A growing trend in recent years in the oilfields is large production and service companies using staffing companies to fill their workforce. These staffing companies typically hire workers as “consultants,” classify them as independent contractors and pay them day rates and/or straight time rather than overtime. Not surprisingly, these companies are often sued for violating state and federal overtime laws. Sometimes, plaintiffs will sue the company they worked for rather than the staffing company, for overtime violations. In such cases, the staffing company may try to intervene to enforce arbitration provisions and/or class action waivers. Such a case was recently decided in federal court in New Mexico.
Salt Creek Midstream is a midstream operator in the oil and gas industry. Kestrel Field Services is a staffing company that furnishes skilled employees to customers whose projects exceed the capability of their in-house workforce. Salt Creek contracted with Kestrel to provide personnel qualified to inspect pipeline-related features like welding and coating. Under the contract, formally known as a Master Service Agreement, Kestrel provided Defendant with inspection services at various job sites throughout west Texas and southeast New Mexico.
The inspectors were hired by Kestrel as its employees. As a condition of their employment, inspectors were each required to execute a bilateral Arbitration Agreement (“AA”) and class action waiver. Kestrel directed the inspectors to specific job sites of Defendant to provide inspection services. Kestrel did not pay its inspectors overtime, no matter how many hours they worked in a given week because it viewed the inspectors as exempt under federal and state wage-and-hour laws. This pay structure to the inspectors gave rise to the instant lawsuit.
Plaintiffs sued only Defendant Salt Creek, Kestrel’s customer, and not Kestrel, which actually hired and paid them. Plaintiffs alleged that Defendant — not Kestrel — was their “true” employer and have affirmatively disclaimed the theory that Defendant and Kestrel were their “joint employers,” opting instead to proceed on the single legal theory that Defendant was their actual employer and that its pay structure and policy violated both the Fair Labor Standards Act and the New Mexico Minimum Wage Act. Plaintiffs’ complaint makes no mention whatsoever of their employment with Kestrel and in fact, the complaint is devoid of any reference to Kestrel at all. Both Defendant and Kestrel argued that Plaintiffs did so for one purpose only: to circumvent, avoid, and frustrate the AA each one executed with Kestrel. On the other hand and as noted in the PFRD, Defendant denied ever being Plaintiffs’ employer. Instead, Defendant identified Kestrel as Plaintiffs’ sole employer and mentioned Kestrel at least eighteen times in its Amended Answer. As for Kestrel—it concedes that it employed Plaintiffs.
Kestrel moved to intervene to enforce the terms of the AA. The Court found that Kestrel could intervene, but that Plaintiffs were not required to arbitrate their claims, as the arbitration agreement did not cover the claims asserted by the Plaintiffs. The Court further found that the class action waiver was enforceable, meaning that Plaintiffs were required to litigate their claims individually rather than as a class or collective action.
This is another in a string of battles between plaintiff suing for overtime pay, staffing companies and the companies that actually employ the workers. Intervention by staffing companies is becoming a common trend in such suits, with courts reaching different conclusions as to whether such a move is proper. Until appellate courts speak on this issue, it will continue to arise and cause uncertainty.
About the author: Josh Borsellino is a Texas attorney that represents workers on overtime pay issues. For a free evaluation of your overtime case, call Josh at 817.908.9861.