AMERICAN ARBITRATION ASSOCIATION Employment Arbitration Tribunal _____________________________________________________________________________ In the Matter of the Arbitration between Re: AAA No. 01 - 1 9 - 0003 - 2265 GORDON LUNSTED, Claima nt, - and - ONSHORE QUALITY CONTROL , SPECIALISTS, LLC., Respondent. INTERIM AWARD OF ARBITRATOR I, THE UNDERSIGNED ARBITRATOR, having been duly designated in accordance with the parties’ Mutual Arbitration Agreement entered into by the above - named parties, and having been duly sworn, and having duly heard the proofs and allegations of the Parties in a hearing on September 1 - 2, 2021 , and Gordon Lunsted being represented by Michael Josephson and Carl Fitz of Josephson Dunlap, LLP and Richard Burch of Bruckner Burch PLLC; and Onshore Quality Control Specialists being represented by Amy Beckstead and Jana Terry of Beckstead Terry PLLC , do hereby, provide this INTERIM AWARD, as follows: The plain language of the regulations and recent caselaw is decisive of this appeal to arbitration. Claimant, Gordon Lunsted was improperly classified as an exempt employee in his role as a welding inspector with Respondent, Onshore Quality Control Spec ialists, LLC . He is awarded his unpaid overtime wages in the amount of $31,988.44 and liquidated damages in the amount of $31,988.44 , plus attorney’s fees and costs as he shows himself entitled. BACKGROUND Respondent, Onshore Quality Control Specialists (“Respondent” or “ Onshore ”) is a Quality Control Sta ffing Agency for Oil & Gas Pipeline Construction. Claimant, Gordon Lunsted (“Claimant” or “Lunsted” ) worked as a welding inspector for Onshore from February18, 2 2019 until September 22, 2019. He was hi red as a result of two separate work orders on two projects that were incorporated in to a Master Service Agreement between Onshore and ONEOK, a midstream oil and gas company based out of Oklahoma. The work orders required welding inspection services on two right - of - ways – one in North Dakota (the Demicks Lake Pipeline Project) and the other in Kansas (the Elk Creek Project) Onshore paid Claimant a minimum day rate of $625/day and $650/day plus mileage, respectively, for work in Kansas and North Dakota , pursuant to the ONEOK contract. 1 For the Kansas Project, the weekly gross Guaranteed Pay Package totaled $3,941 (i.e., ($625 x 6) + $191 (per diem) = $3,941). For the North Dakota Project, the weekly gross Guaranteed Pay Package totaled $4,095 (i.e., ( $650 “day rate” x 6) + $195 (per diem)= $4,095). Since the 1980s , Onshore ’s practice has been to convert the day rate package negotiated with its clients , like ONEOK, into a weekly “ salary ”. Lunsted asks the Arbitrator to determine whether Claimant was misclassified as an exempt employee under the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. 201, et seq . (“FLSA” or “the Act”); and if so, whether Claimant i s entitled to overtime wage s while employed with Onshore. Onshore frames the issue s to be decided as follows: (1) Did On s hore rely in good faith on and in conformity with a written ruling, approval, or interpretation of the Department of Labor, under a “fair reading” of the Sectio n 259 defense? (2) Has On s hore proven that Lunsted was appropriately classified as an exempt administrative, combination, and/or highly - compensated employee under a “fair reading” of those exemptions? (3) Did On s hore classify Lunsted as exempt in good fa ith with reasonable grounds for believing that it was not violating the FLSA such that Lunsted is not entitled to liquidated damages under 29 U.S.C. § 260? (4) Did Lunsted prove the damages he has requested? 1 For ex ample, Onshore would pay Lunsted $625 for work on the Kansas project (including a per diem) and invoice ONEOK for $724 3 CLAIMANT POSITION Claimant argues he was misclassified, and that Respondent did not meet its burden on the record to show that he was exempt from overtime wages under either the FLSA’s Administrative or Highly Compensated Employee (HCE) exemption s Claim ant argues that Onshore’s compensation , bas ed upon a day rate, did not comply with the salary basis test and that Onshore lacked a good faith basis for its reliance on an over 30 - year - old court opinion Finally, Lunsted claims Onshore’s violation of the FLSA was willful , warranting liquidated damages under a three - year statute of limitations under the FLSA. Claimant seeks an award finding that: 1. Claimant was required to regularly work in excess of 40 hours per week due to the nature of the work to inspect pipelines under construction. 2. Claimant was not exempt from overtime wages under the FLSA because he was paid a day rate and not a salary , failing the salary basis test ; 3. Claimant is entitled to overtime wages and liquidated damages under the FLSA; 4. Onshore ’s misclassification of Claimant was a willful violat ion of the FLSA, and as such, entitles Claimant to unpaid overtime and liquidated damages under the FLSA ; and 5. Claimant is entitled to attorneys’ fees and costs. RESPONDENT POSITION Onshore has classified its welding inspectors as exempt since the 1970s. Respondent maintains th e issue regarding the classifi cation of Onshore inspectors as exempt was resolved in its favor in the 1 980s Onshore contends that the job duties and compensa tion structure of its inspectors and the law have not changed since the 1980s - t hat the duties performed, and the compensation paid to Lunsted meet the requirements of the Administrative Exemption and/or the H ighly C ompensated E mployee exemption and that Lunsted is not entitled to overtime compensation under the FLSA Onshore argues that Lunsted was paid in accordance with the written guidance provided to Onshore in 1981 and 1987, included he Findings of Fact in the Brock v Onshore case that Onshore inspectors were paid “ salaries ” in excess of $455 per week ; therefore, Onshore meets the salary basis exemption Respondent further contends that any 4 award for Claimant should not include liquidated damages because Respondent acted in good faith a nd its conduct was not a willful violation warranting liquidated damages Onshore argues it’s good faith reliance on the 1987 decision in Brock v On Shore Quality Control Specialists, Inc., Civil No. A - 84 - CA - 603, 1987 WL 331308 is a “complete defense” and bar to this action. On shore also seeks its attorneys ’ fees pursuant to the parties’ arbitration agreement should Onshore be the prevailing party. FINDINGS OF FACT AND CONCLUSIONS OF LAW The Arbitrator makes the following findings of fact: 1. As the company’s primary revenue generator, Onshore ’s core business is the provision of inspection services to oil and gas companies. Inspectors review the work of the construction crew throughout all aspects of pipeline construction to ensure pipelines are constructed safely and correctly 2. As Onshore’s employee, Claimant’s primary duty was as a welding inspector 3. It is not disputed that Claimant worked over 8 hours per day 6 or 7 days per week 4. At the time of Claimant’s employment, the required rate of pay was not less than $455 per week. It is not disputed that Claimant was paid at a rate at or above $455 per week. Specifically, he was paid a day rate without overtime pay on the two projects he worked in Kansas and North Dakota. 5. Well before Lunsted was hired, t he Department of Labor ( “ DOL ” or “The Department” ) conducted investigation s into Onshore’s compensation practices in 1981 and 1983. 6. After a limited “investigation” , t he 1981 DOL audit purportedly found that Onshore employees were exempt under 29 U.S.C. § 213(a)(1). 2 After a second DOL audit found that Onshore inspectors were not exempt because they did not exercise independent judgment and discretion “ regularly and customarily , ” the DOL sued Onshore asserting that Onshore did not meet the administrative exemption and owed its [welding] inspectors overtime wages. 2 The testimony of Onshore’s former President, Eddie Hooks, Sr., as reflected in the court’s opinion, is the only evidence on this record that the DOL found Onshore ’s welding inspectors were exempt 5 7. During the litigation, the matter was appealed to the 5 th Circuit on a discovery dispute The DOL prevailed in the discovery suit and the 5 th Circuit remanded the c ase back to the District Court for final disposition on the overtime issue The 5 th Circuit also not ed parenthetically that because the compliance officer in 1981 only interviewed one inspector by telephone and reviewed wage records for an hour , a second inspection was reasonable [ to make a better determin ation of whether Onshore complied with the Act ] Brock v. On Shore Quality Control Specialists , 811 F.2d 282 (5 th Cir. 1987) 8. T he trial court judge made the following findings in its Memorandum Opinion dated September 29, 1987, and in its Final Order dated November 2 0 , 1987 3 : a. t hat the only issue before him was whether the performance of the inspectors’ primary duty “ included ” work requiring the exercise of discretion and independent judgment b. t hat the primary duty of [welding] inspectors consisted of the performance of non - manual work directly related to management policies or general business operations of Onshore or of its c ustomers; c. t hat § 541.2(e)(2) clearly states that the work must merely include the exercise of discretion and independent judgment. Cobb v. Finest Foods, Inc., 582 F.Supp. 818, 823 (E.D.La.1984) aff’d, 755 F.2d 1148 (5th Cir.1985) [Emphasis added.]; 4 d. t hat Onshore’s inspectors fall within the proviso of § 541.2(e)(2) because they are employed in bona fide administrative capacities and are exempt from the overtime provisions of the FLSA. e. t hat [welding inspectors] are deemed to meet all the requirements in § 541.2(a) through (e). f. that welding inspectors like Lunsted do not do manual labor and their work is directly related to the general business operations of Onshore; 3 Like the Court’s Memorandum Opinion, the Court’s Order was admitted at the hearing over Claimant’s objection as a business record; however, Claimant’s objections based upon hearsay and witnesses’ lack of personal knowledge are appropriate and sustained. The Opinion finds the inspectors were p aid a salary ; yet does not discuss how that finding was reached. The language of the Opinion suggests the Court found that inspectors were paid salaries because their compensation exceeded $250 per week and Onshore testified it paid a salary. 4 As an aside, a review of both the District Cour t and 5 th Circuit opinions indicates neither decision discussed § 541.2(e)(2) nor any distinctions concerning “ merely including the exercise of discretion and independent judgment ” 6 g. that the DOL’s 1981 audit and investigation of Onshore, consisted of three visits, one employee interviewed by telephone and a review of Onshore’s wage records for approximately one hour and that the compliance officer f ound Onshore’s welding inspectors met the administrative exemption; 5 h. that, according to Hooks ’ testimony , the compliance officer advised Hooks that “so long as either (sic) the law nor Onshore’s operations changed, Onshore’s compensation policies ‘were fine’.” i. that a second DOL compliance officer visited Onshore in 1983 to investigate alleged violations of the overtime provision of the Act and that the second compliance officer reached the opposite conclusion After reviewing Onshore’s records, the second compliance officer did not think Onshore w as in compliance with the Act . He found that although inspectors’ work included the exercise of discretion and independent judgment, such discretion and judgment was not regularly and customarily exercised ; and j. that the second investigator requested the case be reviewed by the Department’s legal dep artment on at least three occasions 9. In assessing attorneys’ fees against the Department, the Brock C ourt made the following additional f indings in its November 20, 1987 Order : a. that the second compliance officer had submitted the case to the legal divisio n on two occasions where the case was “rejected” by the DOL’s legal department but accepted after the third submission. The Order notes that there is no record evidence of the basis for the change in decision ; 6 5 Despite the Brock opin i on discrediting the first DOL audit process , t he Broc k opinion ultimately accepted as true Hooks ’ testimony that the compliance officer told Hooks [ Onshore ] had no obligation to pay overtime and that the inspectors were exempt employees 6 Nevertheless, the Court found that the DOL Legal Department had “serious doubts about prosecuting the case” and that “ the case was legally questionable ” ; however, this record evidence is devoid of the basis of such a finding No one testified with any personal knowledge about the bas is for the DOL Legal Department’s actions That is, there is no record evidence that demonstrates the Department’s rationale for not prosecuting the case when first requested or that it believed its case was legally questionable. From this record, it is an unsupported conclusion and hearsay There certainly is no evidence in this record that demonstrates that the Department had “knowledge that the case was legally questionable” given they are the administrators of the Act and engage d in three years of li tigation 7 b. that the DOL conceded that the primary duty of all the inspectors consisted of non - manual work directly related to management policies or general business operations of Onshore’s or its customers. 7 ; c. that there was no support in the caselaw for the position that inspectors must regularly and custom arily exercise discretion and independent judgment; and d. that the DOL investigations were lacking and failed to properly evaluate the job duties of the inspectors. 10. Other than the hearsay evidence admitted at the trial, t here is no record evidence that su bstantiates the claim that the DOL compliance officers made the statements and concessions attributed to them There is no written correspondence, formal or otherwise, from the DOL (the Administrator nor any designee) that corroborates the claim that a DO L auditor essentially said to “keep doing what you’re doing.” 11. The Brock court summarized the testimony of the witnesses, including the DOL compliance officers; yet makes no finding that the compliance officers were specifically asked about their “ find ings” or that either investigator corroborate d or denie d the ir purported statements The self - serving testimony from Hooks about what the compliance officers said was hearsay Despite b eing hearsay, I find the Court presumably accepted those statements a s true 8 12. Onshore prevailed at trial and the Department appealed the Order of the District Court but voluntarily dismissed the appeal pursuant to Rule 42(b) of the Federal Rules of Appellate Procedure 9 shortly thereafter under the leadership of a new Secretary of Labor. The record evidence is devoid of any basis for the dismissal or of the terms of the dismissal. 13. After the dismissal of its appeal , there is no record evidence that the DOL took any further action or investigated Onshore for FLSA violati ons. 7 The DOL did not dispute what tasks welding inspectors performed; but argued then that welding inspectors closely followed contract specifications to ensure that the pipeline was constructed according to those independent judgment, within the meaning of 29 CFR § 541.2. Like in 1987, the record reflects that the Department conceded that the primary duty of the relevant inspectors consisted of non - manual work . . .; however, it did not necessarily concede the administrative exemption because it believed that the inspectors had to exercise independent judgment and discretion regularly and customarily 8 Although Onshore had the opportunity to present Hooks in this hearing as a witness and/or the relevant auditor, it did not. Because Hooks declined to appear despite being served a subpoena and being the only person available who was present and testified in the Brock matter, it is appropriate to make an adverse inference from his failure to appear to explain or justify his claimed bel ief that Onshore complied with the FLSA. 9 Pursuant to Rule 42(b), a docketed appeal may be dismissed on terms agreed to by the parties or fixed by the court. 8 14. Opinion Letter FLSA 2018 - 25, issued on November 8, 2018 , established the maximum 1:5 ratio between the minimum weekly guarantee and Lunsted’s actual earnings. 15. The Brock opinion only address es the administrative exemption. 16. Onshore did not waive its h ighly compensated employee exemption defense. 17. Current caselaw only requires a “fair reading” of any exemption , not the previously required “plainly and unmistak ably ” standard of review. 18. The salary basis test must be met when analyzing whether the administrative or highly compensated employee exemptions have been met. 19. Lunsted is entitled to liquidated damages under Section s 259 and 260 equal to his unpaid wages f or Onshore’s violation of the FLSA and for a period of three years DISCUSSION AND ANA LYSIS The ultimate issue in this matter is whether Claimant is owed overtime wages pursuant to the FLSA. If Onshore does not meet its burden to demonstrate that Claimant was properly classified as an exempt employee, the issue then becomes what, if any, damages have Claimant demonstrated on the record. Claimant contends that Onshore failed to maintain accura te records; therefore, it bears the burden of negating the reasonable inference that Claimant worked 10 - 14 hours per day on average for 6 - 7 days out of any week. If Onshore is unable to negate the negative inference, Claimant contends he is owed overtime wages and liquidated damages under the FLSA. T he DOL investigated Onshore’s compensation practices for welding inspectors in 1981 and 1983 The Department took the position that Onshore was not in compliance and filed suit in federal court against Onshor e contending that Onshore owed overtime to its inspectors paid on a day rate. 10 Onshore has maintained that it pays inspectors with a salary which is based upon the negotiated day rate with its customer, ONEOK. In its post - hearing brief, Onshore states th at the DOL “ never retracted its original ‘ rulin g ’ that Onshore satisfied the administrative exemption (including the salary basis test) ” , 11 arguing the DOL is bound to the findings in the 1987 Brock Memorandum Opinion Onshore contends it had no reason to revisit how it was paying its inspectors based upon the Brock opinion. 10 The regulations define a “day rate” as a “flat sum for a day’s work . . . without regard to the number of hours worked in the day” 29. C.F.R. § 778.112 [An employee] is then entitled to extra half - time pay at this rate for all hours worked in excess of 40 in the workweek. Id 11 This raises the issue s of whether Onshore ever received a “ruling , ” written or otherwise; whether such a retraction was required ; and whether the DOL ever made a ruling regarding the salary basis test as it asserts. 9 Onshore argues that its welding inspectors meet the administrative exemption pursuant to and consistent with the Brock opinion Presuming the facts are the same , i t argues the Arbitrator need not engage in detailed analysis of Lunsted’s compensation and job duties and should reach the same decision as in Brock However, the record evidence is clear that the facts in the instant case are not identical to the fact s supporting the findings in Brock 12 Regarding Onshore’s reliance on the “ Brock documents”, I disagree that the findings of the Brock court were the conclusions, rulings, approvals, or interpretations of the DOL Most of the findings and conclusions by the Court were indeed the Court’s interpretation of the evidence before it, not necessarily evidence of findings and admissions of the DOL as Onshore contends. The Brock opinion does not, in my estimation, clearl y and unassailably reflect the DOL’s rulings, approvals, and interpretations at that time because this record is largely silent concerning the DOL’s position. No one from the Department was called to testify nor was any documentary evidence produced that d emonstrates or substantiates Onshore’s assertions of the DOL’s positions. Although the Brock opinion refers to two DOL memoranda indicating that the DOL’s lawyers had twice declined before proceeding to file suit against Onshore, those memoranda are not i n this record nor did anyone attempt to present any evidence of the substance of the memoranda stating the reason(s) for the previous declinations, especially since the Department ultimately filed suit. It is very difficult to rely in confidence on the fi ndings in the Brock opinion, particularly when the application of the admi ni strative exemption, salary basis test and reasonable relationship test are so relevant in this matter Sole l y r elying on the Brock documents is simply inappropriate. I f Onshore’s intent was on following the FLSA and not the Brock opinion, Onshore would have tweaked its practices to comply with the reasonable relationship test as discussed below . It did not. Conversion from Day Rate to Salary The Guarantee Onshore conflates its right to have employees work a set schedule of six days per week with the realities of guaranteed pay or a “salary”, if the employee works six days per week. As the record evidence makes clear, if the employee does not “work” six days per week, he is not paid the minimum 12 For example, unlike the findings in the Brock opinion, Lunsted did not review X - rays of welds; he reported to an Onshore general manager; he had no authority to release welders from employment; nor did he deviate from industry or Onshore specifications at his discretion as the Brock opinion presumed 10 guarantee. The record evidence is clear that when occasioned by Onshore or if an employee is sick, Onshore pa ys employees as though they worked when an employee did not “work ” 13 however, they were not paid in instances when the employee took vacation or personal time off for the day. This suggests that an employee’s compensation is anything but guaranteed if they “work” (or are available) less than six days per week. Further, the process is s ufficiently subjective such that an employee has no assurance that he will receive his “guaranteed pay package” under any scenario other than by working six days per week or being “available” to work The “guarantee” is premised on what the employee does or does not do. Turning to Lunsted, although he did not absent himself from work during his entire tenure with Onshore, he is perhaps the best example of how Onshore’s pay practices are designed to work in a perfect scenario. Lunsted never called in sick . There was never a time he did not show up for work or was unavailable . Yet, in the few instances where Lunsted worked less than six days per week, the record evidence demonstrates that he did not receive the “guaranteed” pa y. This scheme fails to meet the salary basis test as discussed below Administrative Exemption Onshore claims Lunsted is exempt under the administrative and highly compensated exemptions. Both the administrative exemption and the HCE require that the employer pays its employee on a salary basis of at least $ [455] per week. 14 29 C.F.R. § 541.200(a). [Emphasis added]. The administrative exemption requires the employee is paid on a salary or fee basis pursuant to § 541.600 ; that the primary duty of the employee must be the performance of office or non - manual work directly related to the management or general business operations of the employer or employers’ customers in accordance with 29 C.F.R. § 541.201(a) ; and that the primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. Id Lunsted’s compensation is clearly sufficient. The second and third criteria, though, require a factfinder to analyze the facts to determine Lunsted 's primary duty, how the work directly relates to certain parts of the Onshore 's business, and whether the duty involves some discretion and independence. The determination of the employee’s primary duty is based upon “all the facts in a particular case, w ith an emphasis on the character of the employee’s job as a whole.” 29 C.F.R. § 541.700(a). 13 At hearing the corporate representative, Hinkle, testified that Onshore usually pays the worker for the day if the inspector does not work due to illness. He further testified that it is decided on a case - by - case basis. Hawkins corroborated the practice of marking employees as “worked”, even if they had been out ill. 14 The current rate is $648. 11 To qualify for exemption under this part, an employee's “primary duty” must be the performance of exempt work. Factors to consider include: (1) the importance of t he employee’s primary duty compared with other duties; (2) the amount of time the employee spends on the primary duty; (3) the employee’s freedom from direct supervision; and (4) the relationship between the employee’s salary and the wages paid to other em ployees for the other duties performed by the employee. 29 C.F.R. § 541.700. Notably, while the corporate representative distinguished his role as a financial analyst from Lunsted’s role as a welding inspector, stating distinguished his position from Luns ted, emphasizing his position was “administrative.” Work directly related to management or general business operations includes, but is not limited to, work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality contr ol ; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations, government relations; computer network, internet and database administration; leg al and regulatory compliance; and similar activities. . . . [Emphasis added.] §541.201(b). An employee may qualify for the administrative exemption if the employee's primary duty is the performance of work directly related to the management or general busi ness operations of the employer's customers. Thus, for example, employees acting as advisers or consultants to their employer's clients or customers (as tax experts or financial consultants, for example) may be exempt. §541.201(c). Discretion and Independ ent Judgment with respect to matters of significance : To qualify for the administrative exemption, an employee's primary duty must include the exercise of discretion and independent judgment with respect to matters of significance. The phrase “discretion and independent judgment” must be applied in the light of all the facts involved in the particular employment situation in which the question arises. 29 C.F.R. § 541.202 (a). In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. 29 C.F.R. § 541.202(c). It “imp lies that the employee has authority to make an independent choice, free from immediate direction or supervision.” Id . 541.202(b). Employees exercise little or no discretion or independent judgment when, for example, they perform duties using the company’ s checklist, apply standards from company manuals, and issue recommendation, without 12 the discretionary ability to resolve disputes. See Zannikos v. Oil Inspections (U.S.A.), Inc. , 605 Fed.Appx. 349, 352 n.l (5 th Cir. 2015). Employees who are merely emplo ying “techniques and skills acquired by special training or experience” are not exercising discretion and independent judgment even if they “have some leeway in the performance of their work. . . within closely prescribed limits.” Clark v Centene Co. of Te x., L.P. , No. 15 - 50606, 2016 WL 3974099, at *3 (5 th Cir. Jul. 22., 2016). The term “matters of significance” refers to the level of importance or consequence of the work performed. 29 C.F.R. § 541.202 (a). The exercise of discretion and independent judgme nt must be more than the use of skill in applying well - established techniques, procedures or specific standards described in manuals or other sources. See also § 541.704 regarding use of manuals. In its post - hearing brief, Onshore recognizes that discreti on and independent judgment require more than “applying well - established techniques, procedures, or specific standards described in manuals or other sources... [or] recording or tabulating data, . . .” Although the Brock opinion found that inspectors did work pursuant to specifications set by the contract, the record evidence does not show that the inspectors’ discretion and judgment included the ability to deviate from contract specifications or that inspectors (Lunsted s pecifically) did so, regularly or otherwise. Kelly Hawkins , Lunsted’s supervisor/Chief Inspector, testified that he could not recall Lunsted ever asking to deviate from any of the standards or practices that Onshore maintained or that Lunsted ever deviate d from practices and procedures. Hawkins also had to admit that the inspection of welds and the acceptability of them are solely dependent on the compliance with API 1104. The evidence is clear that Lunsted strictly applied the specification set by the contract and API 1104. Further the uncontroverted evidence was that the “Onshore way” included specifications and standards more stringent than the API 1104 such that it would not be necessary for Lunsted to deviate from Onshore specifications. 15 Even if the evidence is undisputed about the inspectors’ activities, a fact - finder might also need to decide if what the inspector does is the equivalent of “perform[ing] specialized work along standardized lines involving well - established technique s and procedures as contemplated under § 541.203(g). 16 There certainly was no evidence that Lunsted ever exercised lesser standards or deviated from any contract standards in controversion of the contract. I 15 The API - 1104 is the American Petroleum Institute Standard regarding the Welding of Pipelines and Related Facilities 16 Ordinary inspection work generally does n ot meet the duties requirements for the administrative exemption. 29 C.F.R. 541 § 203(g). "Such inspectors rely on techniques and skills acquired by special training or experience. They have some leeway in the performance of their work but only within clo sely prescribed limits." Id 13 find Lunsted exercised skill rather than discre tion and independent judgment within the meaning of the regulations in Subpart A . . .. Unlike in Brock, I do not find that Lunsted deviated from contract specifications nor were his decisions “significant” because virtually anyone had the ability and obl igation to shut down a job for safety purposes and to apply the standards. The federal regulations further provide certain factors to consider in determining whether an employee meets this prong of the exemption, such as: whether the employee has authorit y to formulate, affect, interpret, or implement management policies or operating practices; whether the employee performs work that affects business operations to a substantial degree; whether the employee has authority to commit the employer in matters th at have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval; or whether the employee is involved in planning long - or short - term business objectives. 29 C.F.R. § 541.202(b). Lunsted argues that Onshore fails to meet any of the above criteria under §541.202(a) and (b). He argues that he did not have the authority to implement any management practices for Onshore. He did not have the authority to formulate, effe ct, interpret, or implement any management policies at Onshore nor did he manage any of Onshore’s employees or the employees of Onshore’s customers. Claimant also did not make decisions for Onshore’s clients or for Onshore. He did not plan any business obj ectives for Onshore, and he did not carry out any major assignments in conducting the business operations of Onshore or its customers, nor did he have the authority to negotiate or bind Onshore in any business deals or significant financial matters. Indeed , Claimant never interacted with Onshore’s or its customers’ executives. Under the totality of the circumstances, Onshore’s argument that Claimant’s duties involved discretion and independent judgment is not compelling. The decisions Lunsted made were based on Onshore’s established procedures and sufficiently constrained by Onshore’s standards and processes as to lim it any true discretion and independent judgment. Further, there is nothing “discretionary” about the ability to apply skills and experience. Lunsted either had the skills to provide quality control and assurance or he did not. Claimant’s determination o f whether to pass a weld or whether work could safely proceed in inclement weather is not the exercise of independent judgment contemplated by the Act from this Arbitrator’s perspective. To the extent th at Lunsted c ould shut down work under poor weather o r other safety concerns, the record evidence demonstrates that any worker on the 14 pipeline has authority to make such calls as a matter of safety. I do not find this authority to be conse quential in this inquiry. Under the regulations, an employee is only considered paid on a “salary basis” if: [T]he employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variation in the quality or quantity of the work performed. Subject to the exceptions provided in paragraph (b) of this section, an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the n umber of days or hours worked. Exempt employees need not be paid for any workweek in which they perform no work . 29 C.F.R. § 541.602(a) (emphasis added) A day rate can only pass the salary basis test when it meets the special requirements in 29 C.F.R. § 5 41.604(b). See Hewitt , 15 F.4th at 294. This regulation “explicitly states that an employee whose pay is ‘computed on a daily basis’ must meet certain criteria to satisfy the salary - basis test: An exempt employee’s earnings may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount earned Id. ; § 541.604(b) [Emphases added]. So, a daily - rate worker can be exempt from overtime — but only ‘if’ two conditions are met: the minimum week ly guarantee condition and the reasonable relationship condition.” Id. Onshore’s arguments about what it can do, i.e., requiring employees be available for designated working days, have an at - will policy, pay extra compensation for work beyond the normal workweek, is inconsequential. Further, Onshore’s arguments are largely circular. That is, it argues it paid a “salary’ because it is paid on a “salary basis” or because the day rate was converted to a salary. Onshore cannot say it and make it so. The F LSA spells out what Onshore must demonstrate and Onshore has failed to meet its burden. Onshore converts the “day rate” package specified in its clients’ contracts into a salary plus expense reimbursement. Onshore argues in this proceeding that the DOL ap proved of the compensation structure and that Claimant does not dispute that the Department approved it. Although it could be inferred that the Department “approved” of the compensation structure, there is no evidence that the nuances of the day rate pack age was raised or discussed in t he first audit or in the Brock opinion Therefore, it is not clear what, if anything, the DOL analyzed or conceded regarding Onshore’s compensation structure. Applying a fair reading to the regulations, to the extent that Onshore relies 15 on the industry standard to use the day rate “for all of its budgeting and finance purposes” in the contracts it makes, Lunsted’s compensation was predetermined and guaranteed only if he worked (or was available) 6 days p er week . He is clearly paid with regard (not without regard) to days worked, in direct controversion of the overtime regulations. Generally, a salary may be based on the number of days worked consistent with the salary basis test in certain situations. T he issue is not whether the employees may work a set schedule. The question first becomes whether the employees’ compensation is dependent on the number of days work. Therefore, this Award considers the Brock opinion in its proper context in concert with the evidence presented to this Arbitrator. I find that Onshore perpetuates a legal fiction that there was a guaranteed pay package when its records are manipulated to create a purported salary Salary B asis Test Onshore makes the argument that the DOL determined in the 1980s that Onshore’s compensation method satisfied the salary basis test ; however, the salary basis test did not come into existence until 2004. Therefore, the DOL could not have made such a determination nor did the court in Brock Additionally, given the recent Fifth Circuit decision in Hewitt v Helix Energy Solutions Group, Inc. , 15 F. 4 th 289 (2021), an evaluation would be necessary to determine if Onshore’s compensation structure comports with the salary basis test, as it applie s to any of the exemptions claimed by Onshore. There is insufficient evidence in this record , as Onshore insists, to rely on the Brock opinion with any degree of comfort that it was properly and completely decided. Onshore asserts that 1) the DOL conceded at trial that Onshore’s inspectors were paid on a salary basis, 2) the inspectors’ primary duty was non - manual work directly related to the management policies or general business operations of Onshore or its custom ers, and 3) the inspectors primary duty included the exercise of discretion and independent judgment. However, finding that its only issue was to deci d e whether “inspectors” exercised discretion and independent judgment, the Brock o pinion dismissed the DOL ’s argument that the ex ercise of discretion and independent judgment needed to be exercised regularly and customarily At the instant hearing, not only disputed that Onshore’s welding inspectors were paid on a salary basis, but al so that his primary duty was directly related to management policies or general business operations of Onshore and/or its customers. Lunsted testified he spent greater than 50% of his time perform ing non - exempt work which could not 16 be rebutted by Onshore 17 The amount of time spen t performing exempt work can be a useful guide in determining whether exempt work is the primary duty of an employee. 29 C.F.R. 54 1. 7 00 Time alone, however, is not the sole test, and nothing in this section requires that exempt employees spend more than 5 0 percent of their time performing exempt work. Id Highly Compensated Employee Exemption Congress has authorized the Secretary to promulgate regulations exempting “bona fide executive, administrative, [and] professional” employees from overtime. 29 U.S.C. 213(a)(1). Under that authority, the Secretary has exempted “highly compensated” (29 C.F.R. 541.601) as well as more modestly paid “executive,” “administrative,” and “professional” employees ( Id . 541.100, 541.200, 541.300). Opinion Letter