Daily Labor Report®

Offshore Oil Rig Pay Covered by State Law? SCOTUS to Consider

April 16, 2019, 10:20 AM

The U.S. Supreme Court will hear arguments April 16 on whether offshore drilling rig workers should receive the higher California minimum wage instead of the national standard, as well as other compensation and benefits guaranteed under the state’s wage and hour law.

The case, Parker Drilling Mgmt Servs. v. Newton, weighs whether the workers are covered by the federal law typically relied on by the industry or the more worker-friendly California law. The U.S. Court of Appeals for the Ninth Circuit in February 2018 ruled for former rig worker Brian Newton, finding the California law should apply for those who work on the platforms floating just a few miles off the coast.

The Ninth Circuit’s ruling stoked fears in the business community that has long applied the federal Fair Labor Standards Act to its rig workers.

At issue is the Outer Continental Shelf Lands Act, which says that the laws of the adjacent state apply to the workers as long as they aren’t inconsistent with federal law. But unlike the FLSA, the California law would require the rig workers to be paid for the time they are on standby on the rig, on breaks, and sleeping. Moreover, the California minimum wage is $11 per hour, as opposed to the $7.25 federal rate. The state law also requires 30-minute meal breaks in addition to other benefits not guaranteed under federal law. Rig workers typically work 12-hour shifts for two-week stints.

The Ninth Circuit’s decision created a divide with the Fifth Circuit, which ruled in a case from 1969 that state law only governs the outer continental shelf if there’s a gap in the coverage of federal law.

The case revolves around Newton, a former roustabout and painter for Parking Drilling who sued for overtime and double-time pay for the standby hours he worked on the offshore platforms between 2013 and 2015. Newton’s shifts lasted 14 days and he regularly worked 12 hours a day. He argued the state’s minimum wage and overtime law should apply to him and his fellow workers.

Roughly 20 oil rigs operate off the coast of California, according to data from the U.S. Department of the Interior. ExxonMobil Corp., Freeport McMoRan Oil & Gas, and Venoco are among the companies that operate those rigs, according to the California State Land Commission. An estimated 1,025 rigs operate in the U.S., based on data collected by oil and gas company Baker Hughes.

Business Concerns

It’s not immediately clear whether a Supreme Court ruling on the issue would have an impact beyond the California coast. Business groups fear the court’s decision could potentially extend to all state laws and create uncertainty in the industry, at a time when the Interior Department has made moves to sell more offshore leases than in past decades.

The U.S. Chamber of Commerce cautioned the Supreme Court in a friend-of-the-court brief that state and federal wage laws differ widely and said forcing the rig companies to adopt state standards would be “disruptive to long-standing employment and compensation arrangements.” The Chamber argued it also would create unanticipated liabilities across the industry and that the offshore industry’s structure has long been established.

“In a pen stroke, the Ninth Circuit’s decision upended that settled understanding, put employers at risk of substantial retroactive liability for California law violations—despite uncontested compliance with the (Fair Labor Standards Act)—and disrupted critical industry staffing and compensation practices,” Deutsch Hunt attorney Hyland Hunt wrote on behalf of the Chamber. “What’s more, the decision throws company-wide employment arrangements (including collectively bargained agreements) into disarray as employers must now follow different rules between their offshore operations in the Gulf of Mexico and their operations offshore of states falling within the Ninth Circuit.”

Small Impact, Worker’s Lawyer Says

But Michael Strauss of Strauss & Strauss in Ventura, Calif., who represented Newton, said the impact would be minimal. “The decision impacts only a tiny fraction of United States offshore platform workers,” Strauss said in a brief to the Supreme Court.

The overwhelming majority of oil platforms operate along the Gulf Coast, which is governed by the Fifth Circuit, he said. None of the involved states have stricter minimum wages or overtime laws that exceed the standards of the federal law, he said. The Ninth Circuit governs California and Alaska, and so its decision would in effect only apply to the 20 or so rigs in California, Strauss added.

Strauss further argued that the business community has long known about the California wage and hour laws, and their concerns are being overstated. He said employers have included language for years in collective bargaining agreements and employment contracts that explicitly acknowledge that the state’s wage and hour laws apply to their operations.

Class Action Possible

Strauss previously told Bloomberg Law he would consider a class action on behalf of the oil rig workers. Strauss didn’t immediately respond to a request for comment before the oral arguments.

Kirkland & Ellis partner Paul Clement, who represents Parker Drilling, didn’t respond to a request for comment.

The Washington Legal Foundation, in a friend-of-the-court brief, said if the high court upholds the Ninth Circuit’s decision there would be “massive retroactive liability for employers who adopted wage-and-hour practices in good faith.”

“Employers will likely be forced to significantly restructure their employment practices—structuring that may be unsatisfactory to employers and employees alike,” Richard A. Samp, the foundation’s counsel, wrote.Such uncertainty cannot be what Congress had in mind.”

The Chamber’s attorneys, Hunt and Samp, didn’t respond to requests for comment.

The case is Parker Drilling Mgmt. Servs., Ltd. v. Newton, U.S., No. 18-389, oral argument 4/16/19.

To contact the reporter on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com

To contact the editors responsible for this story: Simon Nadel at snadel@bloomberglaw.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com

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