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Fifth Circuit rules on oilfield bonuses in overtime case

Oilfield employees often allege that their employers have violated the federal or state overtime pay laws by failing to include bonus payments when calculating overtime pay. The Fifth Circuit recently issued an important decision on this issue. Edwards v. 4JLJ, LLC, No. 19-40553 (5th Cir. Sept. 2, 2020).

4JLJ, L.L.C., doing business as J4 Oilfield Services is a single-member LLC, wholly owned by Defendant John Jalufka. 4JLJ hired the Employees as frack and pump hands. On top of their base pay, 4JLJ paid the Employees two types of bonuses. Neither bonus was considered in the calculation of the Employees’ overtime wages—which lies at the heart of the Employees’ claims on appeal. The first bonus was a “stage bonus.” The fracking of a well occurs in identifiable stages, and 4JLJ offered a bonus for each stage completed. Stage bonuses were not memorialized in writing.

4JLJ also offered a quarterly “performance bonus,” which, unlike the stage bonus, was memorialized in a written contract given to the Employees upon hiring. In all capital letters and in a large typeface, the contract said: “THIS BONUS IS NOT TO BE EXPECTED, IT IS TO BE

EARNED.” The contract went on to say: “IF YOU ARE HERE JUST TO GET A PAYCHECK, AND GET BY WITH AS LITTLE WORK AS POSSIBLE, DON’T EXPECT TO GET A PERFORMANCE BONUS.” The contract also provided the criteria by which the Employees would be evaluated for performance bonus consideration. The performance bonus was calculated using a pay scale applied to three classes of employees: 

A Class: $1.00/hour 

B Class: $0.75/hour 

C Class: $0.50/hour 

So if 4JLJ chose to give an employee a performance bonus, the bonus was calculated by adding an amount, shown above, to each hour the employee worked that quarter.

Plaintiffs filed a collective action complaint, alleging that 4JLJ2 (and Mr. Jalufka) violated the FLSA’s overtime wage mandates by failing to include these bonuses in their overtime pay calculations. A jury found for the Defendants on all issues. The Court awarded attorney’s fees to the plaintiffs on a discovery issue. The plaintiffs appealed the jury’s liability finding, and the defendants appealed the sanctions award. 

The Court first addressed the issue of whether the bonuses should have been included in calculating overtime pay. Under the FLSA, most, but not all, payments to employees must be included when calculating overtime pay. Under § 207(e)(3), renumeration is not included in the regular rate if: “both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.”

Thus, in order for a bonus to be excepted from the regular rate under § 207(e), “the employer must maintain discretion over whether to give the bonus and the amount given.” 

The Court noted that before deciding whether the bonuses were discretionary, it first had to address which party had the burden of proof on this issue. The Court held that it was the plaintiffs’ burden to show that bonuses were not discretionary.

The Court found that “the Employees show…no evidence in the record that elucidates how employees came to expect stage bonuses, who determined the amount, when the amount was determined, whether all employees typically received such bonuses, or whether the amount ever varied.” As such, the Court declined to reverse the jury’s finding that the stage bonuses were discretionary and thus did not have to be included when calculating overtime payments. 

The Court’s ruling was different, however, regarding performance bonuses. The Court noted that the Employees produced a written agreement at trial that governed performance bonuses. The agreement contains: (1) a list of criteria for determining whether a performance bonus would be awarded; and (2) a pay scale that stipulates precisely how much is to be given. As stated above, for a bonus to be excluded from the regular-rate calculation, the employer must retain discretion over the fact of payment and the amount. In light of this evidence, the Court found that while the jury could have reasonably concluded that 4JLJ retained discretion over whether to pay the performance bonus, it did not retain discretion as to the amount of the bonus. The bonus agreement provided a concrete pay scale which showed exactly what employees will be paid if they receive a bonus. Accordingly, a reasonable jury could not have concluded that 4JLJ maintained discretion over the amount of performance bonuses. Thus, the performance bonuses were nondiscretionary under the FLSA, and 4JLJ ought to have included them in the regular rate. The Employees were entitled to judgment as a matter of law regarding the performance bonuses. As such, the Fifth Circuit reversed and remanded the case to the trial court to to consider what relief is owed to the Employees consistent with the opinion. 

On the whole, this case is a win for the plaintiffs. The appellate court ruled that they are entitled to judgment as a matter of law on their claim that performance bonuses should have been included in their overtime pay calculations. They will also almost certainly recover their attorney’s fees. 

About the author: Josh Borsellino is an attorney that represents workers suing for overtime pay. If you have questions regarding whether you have been denied overtime pay, call Josh at 817.908.9861 for a free evaluation. 

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