Lease Operators Defeat Summary Judgment in OT Case

Two former lease operators have defeated a motion for summary judgment filed by the defendants in the unpaid overtime case.  In Mallory v. Lease Supervisors, two workers filed suit  in the Northern District of Texas, alleging that they were misclassified as independent contractors and denied overtime pay.  Lease Supervisors is a closely held limited liability company whose members manage the day-to-day operations of oil wells and gas plants owned by O’Ryan Oil & Gas (“O’Ryan”). Lease Supervisors invoices O’Ryan for the services its members provide, and O’Ryan pays Lease Supervisors for its members’ work based on a rate negotiated between Lease Supervisors and O’Ryan. The revenue generated by the members’ services to O’Ryan is distributed to the members as a “guaranteed payment.”

Since its inception, Lease Supervisors has had 20 members or fewer, with membership interest equally distributed among its members. Mallory became a member of Lease Supervisors in 2007, and Farrell became a member in 2009. As members, Mallory and Farrell owned an interest equal to the interest owned by all other members and had the right, under the Regulations of Lease Supervisors, LLC (“Regulations”), to participate in the management and control of the company’s affairs and operations.

Lease Supervisors filed a motion for summary judgment, contending that Mallory and Farrell were not employees of Lease Supervisors but were, instead, members or partners in business for themselves. Mallory and Farrell oppose the motion and cross-move for summary judgment, contending that the court should conclude as a matter of law that they were employees of Lease Supervisors. 

The District Court denied both motions.  In doing so, the Court found that there were factual issues that precluded entry of summary judgment.  When considering whether a worker is an employee for the purposes of the FLSA, courts consider five non-exhaustive factors:

(1) the degree of control exercised by the alleged employer; (2) the extent of the relative investments of the worker and the alleged employer; (3) the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer; (4) the skill and initiative required in performing the job; and (5) the permanency of the relationship. No single factor is determinative. Rather, each factor is a tool used to gauge the economic dependence of the alleged employee, and each must be applied with this ultimate concept in mind.

The court held that the summary judgment evidence directly conflicted as to several variables relevant to the degree of control exercised by Mallory and Farrell, including whether they set their own schedules, whether they had control over the work they performed, and the amount of supervision that Lease Supervisors exercised over its workers.  

The Court likewise found that the parties’ relative investments required further factual development.  

Similarly, the Court found factual issues regarding the opportunity for profit and loss.  The Court found that some facts indicate that Lease Supervisors alone determined the income of Mallory and Farrell – although as members of Lease Supervisors Mallory and Farrell had the right to vote to approve the rate negotiated by the manager, they did not have direct control or individual negotiating power regarding their own rates of pay. On the other hand, the Court noted that there was evidence that at least one member of Lease Supervisors (Mallory) was able to provide contract pumping services for various operators in addition to his work for Lease Supervisors, which would create the opportunity for Mallory to exert control over the profit he was able to realize. 

As for the fourth factor (skill required), the Court found that while at least some level of specialized skill was required to perform the duties of pumper/plant operator and that Lease Supervisors’ members relied on their own initiative to determine how to manage a particular well or plant, there is a genuine fact issue whether members of Lease Supervisors had the ability to exercise significant initiative within the business. For instance, the company could not show that the workers could increase their profits through efficient operation of the wells they managed.  

Finally, regarding the permanency of the relationship, the Court found conflicting evidence.  It pointed to the fact that the workers’ term of employment was indefinite, but also that they held additional jobs while working for Lease Supervisors.  

On the whole, the Court found factual issues precluded summary judgment for either party.  As such, it denied both parties’ motions.  The parties subsequently entered into a settlement agreement.  

While both parties’ summary judgment motions were denied, this is unquestionably a win for the workers.  This case demonstrates that in many cases the Court will find that summary judgment cannot be granted to either side when the issue is employee vs. independent contractor status. This is often so because in such cases there is typically evidence which both sides can cite in their favor. Thus, it will often be up to the finder-of-fact at trial to make the ultimate decision on employee status in overtime cases.

About the author: Josh Borsellino represents workers on claims for unpaid overtime.  He frequently represents oilfield workers and others who have been denied overtime pay.  Common violations of overtime laws involve independent contractor misclassification, paying non-exempt workers salaries, and paying straight-time or day rates.  If you have been denied overtime pay within the past three years, call Josh today at 817.908.9861 or email him through this link for a free evaluation.  


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