Supreme Court holds overtime due to high-earning oil worker
In Helix Energy Solutions Group v. Hewitt, the Supreme Court held that an employee earning more than $200,000 a year was eligible for overtime pay because he was paid on a daily basis rather than a salary basis under the Fair Labor Standards Act (FLSA).
In Helix, plaintiff Michael Hewitt filed an action against his employer seeking overtime pay under the FLSA, which guarantees overtime pay to covered employees when they work more than 40 hours a week. From 2014 to 2017, Hewitt worked for Helix on an offshore oil rig, typically working 84 hours a week. He was paid on a daily-rate basis, with no overtime compensation, and he earned over $200,000 annually.
Helix asserted that Hewitt was exempt from the FLSA’s overtime requirements because he was a “bona fide executive,” which requires that the employee satisfy three tests: (1) that the employee is paid on a “salary basis” test; (2) that the employee is paid over a certain salary threshold; and (3) that the employee performs certain exempt duties. There was no dispute that Hewitt satisfied the duties criteria and received more than the threshold amount; rather, the issue was whether Hewitt was paid on a “salary basis,” since he was paid a day rate.
Broadly, the Department of Labor has defined payment on a “salary basis” to mean either: (1) under 29 C.F.R. § 541.602(a), that the employee receives for each pay period, on a weekly or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount cannot be subject to reduction because of variations in the quality or quantity of work performed; or (2) under 29 C.F.R. § 604(b), that the employee is guaranteed 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 actually earned. The reasonable relationship test is satisfied if the weekly guarantee is “roughly equivalent” to the employee’s usual weekly earnings.
The District Court agreed that Hewitt was paid on a salary basis and thus was exempt from overtime; however, the Fifth Circuit reversed, holding that, since Hewitt received a day rate and did not know the amount of his compensation for each weekly (or less frequent) pay period before he worked, he did not receive a predetermined, guaranteed amount and thus was not paid on a salary basis.
The Supreme Court affirmed, holding that Hewitt was not paid on a salary basis. Helix did not argue that it satisfied the salary basis test under § 604(b), because Helix did not promise a weekly guarantee. Therefore, the Supreme Court analyzed whether Hewitt’s day rate satisfied the salary basis test under § 602(a), concluding that it did not. The Supreme Court reasoned that payment of a day rate does not satisfy § 602(a)’s requirements that: (1) the employee be paid on a weekly or less frequent basis; and (2) the employee be paid without regard to the numbers of days or hours worked. Thus, the Supreme Court held that day rates are not a salary for the purposes § 602(a). Accordingly, while Hewitt was highly paid, he was not exempt from the FLSA’s overtime pay guarantee.
Given the above, companies utilizing FLSA exemptions are encouraged to carefully review requirements and ensure employees are paid on a salary basis, even when they are highly compensated, which for employees paid on a daily rate can only be done by satisfying § 604(b)’s requirements. At a high level, employers should be cognizant that employees receiving day rates (or similar pay methods which may fluctuate) may not, on their own, satisfy the FLSA’s salary basis requirement.
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