Federal appeals court finds overtime pay exemption for interstate truckers applies to intrastate oilfield drivers

Tyson Fisher

A federal appellate court has found that although Texas oil tanker drivers never leave the Lone Star state, they are still involved in interstate commerce and therefore exempt from overtime pay.

Earlier this year, the Fifth Circuit Court of Appeals reversed a district court’s decision denying oil transporter Ace Gathering’s motion to dismiss a class-action wage lawsuit filed by tanker drivers. The case centers on interpretations of “interstate commerce” within the federal overtime pay exemption for motor carriers.

Most of the facts of the case are straightforward and undisputed. Tanker drivers for Ace Gathering load up crude oil from an oil field in Texas and transport that oil to a pipeline also located in Texas. For the truck drivers, their entire operations take place solely in Texas, making their journeys intrastate only.

Despite these intrastate-only trips, Ace Gathering did not offer drivers overtime pay, citing the Fair Labor Standards Act motor carrier exemption. That exemption applies when the driver is:

1. Employed by a carrier subject to the U.S. Department of Transportation’s jurisdiction
2. Engaged in activities directly affecting the safety of operation of motor vehicles in the transportation on public highways of property in interstate or foreign commerce

Neither party disputes the first requirement, and both parties agree on the “safety-affecting activities” portion of the second requirement. The disagreement is on whether the drivers engage in interstate commerce, exempting them from overtime pay.

According to the Department of Labor, truck drivers are exempt from overtime pay when they are involved in interstate commerce or “connect with an intrastate terminal (rail, air, water or land) to continue an interstate journey of goods that have not come to rest at a final destination.”

Ace Gathering argued that the oil being transported continues beyond Texas state lines after a trucker delivers it to the pipeline.

Once a trucker drops off oil at a Texas pipeline, that oil goes to either an out-of-state refinery or to export markets for shipment outside the U.S. Although the trucking portion of the oil cargo is intrastate, it is only one leg of a longer journey outside of Texas. Therefore, tanker drivers are engaged in interstate commerce and exempt from overtime pay.

However, Judge Lee Rosenthal of the of the Southern District of Texas federal court found that Ace Gathering had no vested interest in oil once it crossed state lines via pipeline. The company’s customers – oilfield and pipeline operators – were all based in Texas. What happens to the oil after it leaves the trucks, Rosenthal argued, is of no interest to Ace Gathering.

But on appeal, the Fifth Circuit rejected that argument. Simply put, court precedent has established that a trucker is engaged in interstate commerce when transporting goods “ultimately bound for destinations beyond Texas, even though the route of the particular carrier is wholly within one state.”

“So while the crude haulers’ transportation of the crude oil is indeed entirely intrastate, their transportation is but one segment of the crude oil’s larger interstate journey and, by all indications, part of the crude oil’s ‘practical continuity of movement’ out of the state,” the appellate panel ruled. “Thus, under controlling precedent, we tread no new ground in holding that purely intrastate transportation rises to the level of interstate commerce when the product is ultimately bound for out-of-state destinations, just as the crude oil was here.”

Confusion surrounding overtime pay exemption

In a concurring statement, Judge Andrew Oldham highlighted the confusing nature of the overtime pay exemption.

Oldham focused on a 1971 Department of Labor interpretive rule exempting certain employees from overtime pay. That rule refers to language in the Motor Carrier Act of 1935 that defines interstate commerce as “between any place in a state and any place in another state or between places in the same state through another state.” Oldham states that based on the text, the 1971 rule would exempt only drivers “who actually crossed state or national borders in the course of their commercial activities.”

However, statutory changes in 1978 and 1995 more broadly defined interstate commerce to include intrastate activities that substantially affect interstate commerce. Despite those changes, the Department of Labor has not updated its 1971 interpretive law, according to Oldham.

With conflicting information, the courts have been forced to devise “multiple, unmanageable standards for making overtime decisions,” Oldham pointed out. That includes an eight-factor balancing test to determine if a driver has a reasonable expectation of interstate transportation.

Without more clarity from Congress or the Department of Labor, courts instead rely on confusing precedent in overtime pay exemption cases involving certain intrastate trucking operations.

“It is unclear how the 1971 rule comports with the text of the relevant statutes,” Oldham stated. “And it is unclear how our precedents comport with the 1971 rule, which says nothing about factors like the good’s ultimate destination or the shipper’s state of mind. Incoherent as they might be, the precedents bind us.”

Congress can clear confusion regarding overtime pay exemptions

One way to end any confusion regarding overtime pay for truckers is to eliminate the exemption altogether.

That is exactly what the bipartisan GOT Truckers Act will do if passed by Congress and signed into law. Introduced by Rep. Jeff Van Drew, R-N.J., and Sen. Alex Padilla, D-Calif., the bill simply removes the overtime pay exemption from the Federal Labor Standards Act. Consequently, all employee truck drivers will receive overtime regardless of whether they drive interstate or intrastate, ending any confusion around the definition of interstate commerce.

Although the bill would apply only to company drivers, the Owner-Operator Independent Drivers Association contends that forcing shippers and receivers to value a trucker’s time would create change throughout the industry.

“America’s truckers keep our nation’s economy moving, and without the hard work of these men and women, our supply chain would grind to a halt,” OOIDA President Todd Spencer said. “Unbelievably, trucking is one of the only professions in America that is denied guaranteed overtime pay. We are way past due as a nation in valuing the sacrifices that truckers make every single day. This starts with simply paying truckers for all of the time they work.”

Truck drivers can go to FightingForTruckers.com to encourage their lawmakers to co-sponsor the GOT Truckers Act.

SEC v. Jarkesy: A Groundbreaking Supreme Court Decision with Significant Implications for Securities Enforcement

NOTE:  This Supreme Court Decision is important. 49CFR part 385, FMCSA has laid out the ADMINISTRATIVE process in which a motor carrier can use when receiving a notice of a proposed “unsatisfactory” safety rating or the findings of a Compliance Review. This Supreme Court decision states that the motor carrier has a right to a jury trial. For those motor carriers who have been involved in the “administrate” process have found our that FMCSA many times will say, “My way or the highway”. This Decision changes the rights of the motor carrier to request a jury trial.

On June 27, 2024, the U.S. Supreme Court issued its long-awaited decision in SEC v. Jarkesy. In its holding, the Court found that when the Securities Exchange Commission seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial and thus the SEC must bring the action in federal court.

The implications of this decision, including its effect on SEC (and other agency) use of administrative tribunals, are considerable.

By way of background, in 2011 the SEC initiated an investigation into George Jarkesy and his firm, Patriot28, LLC. In 2013, the SEC brought an in-house action alleging violations of the antifraud provisions contained in the federal securities laws. After an evidentiary hearing, an administrative law judge found Jarkesy liable for securities fraud and ordered him to pay $300,000 in civil monetary penalties, among other sanctions. Jarkesy then sought review in the U.S. Court of Appeals for the Fifth Circuit, which reversed and remanded, finding that the SEC’s decision to adjudicate the matter in-house (rather than in federal court) violated Jarkesy’s Seventh Amendment right to a jury trial.

Yesterday, the Supreme Court affirmed the Fifth Circuit’s ruling as to Jarkesy’s Seventh Amendment right. Specifically, the court noted that the Seventh Amendment’s guarantee of a right to a jury trial applies to “[s]uits at common law,” which includes statutory claims that are “legal in nature.” The Court went on to say that the type of remedy the SEC sought against Jarkesy, i.e., civil monetary penalties, is the “prototypical common law remedy,” making clear that the SEC’s action was legal in nature (as opposed to an action in equity, to which no constitutional jury right is attached). This, according to the Court, follows from the fact that the civil penalties sought by the SEC were designed to “punish and deter” the wrongdoer rather than to enforce some sort of public right or, as the Court put it, to “restore the status quo.”

The Court added that the “public rights” exception to the Seventh Amendment, which allows Congress to assign certain matters that might otherwise be considered “legal in nature” for decision to an agency without a jury (such as matters relating to revenue collection, certain customs and immigration laws, or relations with Native American tribes), did not apply to Jarkesy’s case because the SEC’s suit intended to target “the same basic conduct as common law fraud,” which amounts to a “matter[] of private rather than public right.”

Thus, the Court concluded that the SEC’s suit against Jarkesy implicated the Seventh Amendment and that Jarkesy was entitled to a trial by jury on the SEC’s claims.

The Court’s ruling may have significant implications. As an initial matter, the decision amounted to a partial rejection of the SEC’s administrative forum. Further, while the SEC has limited the number of enforcement actions it brings in the administrative process in recent years, given the substantial costs associated with federal court litigation, Jarkesy may force the SEC to be more selective in its future enforcement efforts.

More broadly, the Jarkesy decision calls into question whether any federal regulatory agency—not just the SEC—can bring in-house proceedings to enforce civil penalties. This is particularly noteworthy, because although some agencies (such as the SEC) may choose whether to pursue civil penalties in federal court or via an in-house administrative proceeding, other agencies, such as the Occupational Safety and Health Review Commission, are only statutorily authorized to pursue enforcement through in-house proceedings.

Thus, some have voiced concern that because of Jarkesy, the powers of certain enforcement agencies may be substantially curtailed. Indeed, as Justice Sotomayor noted in her dissent, “the Constitutionality of hundreds of statutes may now be in peril, and dozens of agencies could be stripped of their power to enforce laws enacted by Congress.”

Consequently, Jarkesy may be only the beginning.