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Oil Company Can’t Enforce Arbitration Agreement in Overtime Case

A federal court in New Mexico has denied an oil company’s effort to enforce an arbitration agreement signed between a completions consultant and a consulting firm in an unpaid overtime case.  In Pogue v. Chisholm Energy Operating, LLC, No. 2:20-cv-00580-KWR-KK (D.N.M. March 16, 2021), a former completions consultant sued Chisholm Energy under the FLSA and the New Mexico Minimum Wage Act, alleging that he was misclassified as an independent contractor and denied overtime pay.  Chisholm Energy filed a motion to dismiss and motion to compel arbitration.  The relevant facts of the dispute are as follows:

Plaintiff signed an independent contractor agreement with third-party DTC Energy Group, Inc., to perform services for DTC’s clients. DTC is an oilfield consulting firm. One of those clients was Chisholm Energy. Plaintiff now alleges that Chisholm Energy violated the FLSA and the NMMWA.

On July 20, 2016, Plaintiff through his limited liability company entered into an Independent Contractor Agreement (“ICA”) with DTC Energy. It provided that “[t]his Independent Contractor Agreement (“Agreement”) effective July 20, 2016 … is made by and between DTC Energy Group, Inc. … and JKP Consulting, LLC …”). “[Plaintiff] acknowledges said Services are required to fulfill [DTC’s] obligations to its client (“Client Operator”) as provided by separate contract.” The agreement also required Plaintiff to carry certain insurance and required DTC to provide commercial generally liability insurance per the requirements of any contracts with the clients.

Finally, the Independent Contractor Agreement provided that it would be construed “in accordance with the laws of the State of Colorado, without giving effect to principles of conflict of laws. Any dispute arising hereunder shall be resolved by way of confidential arbitration, in accordance with the Uniform Arbitration Act, C.R.S. XX-XX-XXX, et seq., said arbitration to be conducted in the City and County of Denver, Colorado by a single arbitrator, any award to be enforceable in any court of competent jurisdiction.”

DTC and Chisholm Energy entered into a Master Supply Agreement and work order on or around June 29, 2017. The Master Supply Agreement is silent on arbitration and provides that Texas law would apply. The work order between DTC and Chisholm Energy provided that DTC, as contractor, would “consult with, advise, and provide supervisory and support services to Company’s VP of operations.” It provided that DTC would provide Plaintiff “for purposes of well site supervision.” It provided that Contractor (DTC) would be paid $1700 per 12-hour shift, and that contractor would be expected to work 14 consecutive days consisting of 12-hour shifts. Contractor would be scheduled 2 weeks on and 2 weeks off. It also provided that if contractor was required to work longer than 12 hours per shift, Contractor would be paid at a rate of $142 per hour. It finally provided that contractor would provide all equipment, service, and supplies necessary to perform the work in a professional, diligent and efficient manner.

In turn, DTC completed a “new hire request form” for Plaintiff. It provided that he would serve as an independent contractor for Chisholm Energy as a “Completions Supervisor.” It also provided he would be paid at a rate of $1585 but invoiced at $1700 by DTC. It also provided he would be paid $132 per hour of time over 12 hours per day, and would be invoiced at $142.

Plaintiff was paid through DTC. DTC charged Chisholm Energy a $1,700 day rate, and Chisholm Energy received $1,585 per day. Plaintiff received an additional $132 per hour for hours worked over twelve. Plaintiff received payment from DTC through is limited liability company, JP Consulting LLC. Plaintiff received a 1099-MISC from DTC in 2017 and 2018 from DTC. 

In its motion to dismiss, Chisholm Energy claimed that the court lacked subject matter jurisdiction because it was not an employer of the plaintiff, and thus the FLSA, which was the basis for federal jurisdiction, did not apply.  The Court quickly soundly rejected this argument, finding that the existence of an employer-employee relationship was a merits-based issue and thus non-jurisdictional.  

The Court also addressed the applicability of the arbitration provision signed between the plaintiff and DTC. The Court found that the plaintiff did not clearly and unmistakably agree to arbitrate arbitrability with Chisholm Energy. In doing so, the Court relied upon a line of cases holding that an arbitration clause that does not mention arbitration against third parties does not clearly and unmistakably show a plaintiff agreed to arbitrate the arbitrability of claims against a non-signatory. In this case, the arbitration clause did not reference at all arbitration with non-signatories, such as DTC’s clients. Therefore, the Court concluded that the arbitration agreement does not clearly and unmistakably delegate arbitration of arbitrability between Plaintiff and the non-signatory Defendant.   

The Court further found that Chisholm Energy was not a third party beneficiary of the arbitration agreement.  The Court found significant that while the ICA referenced DTC’s clients, it omitted any reference to clients in the arbitration provision. The Court also found that while in another agreement DTC may have agreed to indemnify Defendant is not dispositive here of the intent of Plaintiff and Defendant to grant clients the benefit of arbitration. 

Lastly, the Court rejected Chisholm Energy’s argument that Plaintiff should be equitably estopped from objecting to arbitration with DTC.  The Court found that the Plaintiff could establish his FLSA claim without relying on the ICA.  

This case is significant because in the oil and gas industry, major producers and service providers often use “consulting firms” as an intermediary in an effort to insulate themselves from overtime pay liability.  They often insist that such consulting firms require all of their consultants to sign arbitration agreements and/or class/collective action waivers, which they then attempt to rely on if they are sued under state or federal overtime laws.  This decision shows that such efforts will fail unless the claimant has clearly and unmistakably agreed to arbitrate his claims.  

Josh Borsellino is a Texas attorney that represents workers suing for unpaid overtime.  If you have not been paid for all of your overtime hours at any point within the past three years, call Josh at 817.908.9861 or email him here for a free consultation.  

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