On June 10, 2019, the United States Supreme Court unanimously held that state law does not apply to the Outer Continental Shelf (OCS) in situations when federal law addresses the relevant issue at hand.

In Parker Drilling Management Services, Ltd. v. Newton, the Supreme Court declined to extend California’s wage and hour laws to employees working on offshore drilling platforms subject to the Outer Continental Shelf Lands Act.

The OCSLA extends federal law to the subsoil and seabed of the outer continental shelf and to all structures permanently or temporarily attached to the seabed for the purpose of developing, producing or exploring for oil. 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.

Here, the US Supreme Court ruled that because the federal Fair Labor Standards Act (FLSA) addressed the relevant issues, the adjacent state law was inapplicable.

Working On a Drilling Platform Off the Coast of California

A former employee filed a putative class action under California’s wage and hour laws claiming that he and others similarly situated were owed additional compensation related to standby time on the company’s offshore drilling platform off the coast of California.

The employee claimed his 14-day shifts involved 12 hours per day on duty, followed by 12 hours per day on standby. During his 12 hours on standby, he could sleep and rest but not otherwise leave the platform. He was not paid for his standby time. The lawsuit alleged that under California’s laws, despite being paid above minimum wage for their time on duty, the company was required to compensate workers for periods of “controlled standby” time. Because the drilling platform was on the outer continental shelf, the claims were subject to the OSCLA and the case was removed to federal district court.

The district court ruled in Parker Drilling’s favor, applying Fifth Circuit precedent providing that under the OCSLA, “state law only applies to the extent it is necessary ‘to fill a significant void or gap’ in federal law.” On appeal, the Ninth Circuit vacated and remanded the judgment, holding that state law is “applicable” whenever it “pertains to the subject matter at hand.” And, 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 workers on the OCS.

On the other hand, Parker Drilling argued that state law is not “applicable” on the OCS in the absence of a gap in federal law that needs to be filled. The US Supreme Court agreed.

The US Supreme Court: State Law Only Applies on the OSC When there is a Gap in Federal Law

The Supreme Court rejected the Ninth Circuit’s holding, instead ruling that the OCSLA’s text and context suggest that when federal law addresses the issue at hand, state law is not adopted on the OCS in place of federal law. In reaching its decision, the Supreme Court sided with the Fifth Circuit, who previously held in Continental Oil Co. v. London Steam-Ship Owner’s Mut. Ins. Assn. that “state law only applies to the extent it is necessary ‘to fill a significant void or gap’ in federal law.” In sum, according to the Court, “to the extent federal law applies to a particular issue, state law is inapplicable.”

Further bolstering the Court’s opinion, it noted that Congress’ later amendment to the OCSLA to adopt state law on an ongoing basis also supported the connection between the OCSLA and the federal enclave model — that the OCS be treated as an exclusive federal enclave and not as an extension of a state.

Under the Court’s standard, the employee’s state law claims immediately failed since federal law already addresses the wage and hour issues at hand, and thus, there was no gap to fill. Substantively, the claims failed because, unlike California law on standby time, federal law (see 29 CFR Section 785.23) provides:

An employee who resides on his employer’s premises on a permanent basis or for extended periods of time is not considered as working all the time he is on the premises.

Takeaways

This case is a win for companies operating or servicing oil rigs in federal waters off the coast of California. On its face, the Parker Drilling decision provides clarity for companies operating on the OCS that state wage and hour laws do not apply to OCS workers. Instead, such companies need only be concerned with FLSA compliance (so long as FLSA addresses the relevant issue).

It is important to note that the Court’s decision may apply to other laws beyond just wage and hour law. Regardless of the area of law, Parker Drilling supports the argument that so long as there is a federal law relevant to a particular issue on the OCS, state law on the same issue will not apply.

For questions concerning the applicability of state law to your operations, contact your Baker McKenzie lawyer.