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The Fifth Circuit Court of Appeals Revives Oilfield Workers’ Overtime Case

On May 30, 2017, the Fifth Circuit Court of Appeals decided Dewan v. M-I, LLC, and revived a case that a trial court had dismissed. This case is important because it addresses, and clearly rejects, an argument that companies are making with increasing frequency: that certain employees are not entitled to overtime compensation because they are subject to the “administrative exemption” from the protection provided by federal law.

Dewan involves mud engineers, or mud men, for the defendant company. Dewan sued M-I alleging that it failed to pay him overtime compensation in accordance with federal law. Federal law generally requires companies to pay its workers overtime compensation at 150% of their regular rate of pay for all hours they work over 40 in a workweek. (The regular rate is the worker’s pay on an hourly basis, regardless of how he or she is paid. Even if the employee is paid a salary, by commission, a piece rate, or a day or job rate, that pay must be reduced to an hourly figure for purposes of calculating overtime compensation.)

However, if the employee is “exempt” from the protections of the Fair Labor Standards Act (“FLSA”), the employer need not pay him or her overtime compensation. There are a variety of different exemptions that have been developed and refined over the years. Dewan specifically involved the “administrative” exemption.

In order to avoid its overtime obligations under the FLSA, an employer claiming the employee was exempt under the administrative exemption must prove three things. It must prove that the employee:

(1) was paid a salary or fee basis of a certain amount;

(2) has as his or her “primary duty . . . the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers;” and

(3) his or her “primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.”

In this case, the trial court found that the employer proved that its mud engineers satisfied each of these elements. And it dismissed Mr. Dewan’s case without a trial.

The trial court dismissed the case, even though the mud engineers simply supplied drilling-fluid systems for the operation of oil and gas well drilling at the well site. The defendant’s mud engineers generally followed well-established guidelines for testing the composition of the drilling mud, and based on the results of those tests, made recommendations to the defendant’s customer’s “company man” in order to follow the “mud plan.” The mud engineers did not create the mud plan, but just followed the plan created by project engineers at the defendant’s headquarters.

Mr. Dewan appealed the dismissal of his case, and the Fifth Circuit reversed the trial court’s dismissal and reinstated his case. The Fifth Circuit went through a lengthy discussion of the mud engineers’ job duties, and found that the employer had not proved that they are exempt under the administrative exemption.

Important to the court’s analysis and decision to reverse the trial court was that “the [administrative] exemption applies when the employee is involved with ‘administering the business affairs of the enterprise,’ not with ‘producing the commodity’ of the business.” Slip op., *9, citing Dalheim v. KDFW-TV, 918 F.2d 1220, 1230 (5th Cir. 1990). Mud engineers, the Dewan court found, were more involved with “producing the commodity,” rather than “administering the business affairs,” of the defendant. For this and a number of other reasons, the Fifth Circuit found that the mud engineers did not have, as their primary job duty, “work directly related to the management or general business operations” of the defendant.

The Fifth Circuit also found that the defendant did not prove that the mud engineers “exercise[d] . . . discretion and independent judgment with respect to matters of significance.” It so found primarily because the mud engineers’ work required “the appl[ication of] well-established techniques, procedures or specific standards described in manuals or other sources.” Under these circumstances, the Fifth Circuit found, the regulations preclude the application of the exemption.

The result: the mud engineers get their day in court, and will now have the opportunity to permit a jury to decide whether or not they are entitled to overtime compensation; and, if so, how much. At that point, the trial court will likely double the amount under federal law, and award the plaintiffs lawyers their attorney fees and expenses for handling the case.

This is a good case for all workers. It is particularly good for oilfield workers against whom employers have been, with increasing frequency, trying to apply the administrative exemption.

If you work in the oilfield and are not paid 150% of your wage for your overtime hours, contact the Moreland Law Firm online or call 512-782-0567 for a free consultation.

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