American Oil and Gas Reporter - April 2019 - 15

IndustryDigest
Independent Contractor
Case Won By Industry
ATLANTA-A Feb. 28 ruling by the
U.S. Court of Appeals for the 5th
Circuit in New Orleans validates the oil
and gas industry's use of contract
workers and should be used as a
precedent for labor cases going forward,
according to the law firm that
successfully prosecuted the case.
The Chamberlain Hrdlicka law firm
reports the 5th Circuit unanimously
vacated a 2017 ruling by the U.S.
District Court for the Western District
of Texas in Parrish v. Premier
Directional Drilling that Premier had
misclassified its directional drillers as
independent contractors.
The firm explains that Premier was
forced to reduce its workforce following
the 2015 industry downturn, but utilized
some personnel as independent
contractors who could accept or refuse
assignments and negotiate their pay.
Five of the former employees sued,
claiming they were entitled to overtime
and other benefits.
"The impact of this decision cannot
be overstated, as the (district court's)
order was crippling the industry while
enabling a wave of financially
devastating ligation," states Annette
Idalski, who chairs Chamberlain
Hrdlicka's national labor and
employment group, and served as lead
counsel for Premier. "Oil and gas
companies now can maintain contract
classification for workers and preserve
their business models without fear."
Adds Premier President Michael
Kennedy, "This case is particularly
important because the oil industry's use
of highly compensated independent
contractors is essential and
commonplace."
A published report notes the 5th
Circuit affirmed the plaintiffs' status as
independent contractors, even though
there were several similarities between
them and Premier's employees: Both
were supervised by a coordinator, had
to undergo mandatory safety training,
and had to follow the company's drug
and alcohol policies. Premier also
provided fire-retardant clothing for
workers who didn't have their own.
Chamberlain Hrdlicka points to
similarities between the 5th Circuit's
Premier ruling and another case the firm
argued before the court. In July 2015,

the 5th Circuit found the U.S.
Department of Labor acted in bad faith
when it assessed Gate Guard Services
LP a $6 million penalty for
misclassifying gate attendants at drilling
sites as independent contractors.
A report authored by Idalski and
published by The American Oil & Gas
Reporter as a Web exclusive in
September 2015
(https://www.aogr,com/web-exclusives),
says DOL took the position that 400
gate attendants were employees who
should be paid hourly, plus overtime,
because they were required to stay at
the drilling site continuously until the
project ended.
But, Idalski wrote, the 5th Circuit
found Gate Guard met the majority of
tests for independent contractor status.
Among them:
· Gate attendants were not
supervised or controlled by Gate Guard
with respect to their tasks and
schedules.
· Gate Guard did not invest more in
equipment for the job than the gate
attendants because the attendants owned
recreational vehicles, in which they
lived while on site.
· The gate attendants' relationship
with Gate Guard was on-again, offagain.
· The gate attendants were able to
suffer a loss or earn a profit. ❒

Court Sides with Lessor
About Lease Language
SAN ANTONIO-In a case that the
judge says requires interpretation of
lease languages, a Texas court decision
holds that Chesapeake Energy Corp.
failed to follow a lease's provisions
regarding compensatory royalties on
Eagle Ford Shale acreage.
The Texas Fourth Court of Appeals
decision, Stanton P. Bell et al v.
Chesapeake Energy, selected two leases
Chesapeake signed in November 2009
and April 2010 to represent a number of
leases involved in an appeal of a
multidistrict litigation court ruling. The
appellants asserted a multitude of
claims, including a claim for breach of
contract for failing to pay compensatory
royalties as provided for under the
lease, court documents state.
The appeals court focuses on two
questions:

· Was the formula for calculating
compensatory royalties based on take
points of an adjacent well within the
triggering distances set for in the lease;
and
· Does the reasonably prudent
operator standard apply, in whole or in
part, to the lessee's offset obligations?
According to the court, the leases
call for compensatory royalties that
should have been paid based on the
gross proceeds from adjacent wells,
not from the trigger distances. Court
documents say leaseholder Bell
alleged Chesapeake drilled wells
adjacent to producing ones in violation
of the lease, and also that the company
failed to drill offsetting wells,
releasing acreage or paying
compensatory royalties, again failing
to honor lease language.
Chesapeake argued in its appeal that
a reasonably prudent operator standard
should have been considered in
evaluating the lease provisions, but the
appeals court held that standard did not
apply in either lease under
consideration.
According to court documents, the
leases' meaning of royalty share is not
in dispute, but the two sides disagree
on the term "gross proceeds." Bell
argues that Chesapeake's construction
of the lease contradicts the meaning
of gross proceeds as "total proceeds."
Chesapeake agrees that gross
proceeds means all or total proceeds.
"The question is, total proceeds from
what? The real point of contention is
whether gross proceeds are from
production from the entirety of the
horizontal well, any part of which
falls within the trigger distances, or
production attributable only to those
perforations (take points) that are
within those trigger distances," the
court considers.
A horizontal well's surface location
is not the actual point of production,
but the court holds that both parties
specifically agreed that a horizontal
well is deemed to be draining the
lease premises, thus triggering the
lease obligations, even if only its
surface location is within the trigger
distances. Chesapeake's insistence
that only the location of horizontal
well take points is relevant
impermissibly negates this express
contract provision, the ruling states.
❒
APRIL 2019 15
https://www.aogr.com/web-exclusives/exclusive-story/employer-prevails-in-department-of-labor-challenge
American Oil and Gas Reporter - April 2019

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