Europe: EU / UK regulatory roundup
A round up of recent regulatory developments in the EU and UK.
On February 28, 2019, the United States Court of Appeals for the Fifth Circuit issued a decision that could have a significant impact for companies using independent contractors, especially those in the oil and gas industry. There are many independent contractor misclassification cases being litigated in the Fifth Circuit, but few Fifth Circuit decisions addressing the question. This case is particularly significant because it has many facts that plaintiffs’ counsel normally point to as indicia of employee status. Despite the existence of those facts, the Fifth Circuit reversed a grant of summary judgment to the plaintiffs and rendered judgment for the alleged employer instead. Companies in Texas, Louisiana, and Mississippi, should use this decision to evaluate or reevaluate independent contractor classification decisions.
The case, Parrish v. Premier Directional Drilling, L.P., was brought by four individuals who performed services for Premier as directional driller consultants (DDCs). The facts described below are taken from the Court’s opinion. The four plaintiffs claimed they were misclassified as independent contractors and were owed overtime for working more than 40 hours in a week. In simplest terms, directional drilling involves drilling at an angle horizontal to the surface to reach an oil deposit, and is extremely complex. The DDCs advised Premier’s clients, oil companies, how best to effectuate the well plan prepared by the oil companies. There was no dispute that the DDCs were highly skilled and that an error by a DDC could result in Premier losing large amounts of money, potentially hundreds of thousands of dollars.
The arrangement for retention of DDCs by Premier is one we see frequently in the oil and gas industry. Premier had contracts with staffing agencies. The staffing agencies entered into contracts with the individuals. Premier paid the staffing agencies and the staffing agencies then paid business entities set up by the individuals. The plaintiffs were paid a day rate (for a 12-hour shift) and mileage reimbursement. Although a day rate was the basis of compensation, according to the Court, DDCs were retained on a project basis.
Interestingly, Premier also had employees who worked as directional drillers. In fact, some of the DDCs were previously Premier employees who were converted to contractors. This fact is one plaintiffs’ counsel normally seize on as a clear indication of employee status. Although both the DDCs and employees had written pay scales based on experience, employees had significantly different types of pay and benefits. And, unlike their employee counterparts, DDCs could turn down work and had the ability to negotiate their rates.
The DDCs were required to sign non-disclosure agreements, undergo mandatory safety training, and comply with Premier’s drug and alcohol policy. They also had a set schedule and work location and were required to submit reports and updates to Premier and its clients. All of these facts are also facts plaintiffs typically rely on to argue for employee status.
Premier provided the DDCs with equipment and resources, including a particular computer program that was required for the DDCs to perform their work. Premier also provided laptop computers and, if necessary, fire retardant clothing. Most significantly, Premier provided the DDCs with other personnel and expensive equipment to take the measurements necessary for the DDCs to perform their work. Again, all of these facts are typically used to argue in favor of employee status.
Finally, the plaintiffs in the case had all performed work for Premier for a significant amount of time – more than 10 months – considering both their service as employees and as DDCs. Plaintiffs argued that this showed an employee-like permanency in the relationship.
The District Court relied on these facts to find that the DDCs should have been classified as employees instead of independent contractors, and granted summary judgment for the plaintiffs.
Why did the Fifth Circuit conclude the district court got it wrong? It was not because the district court applied the wrong law. The Fifth Circuit agreed with the test applied: whether the DDCs were economically dependent on Premier as a matter of economic reality. Or, stated another way, did the economic reality of the working relationship show that the plaintiffs were in business for themselves. Instead, the Fifth Circuit reversed and rendered judgment for Premier because it disagreed with the weight and significance the district court gave to many of the facts described above, concluding that other facts were more significant and entitled to greater weight. The district court found most persuasive the fact that both the employee DDs and DDCs were treated the same, and supervised the same, with no appreciable difference other than how they were compensated. The Fifth Circuit disagreed with the lower court’s emphasis on this point and found the following facts more significant and weightier.
Of greatest significance and weight was the fact that DDCs performed work on a project-by-project basis. Although paid a day rate, they were retained for a specific project. That fact “counsels persuasively” in favor of independent contractor status, the Court stated, even when the relationship with a contractor has lasted for a significant length of time. This is particularly so where the individual possesses highly specialized skills that are widely demanded, because that can lead to more economic independence.
Each independent contractor situation is unique and classification decisions are always highly dependent on the facts of a particular case. A thorough legal review of all classification decisions is always prudent. The Parrish case does not mean that all highly skilled oil field workers can be classified as independent contractors. But it does strongly suggest that where the critical facts described above exist, particularly retention on a project basis, there is a much greater likelihood of defending classification as an independent contractor. Because the case gives a new emphasis to certain critical facts, a thorough review of existing classification decisions may be beneficial to your organization.
On July 16, 2020, the Court of Justice of the European Union (CJEU) published its decision in the landmark case Data Protection Commissioner v Facebook Ireland Ltd, Maximilian Schrems and intervening parties, Case C-311/18 (known as the Schrems II case).
On July 7, 2020, the Commission de Surveillance du Secteur Financier (CSSF) issued an FAQ document on Circular 02/77 concerning the protection of investors in case of NAV calculation errors and the correction of the consequences resulting from non-compliance with the investment rules applicable to undertakings for collective investment (the FAQ).