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The federal Department of Labor has increased its scrutiny of the shale gas industry in neighboring states, and attorneys expect the trend will continue into Ohio.
In enforcement announcements, the agency has said it is conducting “a multiyear enforcement initiative focused on vendors who perform various phases of the oil and gas fracking process” in the Marcellus Shale regions of Pennsylvania and West Virginia and throughout the Southwest.
There are no current plans to extend the initiative to Ohio, according to a department spokeswoman, but that’s not a reason for businesses to be complacent, regardless of the industry.
In recent years, the Department of Labor has added investigators and is focusing more on enforcement of wage and hour laws, said Rodney Bean, an attorney with Steptoe & Johnson, during a recent webcast on the subject. The law firm represents oil and natural gas companies in several states and recently opened an office in Jackson Township.
“Your odds of getting a DOL audit are much higher right now than what is usually the case,” Bean said during the webcast.
Two area investigators are looking at the payment of overtime and the classification of employees as independent contractors, a common practice among energy companies.
“In the oil and gas industry, frankly, we see a lot of misclassification and it’s an historical issue,” said Larry Rector, another Steptoe & Johnson attorney on the webcast.
CASES SO FAR
The Department of Labor’s Wage and Hour Division is looking beyond drillers to businesses that provide ancillary services, such as tree clearing, quarrying, road construction, paving, water and stone hauling and masonry, according to department press releases.
In December, GES, a company that collects groundwater samples near drilling sites in Pennsylvania and West Virginia agreed to pay $187,000 in back wages to 69 employees who the company had improperly classified as exempt from overtime pay, according to a department press release.
More recently, on July 24, the department announced that New Mexico-based Morco Geological Services, a company that does mud logging for drillers, agreed to pay roughly $596,000 in back wages to 121 current and former employees because of violations of minimum wage, overtime and record-keeping laws. As in the earlier case, Morco had improperly classified workers as exempt from overtime pay.
PENALTIES AND WORSE
If federal investigators find a violation of wage and hour laws, the company is asked to come into compliance and pay any wages due. If a settlement isn’t reached, the Department of Labor may file a complaint in federal court.
Penalties can include payment of back wages plus damages in an amount equal to the back wages. Repeat violators can face civil penalties.
Improperly classifying employees as independent contractors also raises tax issues, and companies that violate wage and hour rules also risk their employees bringing a class-action lawsuit. If successful, the company has to pay the plaintiffs’ hefty attorney fees.
“You don’t want a private lawsuit,” said Michael J. Bogdan, a specialist in labor and employment law with Krugliak, Wilkins, Griffiths & Dougherty in Jackson Township. “You don’t want a class action.”
Companies exploring the Marcellus and Utica shale formations in Ohio will likely come under DOL’s microscope, local attorneys said.
“I think once you see the infrastructure get built up here and there’s more production in these wells, you’re going to see that issue coming up,” said Clint Zollinger, a labor and employment attorney at Day Ketterer and co-chairman of the firm’s oil and gas industry practice.
Bogdan said he has already done internal audits for companies that are concerned they might come under scrutiny.
Still, he cautions against pretending this is just an issue in the drilling fields.
The wage and hour laws apply to businesses with annual sales of at least $500,000 and Department of Labor investigations in general have been on the rise for a decade, particularly in the last couple of years, he said.
For example, the Columbus-area Wage and Hour Division office has enforcement intiatives specific to tomato growers, gas stations, home health care, restaurants and window installers.
“It would be dangerous to believe the Department of Labor is only focusing on the gas and oil industry,” Bogdan said.
Reach Shane at 330-580-8338 or email@example.com.
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