This summer, the Fifth Circuit Court of Appeals addressed an often used and hotly litigated compensation  practice adopted  by oil and gas companies—day rates. Commonly utilized in the energy sector, companies engage highly skilled workers (such as drilling or well consultants) through an independent contractor arrangement and pay a “day rate” for the services of those individuals—a predetermined amount paid based on each day worked, regardless of the number of hours actually worked. Recently,  this  day-rate  compensation  scheme has spawned legal challenges across the United States. Specifically, in these lawsuits, workers allege (i) they were incorrectly classified as independent contractors under the Fair Labor Standards Act (“FLSA”) and (ii) they are owed unpaid overtime compensation for hours worked over forty (40) per week.

In August 2019, the Fifth Circuit Court of Appeals (which covers Texas, Louisiana, and Mississippi) granted a “win” for employers adopting the day-rate compensation  structure. Specifically, the Fifth Circuit  in  Faludi v. U.S. Shale Solutions, L.L.C. held a worker paid a day rate was exempt as a Highly Compensated Employee (“HCE”) under the FLSA, and, therefore, was not entitled to overtime compensation. Although the court’s holding in Faludi was limited to whether workers paid pursuant to a day-rate scheme are paid on a “salary basis” as required for the HCE exemption, the Faludi decision marks an important shift in wage and hour litigation facing the energy sector.