A U.S. Department of Labor (DOL) investigation that began in 2012 has resulted in an agreement by some undisclosed subcontractors that work for independent producers in the Marcellus Shale to pay a total of $4.5 million in back wages to 5,310 employees in Pennsylvania and West Virginia.
DOL offices in Wilkes-Barre, PA, and Pittsburgh led the investigation into "significant violations" of the Fair Labor Standards Act (FLSA).
"The oil and gas industry is one of the most fissured industries,” said DOL administrator David Weil of the Wage and Hour Division. “Job sites [that] used to be run by a single company can now have dozens of smaller contractors performing work, which can create downward economic pressure on lower level subcontractors. Given the fissured landscape, this is an industry ripe for noncompliance."
DOL did not name the companies that committed the violations and that agreed to pay back wages, but it said the subcontractors include drilling and geological services, land leasing and acquisition service and oilfield support companies. DOL also said it is investigating similar wage and hour violations in the industry in other parts of the country.
Most of the violations were due to the improper payment of overtime. DOL added that overtime rates were, in some cases, incorrect because production bonuses were not factored into employees' regular rate of pay when determining overtime. Under the FLSA, all pay received by employees during the workweek must be included when determining the overtime premium, which is factored as time and one-half of the regular rates for every hour worked beyond 40 hours per week, DOL said.
"The more fractured an industry is, the more likely there will be significant labor law violations," said DOL’s Mark Watson, regional administrator for the Northeast. "Companies further down the contracting chain feel pressure to provide services at a competitive and often cut-rate price point. They are also more likely to cut corners and offer a low bid to secure a business opportunity."
Some industry sources who said they were not labor experts, said they were surprised to learn that bonus dollars are expected to be reflected in overtime. The Marcellus Shale Coalition, which represents hundreds of producers, subcontractors and supply chain partners, pointed to the industry's rapid growth in recent years, particularly in Pennsylvania, where wages are up and employment is steady.
"Creating and supporting good-paying jobs across a diverse and growing supply chain, made up overwhelmingly of small- and medium-sized locally-based businesses, has been and continues to be a top industry priority," said a MSC spokesman. "And in addition to the safety of our employees, contractors and communities where we are privileged to work, our industry is deeply committed to compliance with all relevant local, state and federal laws and regulations, including those related to employment and wages."
According to the Pennsylvania Department of Labor and Industry, the average wage in core Marcellus industries, such as well-site development, extraction and pipeline operations, was about $93,000 in October, $43,400 more than the average wage for all industries. The average wage in ancillary industries, such as natural gas distribution, water supply and manufacturing, for example, was about $65,000, or $15,400 more than the average. In all, Marcellus-related industries employed 228,930 people in October, compared to 5.8 million total jobs in the state.