On June 10, 2019, the Supreme Court of the United States unanimously ruled that state wage and hour laws do not apply to offshore drilling workers where federal law addresses the relevant issue. In Parker Drilling Management Services v. Newton, No. 18-389, the Supreme Court answered the question of whether California’s laws governing the minimum wage and payment for “standby time” applied to workers on oil rigs in federal waters off the coast of California. Rejecting the Ninth Circuit Court of Appeals’ decision, the Supreme Court held that California’s wage and hours laws do not apply, and concluded that under the Outer Continental Shelf Lands Act (OCSLA), state law does not apply as surrogate federal law unless there is a significant “void or gap” in federal law. This decision is a victory for companies operating or servicing oil rigs in federal waters off the California coast.

Background

The OCSLA extends federal law to the seabed of the Outer Continental Shelf (OCS), which includes any drilling platforms fixed to the seabed. Under the OCSLA, the laws of an adjacent state only apply to the OCS to the extent “they are applicable and not inconsistent with” federal law. The OCS begins three miles off the state coast.

Brian Newton worked on oil drilling platforms off the California coast for Parker Drilling Management Services, Ltd. Newton claimed that his 14-day shifts “involved 12 hours per day on duty and 12 hours per day on standby.” During his 12 hours of standby, he could not leave the platform. Newton was not paid for his standby time.

Newton filed a class action lawsuit in California state court, alleging violations of California’s wage and hour laws and other claims related to Parker Drilling’s failure to pay workers for standby time. After the case was removed to federal district court, the parties agreed that the OCSLA covered the oil drilling platforms where Newton worked.

The federal district court applied Fifth Circuit precedent and ruled that Parker Drilling was entitled to judgment on all of Newton’s claims that relied on state law, reasoning that state law only applied under the OCSLA if there was a “’significant void or gap’ in federal law.” The district court found that the federal Fair Labor Standards Act (FLSA) constituted a comprehensive wage-and-hour scheme, and thus there was no void or gap for California state law to fill.

The Ninth Circuit disagreed. Rather than applying the “‘significant void or gap’ in federal law” idea, the Ninth Circuit ruled that state law applies under the OCSLA whenever it pertains to the subject matter at hand and is not inconsistent with federal law. Because the FLSA expressly permits “more protective state wage and hour laws,” the Ninth Circuit held that California laws governing standby time and minimum wage applied to oil rig workers on the OCS off the coast of California. While the FLSA addresses when standby time is compensable and when it is not, the Supreme Court of California ruled in Mendiola v CPS Security Solutions, Inc. that any form of employer control exerted during an employee’s standby time renders that time as compensable even though it would not be under a regulation promulgated under the FLSA. Because Newton and his fellow rig workers were essentially trapped on Parker Drilling’s rig, the Ninth Circuit ruled they were entitled to be paid for all hours on the rig, which amounted to 24-hour compensation. Although Newton was paid a base hourly rate above California’s minimum wage of $12.00 per hour, the Ninth Circuit ruled that Newton was entitled to be paid at least California’s minimum wage for all hours worked, which would include the standby time for which he was not paid.

Given the disagreement between the Ninth Circuit and the Fifth Circuit, the Supreme Court granted certiorari to answer the question of how to determine which state laws should be “adopted as federal law” for purposes of the OCSLA regarding employees working on platforms in federal waters.

The Supreme Court’s Unanimous Ruling

On June 10, 2019, the Supreme Court sided with the Fifth Circuit and held that under the OCSLA, where federal law addresses the relevant issue, state law is not adopted as surrogate federal law on the OCS. In reaching this conclusion, the Court found that the normal preemption analysis relied upon by Newton and the Ninth Circuit (i.e., state law will apply unless it conflicts with federal law) only applies where there is overlapping dual state and federal jurisdiction. The Court noted state law has never applied to the OCS. There is no overlapping state jurisdiction on the OCS; federal law is the only law of the jurisdiction: “All law on the OCS is federal, and state law serves a supporting role, to be adopted only where there is a gap in federal law’s coverage.”

Here, with respect to Newton’s claims for standby time and related minimum wage violations, the Supreme Court determined that there is no gap in federal law. Federal regulations already provide that employees who reside on employer premises on a permanent basis, or for extended periods of time, are not considered working all the time they are on the employer’s premises. Additionally, the FLSA provides for a federal minimum wage of $7.25 per hour (significantly lower than California’s state minimum wage). Given that federal law already governs these two issues, California wage and hour law does not apply to these oil rig workers under the OCSLA in this case because there as “no gap” in the FLSA to fill using state law.

What remains to be seen is whether any other specific provisions of California’s labor code could possibly fill a “gap” where there is no corresponding federal regulation. For example, in this case, the Supreme Court did not specifically address whether its reasoning also applies to Newton’s claims for inaccurate wage statements under the California Labor Code. While the district court had held that Newton’s claimed violations of California’s meal period, final pay, and pay check stub laws were all defeated by the FLSA’s comprehensive regulatory scheme, the Supreme Court expressed no opinion on these issues and returned those issues to the lower courts.

Key Takeaways

The Supreme Court’s ruling appears limited on its face, as it only expressly holds that there is no gap to be filled under federal law with respect to claims for minimum wage and unpaid standby time for purposes of the OCSLA. However, for companies that operate and service drilling platforms and are all too familiar with the significant time and costs associated with defending against a California wage and hour class action, the ruling is significant. Employees working on oil rigs in federal waters off the coast of California cannot bring class action lawsuits under California’s wage and hour law, so long as the FLSA or other federal law addresses the relevant issue. However, energy employers operating in federal waters on the OCS will still face all of the FLSA risks inherent in employees being stationed 24/7 on platforms.

Note that California wage and hour law remains relevant to offshore employers operating off the California coast. First, California law will apply in California’s territorial waters. Further, future plaintiffs may argue that certain labor code provisions unique to California (e.g., wage statement claims and “waiting time” penalties) are still applicable given that there is no direct counterpart within the federal regulations.