5th Circuit declines to compel pipeline inspectors to arbitration

The U.S. Court of Appeals for the Fifth Circuit has declined to require a group of oilfield pipeline inspectors to arbitrate their claims for unpaid overtime.  Cypress Environmental Management-TIR, L.L.C. (“Cypress”), staffs pipeline inspectors to various client-company projects. It hired the plaintiffs to work as independent pipeline inspectors for Plains All American Pipeline (“Plains”). The plaintiff signed an Employment Agreement with Cypress. The Employment Agreement contained an arbitration agreement. The parties agreed “that the Federal Arbitration Act (`FAA’) applie[d]”; “to arbitrate all claims that have arisen or will arise out of [his] employment with or termination from [Cypress]”; and that any “[a]rbitration [would] be conducted in accordance with the American Arbitration Association Employment Arbitration Rules,” the AAA Rules.

The Employment Agreement did not expressly mention Plains. But it did specify that Cypress had hired the worker “based on a specific project” and “for a designated customer.” It also incorporated by reference a certain Pay Letter. This Pay Letter named Plains as the designated customer that the plaintiff was to work for.

Plaintiff never signed any agreement with Plains. But a Cypress subsidiary did. That subsidiary, Tulsa Inspection Resources, LLC (“TIR”), signed the contract that governed Cypress’s business relationship with Plains. As part of that contract, TIR agreed to indemnify Plains for any claims relating to “any violation or alleged violation of state or federal law related to the payment, employment, or employment status of any of [Cypress’s] employees.”

The plaintiff subsequently brought a collective action against Plains. He alleged that Plains owes him unpaid overtime under the FLSA. The plaintiff did not assert any claims against Cypress. After the plaintiff filed suit, Plains moved to compel arbitration. The district court did not compel arbitration.

The appellate court affirmed the denial of the motion to compel arbitration, finding that Plains was not a third party beneficiary of the arbitration agreement.  The Court also found that intertwined-claims estoppel and artful pleading estoppel did not require the plaintiff to arbitrate his claims against Plains.  

This case is yet another in a long line of battles in the oilfield industry by production and service companies to attempt to enforce arbitration provisions that were signed between workers and staffing or consulting companies.  This case suggests that (at least in the 5th Circuit), absent a clear contractual designation of third party beneficiary status of the production or service company, it will not be able to force arbitration of overtime lawsuits by oilfield workers.

About the author: Josh Borsellino is an oilfield overtime attorney.  He represents workers suing for unpaid overtime.  Josh has filed dozens of overtime lawsuits across Texas, in New Mexico, and elsewhere against large oil and gas companies.  If you worked in the oilfields and were denied overtime pay, call Josh at 817.908.9861 or email him here for a free, no-obligation, confidential consultation of your overtime pay matter.   

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