Avoiding Wage and Hour Violations
in the Oil and Gas Industry
K&L Gates CLE Webinar, February 18, 2015
Amy L. Groff
717.231.5876
amy.groff@klgates.com
Michael A. Pavlick
412.355.6275
michael.pavlick@klgates.com
© Copyright 2014 by K&L Gates LLP. All rights reserved.
DEPARTMENT OF LABOR FINDINGS
MARCELLUS SHALE “SWEEP”
 Targeted enforcement initiative started in 2012
 Oil and gas industry – at all levels
 DOL collected $4.5M for 5,300 workers in PA and
WV
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DEPARTMENT OF LABOR FINDINGS
MARCELLUS SHALE “SWEEP”
 Ongoing – expanded to other parts of the country
 Most common violations:
 Improper calculation of OT pay (e.g., production
bonuses not included in regular rate for OT
purposes)
 Salaried employees misclassified as exempt from OT
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CONTRACTOR OR EMPLOYEE
 FLSA only applies to employees.
 Employee: “any individual employed by an
employer.” 29 USC s.203(e)(1).
 Employer: “any person acting directly or indirectly in
the interest of an employer in relation to an
employee . . . .” 29 USC s.203(d).
 Employ: “to suffer or permit to work.” 29 USC
s.203(g).
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A “SUPER” DEFINITION
 “[O]f all the acts of social legislation, the Fair Labor
Standards Act has the broadest definition of
‘employee.’” Donovan v. DialAmerica, 757 F.2d
1376 (3d Cir. 1985).
 The FLSA has “the broadest definition [of employee]
. . . ever included in any one act.” United States v.
Rosenwasser, 323 U.S. 360 (1945) (quoting from
Sen. Hugo Black).
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ECONOMIC REALITY
 The degree of company’s right to control manner in
which work is performed.
 The worker’s opportunity for profit or loss based on
skill.
 The worker’s investment in equipment or materials or
employment of helpers.
 Whether the service rendered requires special skill.
 The degree of permanence of the working relationship.
 Whether service is integral part of the company’s
business.
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ECONOMIC REALITY
 As a matter of economic reality is the worker
dependent upon the business to which they render
service?
 The six factors are the means to that end. In other
words, they help to inform the decision on the
ultimate question of economic reality.
 “Economic reality” “encompasses millions of facts.”
Reyes v. Remington, 495 F.3d 403 (7th Cir. 2007).
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ECONOMIC REALITY
 “A score of 5-3 decides a baseball game, but this
regulation does not work that way.” Reyes.
 The economic realities test “does nothing more than
provide a frame of reference . . . . It offers a way to
think about the subject and not an algorithm. That’s
why toting up a score is not enough.” Reyes.
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BEYOND ECONOMIC REALITY
 Murray v. Principal Financial Group (9th Cir. 2010)
 “[T]here is no functional difference between the three
formulations.”
 12 factors identified:
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Skill required
Source of instrumentalities/tools
Location of work
Duration of relationship
Can hiring party assign additional projects
Hired party’s discretion over when and how long to work
Method of payment
Hired party’s role in hiring and paying assistants
Work part of regular business of hiring party
Hiring party is in business/can work elsewhere
Provision of employee benefits
Tax treatment of the hired party
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OVERTIME
 Workweek standard; cannot average two weeks of a
bi-weekly payroll
 OT pay must be based on “regular rate”
 Key - accurately determining the regular rate
 Regular rate often is not equivalent to standard
hourly rate of pay.
 Total straight time compensation / Total hours
 Includes certain bonuses and other payments
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OVERTIME
REGULAR RATE
 Payments not expressly excluded from the regular
rate should be included.
 Examples of payments included in the regular rate:
 Wages (hourly, day rate, fee/task basis, etc.)
 Bonuses that depend on hours worked
 Bonus and incentive payments based on quality,
quantity or efficiency
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OVERTIME
REGULAR RATE
 Value of awards and prizes won by employees for
quality, quantity or efficiency in performance of usual
work activities during regular work hours
 Commission payments
 Payments for meals, lodging and facilities
 Shift differentials, hazard pay, dirty work pay
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OVERTIME
REGULAR RATE EXCLUSIONS
 The following are payments that may be excluded
from the regular rate:
 Discretionary bonuses*
 Employee referral bonuses
 Suggestion plan awards
 Percentage bonuses (paid as percentage of total wages,
including overtime wages)
 Certain employee benefit plan contributions
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OVERTIME
REGULAR RATE EXCLUSIONS (CONT’D)
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Gifts
Paid leave from work
Reimbursement of expenses
Severance pay
Premium pay, at a rate of at least time and one-half, for
work on weekends, holidays, 6th or 7th day of the week,
and (pursuant to contract) work outside of regular work
hours
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OVERTIME
BONUSES
Discretionary bonuses may be excluded from total
compensation when calculating the regular rate.
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OVERTIME
BONUSES
“Discretionary” if both (i) the fact that the payment is to
be made and (ii) the amount of the payment are
determined at the sole discretion of the employer at or
near the end of a period and not pursuant to any
contract, agreement, or promise causing the employee
to expect such payments regularly
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OVERTIME
BONUSES
 NOT discretionary if bonus is announced to
employees to induce them to work more efficiently
or remain with the company
 E.g., bonuses based on individual or group
production, performance, quality of work, or an
employee’s remaining with the company until the
time of payment would not qualify as discretionary
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OVERTIME
CALCULATION OF REGULAR RATE
Example #1
Base pay is $10/hour [or $100 per day]
50 hours worked [5 days]
Straight time pay = $500
Regular rate = $500 divided by 50 hours = $10/hour
Additional OT premium due = 10 OT hours x additional half
time ($5/hour) = $50
Total compensation for week: $550
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OVERTIME
CALCULATION OF REGULAR RATE
Example #2
Base pay is $10/hour, worked 50 hours
Also paid a $100 bonus
Straight time pay = $600 (50 hours x $10 + $100)
Regular rate = $12/hour ($600 divided by 50 hours)
Additional OT premium due = $60 (10 OT hours x $6/hour)
Total compensation for week: $660
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SALARIED, EXEMPT EMPLOYEES
(THE “WHITE-COLLAR” EXEMPTIONS)
 Certain employees may be exempt from FLSA
 White Collar Exemption: executive, administrative,
and professional workers
 Typically must satisfy a minimum compensation
requirement and both a duties test and a salary
basis test
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SALARIED, EXEMPT EMPLOYEES
EXECUTIVE EXEMPTION
 Must be paid $455 per week on a salary basis
 Primary duty must be management
 What is a primary duty?
 What is management?
 Must customarily and regularly direct 2 or more
other workers
 Must have the authority to hire or fire other
employees, or make suggestions on employee
status that are given particular weight
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SALARIED, EXEMPT EMPLOYEES
ADMINISTRATIVE EXEMPTION
 Must be paid $455 per week on a salary basis
 Primary duty must be non-manual work directly
related to the management or general business
operations of the employer or the employer’s
customers
 Must exercise discretion and independent judgment
with respect to matters of significance
 An employee who leads a team of other employees
assigned to a major project generally meets this
requirement
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SALARIED, EXEMPT EMPLOYEES
PROFESSIONAL EXEMPTION
 Usually must be paid $455 per week on a salary
basis
 Must be a learned professional, artistic professional,
teacher, doctor, or attorney
 Learned professionals do work requiring advanced
knowledge in a field of science or learning
customarily acquired through prolonged instruction
and must consistently exercise discretion and
judgment
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SALARIED, EXEMPT EMPLOYEES
MINIMUM COMPENSATION REQUIREMENT
 Must be paid a minimum of $455 per week ($23,660
per year) on a salary basis
 The minimum may not be prorated for part-time
workers
 Workers who are paid $100,000 or more per year in
total compensation and who perform any one or
more exempt duties can qualify for the highly
compensated employee exemption
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SALARIED, EXEMPT EMPLOYEES
THE SALARY BASIS TEST
 Must be paid full salary for any work week during
which employee works
 Need not be paid salary if employee performed no
work during a work week
 Common issues – tracking time, reducing salary,
using accrued leave time, paying extra
compensation, and correcting improper deductions
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SALARIED, EXEMPT EMPLOYEES
REDUCING SALARY
 General rule – a salaried exempt employee is
entitled to his or her full salary in any week
during which he or she performs any work
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SALARIED, EXEMPT EMPLOYEES
REDUCING SALARY
 An exempt worker’s salary may be reduced when:
 The worker is absent due to sickness or disability lasting
one day or longer and the employer maintains a bona
fide plan, policy, or practice of providing compensation
for loss of salary occasioned by sickness or disability
 The worker is subject to an unpaid disciplinary
suspension of one or more full days imposed in good
faith for infractions of workplace conduct rules
 The employer reduces a worker’s salary to offset
amounts received for jury duty, witness fees, or
temporary military service
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SALARIED, EXEMPT EMPLOYEES
REDUCING SALARY
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An exempt worker’s salary may not be reduced
when:
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The employer does not provide work
The worker misses work for civic responsibilities
The worker is absent for a partial day
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SALARIED, EXEMPT EMPLOYEES
USING ACCRUED LEAVE TIME
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Federal law draws a distinction between salary and
leave banks
Federal law thus allows incremental or hourly use
of accrued leave time
Critical question – what happens when leave is
exhausted?
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SALARIED, EXEMPT EMPLOYEES
CORRECTING IMPROPER DEDUCTIONS
 The federal regulations establish a “window of
correction” that provides two avenues for employers
to avoid the loss of exempt status
 First, if improper deductions are isolated or
inadvertent and the employer reimburses the
employee for any improper deductions
 Second, if the employer has a policy prohibiting
improper deductions (including a complaint
procedure), reimburses the employee, agrees to
comply in the future, and has acted in good faith
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RECORDKEEPING REQUIREMENTS
RECORDKEEPING (FLSA)
Basic payroll recordkeeping requirements
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Name in full (Ee ID #, if applicable)
Home address
Date of birth
Sex and occupation
Workweek
Regular rate
Wage basis
Hours worked (total each workday and
workweek)*
 Straight time earnings
 OT pay
 Deductions from and additions to
wages
 Allowances claimed as part of
minimum wage
 Pay period covered
 Wages paid and date paid
 Retroactive payments
* Note – not required to record hours worked
by salaried, exempt employees
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RECORDKEEPING REQUIREMENTS
PRESERVATION OF RECORDS
Three-Year Retention Required:
 Payroll and other records containing information required
by recordkeeping regulations
 Sales and purchase records relevant to determining
whether an enterprise meets FLSA’s “business volume”
test
 Collective bargaining agreements that set terms under
which facilities are provided to employees
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RECORDKEEPING REQUIREMENTS
PRESERVATION OF RECORDS
Three-Year Retention (cont’d)
 Plans, trusts, employment contracts and union contracts
involving exclusions from regular pay rates
 Contracts and memoranda relating to “Belo” contracts
that guarantee fixed weekly pay for fluctuating hours
 Agreements basing overtime pay on piecework, hourly or
basic rates
 Certificates and notices mentioned in recordkeeping
regulations
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RECORDKEEPING REQUIREMENTS
PRESERVATION OF RECORDS
Two-Year Retention Required
 Work Schedules
 Wage Rate Tables
 Order, Shipping and Billing Records
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RECORDKEEPING REQUIREMENTS
POSTINGS
 See written materials for list of posting requirements
under various federal employment laws.
 For employers with Spanish-speaking employees or
employees who speak another language, many
posters can (and should) also be obtained in
Spanish and other languages.
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RECORDKEEPING REQUIREMENTS
EMPLOYMENT ELIGIBILITY VERIFICATION
FORM (I-9)
 Maintain for the later of:
 3 years after the employee is hired, or
 1 year after the employee is terminated
 Employers may sign and store I-9s electronically
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WAGE AND HOUR AUDIT PROCESS
FEDERAL AUDITS – FLSA
Background
 U.S. DOL Wage & Hour Division
 Section 11 Authority
 Investigations Initiated by Complaint or Randomly
Selected
 Enforcement Initiatives
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WAGE AND HOUR AUDIT PROCESS
FLSA
Overview of Investigation
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Scheduled vs. unannounced visit
Initial conference
Record review
Employee interviews
Final conference
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WAGE AND HOUR AUDIT PROCESS
FLSA
Payment of Back Wages
 Calculation of Back Wages
 Supervision of Payment by DOL
 (Note: DOL can collect back wages even if affected
employee cannot be located.)
 Section 16(b) Letter
 “Bridge to Justice” – ABA
 DOL will give employee an estimate of the back wages due
and toll-free number for an American Bar Association
attorney referral service
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WAGE AND HOUR AUDIT PROCESS
FLSA
Civil Penalties
 Assessed for repeat or willful violations of MW or OT
requirements
 Assessed for violation of child labor standards
 Assessment letter
 Appeals
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WAGE AND HOUR AUDIT PROCESS
FLSA
Court Proceedings
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Suit can be initiated by DOL or employee(s)
Not required to exhaust admin. remedies
Increase in FLSA suits and collective actions
Employer liability: back wages, liquidated damages
in an equal amount, and attorneys’ fees
 Statute of limitations: 2 years (3 if willful)
 DOL may also bring criminal actions (involving fines
and up to 6 mos. imprisonment)
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WAGE AND HOUR AUDIT PROCESS
FLSA
Being Prepared for an Audit
 Maintain and circulate policies relating to pay, hours
worked and timekeeping
 Review exemptions and duties performed by exempt
employees on a regular basis
 Keep job descriptions up to date
 Maintain records for the requisite period of time
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WAGE AND HOUR AUDIT PROCESS
FLSA
Being Prepared for an Audit (cont’d)
 Make sure that timekeeping systems properly round
time, that short breaks are paid and that meal
breaks are not automatically deducted if not taken
 Self-audits
 Stay abreast of DOL’s announced priorities and
litigation trends
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CONTACT INFORMATION
Amy L. Groff
Michael A. Pavlick
K&L GATES LLP
Market Square Plaza
17 N. 2nd Street, 18th Floor
Harrisburg, PA 17101-1507
T: 717.231.4500 (office)
D: 717.231.5876 (direct)
F: 717.231.4501
amy.groff@klgates.com
K&L GATES LLP
K&L Gates Center
210 Sixth Avenue
Pittsburgh, PA 15222-2613
T: 412.355.6500 (office)
T: 412.355.6275 (direct)
F: 412.355.6501
michael.pavlick@klgates.com
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