© 2015 The Texas Lawbook.
By Natalie Posgate
(Feb. 25) – Bankruptcy lawyers are not the only attorneys extra busy because of the oil and gas crisis. Lawyers specializing in labor and employment law have experienced a boom in business, too.
Lawsuits related to layoffs and job reductions in the oil patch have dramatically increased during the past 10 months.
Employment complaints filed in the Southern and Western districts of Texas hit all-time highs in 2015, according to new data compiled by Androvett Legal Media.
If filings during the first six weeks of this year are an indication, 2016 could shatter all records in Texas for lawsuits filed due to job reductions.
“Any time there is a termination of employment, there is a risk of litigation,” said Ron Chapman, a shareholder in the Dallas office of the employment law firm Ogletree Deakins. “Given the layoffs in the industry, it’s not a surprise that employment litigation has increased.”
Complaints filed under the Fair Labor Standards Act in the Western District, which has jurisdiction over the major drilling towns in the Eagle Ford Shale and Permian Basin, nearly tripled from the first three months of 2015 to the second quarter and subsequent quarters. The increase during that same time period in Southern District, which includes Houston, was 63 percent, the Androvett data shows.
There were 814 FLSA lawsuits filed in the Southern and Western districts in 2015 – compared to 617 such cases a year earlier.
The number of employment cases filed in the Northern and Eastern districts actually declined in 2015, but legal experts say that is almost certain to change in 2016 and Dallas lawyers are getting more than their fair share of the litigation filed in West Texas.
“I’ve never seen anything like this,” says Allen Vaught, a lawyer at Baron & Budd in Dallas, who currently represents former oil and gas employees in 40 different cases. “I have cases in West Virginia, North Dakota, Colorado, California, New Mexico, Louisiana… all over.”
No region has seen more action than the Southern District of Texas, which is headquartered in the nation’s energy capital, Houston. The Androvett data reports that the Southern District saw a record-breaking 515 FLSA cases in 2015 – an 85 percent increase from 2010.
The lawsuit data doesn’t even tell the full story, as an increasing number of wage-and-hour disputes are conducted in private arbitration proceedings instead of court.
“There is a big amount of arbitration agreements out there,” said Don Foty, a Houston lawyer at Kennedy Hodges who represents workers in wage-and-hour and collective action claims. “A lot of arbitration clauses are being forced on the employees.”
“This cycle will be deeper,” said Paul Hash, who is the managing principal of the Dallas office of Jackson Lewis and an expert in wage-and-hour litigation.
“We’re seeing a greater number of individuals affected by this downturn,” said Shauna Johnson Clark, who leads the employment and labor practice at Norton Rose Fulbright in Houston. “Some companies are trying to limit the number of individuals affected by a reduction in force, but because the downturn has continued longer than expected, some companies are having to engage in another round of layoffs.”
The growing use of independent contractors by oil and gas companies, especially those in the service sector, is a significant source of the litigation.
Lawyers for workers contend that employers misclassify many employees as independent contractors as a means to avoid basic employment laws in order to save money.
“It’s a pretty pervasive issue in the oilfield,” said Vaught, who currently represents workers in lawsuits against EOG Resources, Chesapeake Energy and Marathon Oil. “When they’re labeled as contractors, they get no overtime, no benefits, no health insurance, no social security and no FICA taxes. And the government is getting less tax revenue than it would.”
Even lawyers representing businesses say there is a clear risk that the courts will consider contract workers as employees of the company, which could be quite costly.
“Particularly in an FLSA collective action, the burden is on the company to actually negate the allegation,” Clark said. “It’s easier for plaintiffs’ lawyers to name the company and supplier both as defendants in lawsuits.”
“You have guys that may be high school dropouts who have completion bonuses making $150,000 or $200,000 a year, who are working 100 hours a week, Hash said. “But when you get laid off, there is no shortage of websites out there that very experienced employment plaintiffs’ lawyers have out that say they could consider suing for wage and hour violations.”
Layoffs often provide workers the validation they need to file claims against their employers – claims they perhaps wanted to file while they were still employed but were too afraid of retaliation to do so, legal experts contend.
“A person who gets laid off from a job is more likely to ask questions about his legal rights than if he is still employed and has a good working relationship with the company,” Foty said. “The fact that there are layoffs does prompt those people to seek more advice.”
Lawyers say they also have seen an increase in litigation under the Workers Adjustment and Retraining Act [WARN], which is a 1988 law that requires an employer of 100 or more workers to provide employees a 60-day notice of mass layoffs or plant closures so they have ample time to search for other jobs.
Vaught said he had a client who drove from Tennessee to North Dakota to do fracking work in the Bakken Shale for two-week periods. When financial situations became dire after oil prices dropped, the company told the man he was getting laid off, but not until he had made the 1,300-plus mile drive all the way to North Dakota.
“When people are treated that way, they’re more eager to try to do something about it,” Vaught said.
The number of age discrimination lawsuits involving laid off energy workers is also on the rise, according to some legal experts who represent workers and employers.
“The energy folks have been and will continue to layoff in bulk, somewhat reducing liability exposure, whereas those employed in the other industries may feel they’ve been unjustly selected for termination when the layoffs are few in number,” said Nick Spiliotis, a partner in Jackson Walker’s Houston office.
Spiliotis, who represents businesses, said the “ripple effect” is already occurring as the downturn in the oil and gas sector spreads to non-energy companies. He has seen a jump in employment litigation against construction and hospitality businesses that have significant operations in communities where oil and gas is a major employer.
“If you go down anywhere between Houston and Corpus Christi, the boom revitalized a lot of these towns. You’re going to start to see those towns hurt pretty bad,” he said.
Totally “eliminating risk is not possible,” according to Chapman at Ogletree Deakins.
But legal exposure “can be minimized through planning and preparation” when corporate general counsel properly advise their boards of directors and executives on ways to reduce claims when pink slips get handed out, he said.
“The advice is and should be that time and attention and thorough analysis should be performed before the reduction is implemented,” Clark said. “The devil is in the details and you want to make sure every decision for every employee identified to be part of the reduction in force is legitimate.”
At the end of the day, Vaught said employers should simply abide by the “Golden Rule.”
“Do unto others as you would have them do unto you,” Vaught quotes the Biblical phrase. “That means, if leadership knows of upcoming layoffs, give employees some notice.”
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