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Oil drilling consultants found to be independent contractors; $363K overtime judgment overturned

By Brandi O. Brown, J.D.

Directional driller consultants who provided services for an oil company in Texas were not entitled to the compensatory damages awarded by the district court, the appeals court explained, because the five Silk factors weighed in favor of independent contractor status, not an employer-employee relationship.

A district court’s judgment in favor of opt-in plaintiffs who had claimed that an oil drilling company had misclassified them as independent contractors and, therefore, failed to properly compensate them for overtime, was vacated and a judgment was rendered for the defendant, ruled the Fifth Circuit. Reviewing the parties’ summary judgment decision, the appeals court concluded that the factors described in United States v. Silk weighed in favor of independent contractor status. In particular the court was persuaded by the factors related to control, as well as the high-level skill of the consultants and the lack of permanency of the relationship (Parrish v. Premier Directional Drilling, L.P., February 28, 2019, Barksdale, R.).

Some were employees, others deemed independent contractors. Premier, which specializes in directional drilling for oil, has as part of its directional drilling teams directional-driller-consultants (DDs), who act in an advisory capacity. They advise the driller on how to effectuate the well plan (which is provided to the DD by the employer), but the oil company performs the actual drilling. Supporting the DD is a measurement-while-drilling consultant (MWD), who provides measurements used by the DD in providing an opinion.

In 2015 Premier reduced its workforce and some of the DDs affected became independent contractors. Premier used staffing companies to hire independent contractors and those companies, in turn, entered into arrangements with the independent contractors. Some of those arrangements included non-disclosure agreements. While DDs who were employees were paid a salary, along with a day bonus, car allowance, per diem, and benefits, independent contractor DDs were paid by the job and received mileage for travel.

One of those independent contractors filed an FLSA collective action, alleging DDs were not paid overtime. The parties filed cross-motions for summary judgment and the district court granted the plaintiffs’ motion, concluding that they were employees. The court, without making a willfulness finding, applied the longer three-year limitations period and awarded the employees over $363,000. The employer appealed. Reviewing the legal conclusion de novo, the appeals court, after conducting its own Silk analysis, concluded that no employer-employee relationship existed.

Degree of control. Examining the Silk factors, the appeals court disagreed in key ways with the conclusions drawn by the district court. With respect to the first factor regarding the degree of control exercised by the defendant, the appeals court found it favored independent contractor status. (The district court had concluded that it was neutral.) In reaching that decision, the court noted that the defendant did not dictate how the DDs completed their directional-drilling calculations and even though they provided an already-designed well plan, it was up to the DD to make that plan work. And although there was a mandated format to the reports the DD had to provide, the court noted that “turning in reports in the way a client wants them is good-client service.”

Furthermore, while the lower court had found elements of control in the fact that the defendant assigned shifts to the DDs, the appeals court was more impressed by the fact that the DD could reject projects without negative repercussion. It found “quite understandable” the defendant’s need to know which DDs were working as part of a drilling operation and when.

Safe operations. Likewise, the court saw as non-dispositive the safety training and drug testing that was required, noting that those requirements related to safe operations. Moreover, the existence of non-disclosure agreements, which did not require exclusive employment, favored independent contractor status.

Relative investments. On the other hand, the appeals court agreed with the district court’s conclusion with regard to the second Silk factor, which examines the relative investments of the two parties to the relationship. “Obviously,” the court explained, the defendant drilling company had invested more money at the drill sites when compared to the plaintiffs’ investments. Nevertheless, the court explained that this factor merited “little weight” in light of the other evidence supporting independent contractor status.

Profit and loss. With regard to the third Silk factor—the degree to which the DD’s opportunities for loss or profit were determined by the defendant—the appeals court’s conclusion again diverged from the district court. Noting some of the plaintiffs’ other enterprises, including one plaintiff’s goat farm, the court concluded that the DDs had enough control over their profits and losses for this factor to support independent contractor status. While the defendant had a set pay schedule for independent contractors, the plaintiffs made their own expense-related decisions and they did not receive pay when they were not working.

There was also no dispositive weight to be accorded to the fact that the plaintiffs were not allowed to subcontract either. It was not unreasonable for the defendant to want to hire a specific person based on skill and expertise. In fact, skill was part of the analysis of the fourth Silk factor, which the court concluded also favored independent contractor status. The court saw no purpose to comparing the skill level of the employee DDs and the plaintiffs, noting that an employer with an employee skilled in certain endeavors can still hire an outside person to do that work.

Cementing the court’s conclusion was the fifth, and final, Silk factor related to the relationship’s permanency, which the appeals court concluded weighed in favor of independent contractor status. Only three of the plaintiffs worked for the defendant for ten months or more and the work was on a project-by-project basis. The additional, non-Silk factors considered by the district court—industry standards, express agreements, and the purpose of the FLSA—did not affect the appeals court’s conclusion, i.e., that the plaintiffs were independent contractors.