On October 25, 2018, a jury in the Houston Division of the Southern District of Texas decided that drilling fluid specialists, also known as “mud engineers,” were exempt from the overtime provisions of the Fair Labor Standards Act (“FLSA”) under the white collar, administrative exemption. This case is one of the very few FLSA cases actually tried to a jury in the Houston Division in recent years and one of the even fewer to address the applicability of the administrative exemption to this particular type of oilfield services worker.
The case, Dewan v. M-I L.L.C., has an interesting procedural history. In Dewan, the plaintiffs brought a putative class action in the United States District Court for the Southern District of Texas against their employer, M-I L.L.C. (“M-I”), an oilfield services company, alleging that M-I did not properly pay for overtime. The plaintiffs were employed as drilling fluid specialists, more commonly known as “mud engineers,” and were tasked with managing drilling fluid systems at customer locations and ensuring that the drilling fluid was within specifications dictated by the project engineer’s mud plan. Drilling fluid is tested by measuring the mud’s pH, rheology, weight and viscosity. Mud engineers are allowed to give recommendations to customers based on the test results without needing permission from a supervisor. At M-I, mud engineers are required to have high school diplomas and to complete an eight-week internal training program.
M-I moved for summary judgment in the district court arguing, among other things, that the plaintiffs were exempt under the administrative exemption of the FLSA. To qualify for the administrative exemption, an employer must demonstrate that its employee: (1) is paid at least $455 per week on a salary basis; (2) primarily performs office or non-manual work directly related to management or general business operations of the employer or the employer’s clients or customers; and (3) exercises discretion and independent judgment with respect to matters of significance. If an employer can establish that these factors are present, it does not have to provide overtime to the employee. The district court granted M-I’s motion for summary judgment, ruling that the plaintiffs were exempt under the administrative exemption.
Appeal to the Fifth Circuit Court of Appeals
On appeal, the Fifth Circuit reversed the district court’s finding that mud engineers were exempt and sent the case back to the district court for further proceedings. In particular, the Fifth Circuit found that the second and third prongs of the exemption (i.e., primary work and discretion/independent judgment) required a jury’s analysis rather than the lower court’s legal analysis. The Fifth Circuit questioned whether a mud engineer’s primary duties were “directly related” to the management or general business operations because the duties seemed more closely related to the production of the commodity than to the administration of business affairs. Further, the court found that the exemption requires applicable employees to make policy determinations rather than mere recommendations to customers.
In addition, the Fifth Circuit found that there were genuine issues of material fact regarding the mud engineers’ independent judgment and discretion and that a jury would have to weigh the issue. Despite the ability to make recommendations without permission from a supervisor, the plaintiffs argued that their decisions were nothing more than recitations of well-established procedures. Thus, the court held that the district court should not have granted M-I’s motion for summary judgment.
Upon remand, the case was tried to a jury. Per the Jury Charge, the first prong of the administrative exemption was not at issue because the parties agreed that the plaintiffs were paid at least $455 per week on a salary basis. Therefore, in determining whether the plaintiffs met the exemption, the jury was asked to decide by a preponderance of the evidence whether M-I met the 2nd and 3rd prongs of the exemption. More specifically, the jury was to decide whether:
- Plaintiffs’ primary duty was the performance of office or non-manual work directly and closely related to the management or general business operations of the Defendant or the Defendant’s customers or clients; and
- Plaintiffs’ primary duty included the exercise of discretion and independent judgment with respect to matters of significance.
Ultimately, the jury answered these questions in the affirmative and found that the plaintiffs were exempt from the overtime requirements of the FLSA as administrative employees.
The Bottom Line for Employers
Although this is a win for the oil and gas industry, it is important to remember that FLSA exemptions are determined on a case-by-case basis, and that an employee’s specific job duties and salary must meet all of the requirements of the exemption. In addition, this case is worth mention due to its unusual procedural background and the fact that it reached the jury-verdict stage, which is not typically the case in exemption cases involving the oilfield services industry.