Gas Workers Recover $4.5M in Back Wages for Unpaid Overtime [12/09/2014]. US Department of Labor, 9 Dec. 2014. Web. 26 Dec. 2014. <http://www.dol.gov/opa/media/press/whd/WHD20141883.htm>.

[2] Id.

[3] Id.

[4] Id.

[5] "LABOR AND EMPLOYMENT BLOG." Management Attorney Sends SOS for Wage-Hour Guidance. Bloomberg BNA. Web. 28 Dec. 2014. <http://www.bna.com/management-attorney-sends-b17179912050/>.