Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
On May 11, 2022, the Fifth Circuit issued its opinion in Hargrave v. AIM Directional Services, L.L.C., giving a big win to energy-sector companies by concluding that a directional driller was an independent contractor rather than an employee covered by the FLSA.
To reach its conclusion, the court relied heavily on its 2019 decision in Parrish v. Premier Directional Drilling, L.P., 917 F.3d 369 (5th Cir. 2019), which also involved a contract directional driller.
The plaintiff in Hargrave was a directional driller responsible for guiding the path of drilling and providing advice on how to most effectively implement the well plan provided by AIM’s clients. Although AIM hires some directional drillers as employees, it also brings on “independent contractors ‘as needed to meet the demands of fluctuating rig counts,’ either directly or through third-party staffing companies.” Regardless of their classification as an employee or independent contractor, “[a]ll directional drillers have essentially the same duties and responsibilities while on the job.”
Importantly, though, directional drillers brought on as independent contractors are free to accept or reject jobs as they please, while employees are not. Similarly, independent contractors are not required to sign non-compete or non-disclosure agreements, while employees are. Moreover, AIM’s employees receive a salary, while the independent contractors are paid on a day-rate basis. “Independent contractors also receive none of the benefits and allowances provided to AIM employees, aside from a mileage reimbursement.”
The plaintiff was classified as an independent contractor by AIM. The plaintiff filed suit alleging this classification was improper and that, instead, he was an employee entitled to overtime under the FLSA and the New Mexico Minimum Wage Act. The plaintiff subsequently abandoned his New Mexico Minimum Wage Act claim on appeal and, as a result, those claims were not the subject of the court’s analysis.
In determining that the plaintiff’s classification as an independent contractor was proper, the court analyzed the plaintiff’s relationship with AIM under the factors set out by United States v. Silk, 331 U.S. 704 (1947). Specifically, the court determined:
- As to control, the court looked at “whether the worker has a viable economic status that can be traded to other companies.” The court concluded that AIM did not dictate how the plaintiff completed his calculations. Although AIM set the “method and rate of his pay” and set the “schedule and job assignments” telling the plaintiff “where to go and when once [the plaintiff] accepted a job,” the court found such evidence “unpersuasive” given that the plaintiff was free to accept or reject jobs assignments from AIM. AIM’s refusal to let the plaintiff subcontract out his job also did not favor employee status as it was “reasonable ‘for a company to want to hire a specific person,’ particularly for roles that require ‘advanced skill and specialized expertise.’” Finally, the court found that AIM’s enforcement of safety protocols and procedures, including “strongly encourag[ing]’ [the plaintiff] to wear ‘personal protective equipment with AIM logo on it’ … ‘is not the type of control that counsels in favor of employee status.’” The court found that control weighed in favor of an independent contractor relationship.
- As to respective investments, the court “compares the amount the alleged employer and employee each contribute to the specific job the employee undertakes.” Here, the fact that AIM provided the plaintiff with living quarters and the requisite drilling equipment and computer software for “each project that he worked on” counseled in favor of employee status. But the court afforded little weight to this determination, relying on Parrish, “in the light of the nature of the industry and the work involved.”
- As to the worker’s opportunity for profit or loss, the court looks to the “degree to which the worker’s opportunity for profit or loss is determined by the alleged employer.” AIM set a day rate, but the plaintiff paid for some of the vehicles, tools, equipment, and consumables necessary to perform his work. Additionally, the plaintiff did not receive any pay from AIM when he was not working on an AIM project, though AIM’s employees did. Finally, AIM did not require the plaintiff to sign a non-disclosure or non-compete agreement, so the plaintiff was free to find additional work and was encouraged by AIM to do so. The court found that this factor weighed in favor of finding an independent contractor relationship.
- As to the skill and initiative required to perform the job, the court looks to whether plaintiffs have some unique skill set, or some ability to exercise significant initiative within the business. Here, the court found that even though he was similarly skilled as his employee counterparts, the plaintiff was highly skilled and highly experienced, weighing in favor of finding him to be an independent contractor.
- As to the permanency of the relationship, the court determined the plaintiff had a brief relationship with AIM and only worked on a project-by-project basis, which—per Parrish —weighed heavily in favor of independent-contractor status.
Though the decision is limited to companies operating within the Fifth Circuit’s jurisdiction, the Hargrave holding should be seen as a victory for drilling or related companies in the energy sector with similar employment and contracting systems in place. The decision further solidifies Parrish within the Fifth Circuit and increases the hurdle faced by similar workers—particularly directional drillers—when attempting to combat independent contractor classification.
On this note, however, employers should take heed that attorneys representing plaintiffs in similar classification disputes will almost certainly seek to distinguish the facts in Hargrave and Parrish when presented with other directional driller contract relationships or different types of contractors in the industry or may seek to file their claims outside the Fifth Circuit.