The U.S. Supreme Court recently ruled that a highly compensated employee who was paid a guaranteed daily rate but not a guaranteed weekly rate was not properly paid “on a salary basis” and, therefore, was not correctly classified as exempt from overtime pay. In other words, an employee who made in excess of $200,000 a year was still owed overtime pay. The decision highlights the importance of employers meeting the “salary basis” test to satisfy what is commonly referred to as the white-collar exemptions from overtime pay.
The Supreme Court delivered its 6-3 decision on February 22 in Helix Energy Solutions Group, Inc. v. Hewitt, a highly-anticipated opinion of particular importance to the oil and gas industry. The Court ruled that a former offshore oil rig worker, who made more than $200,000 a year but was paid on a daily basis and not a guaranteed weekly salary, did not meet the Fair Labor Standards Act’s (FLSA) definition of an executive and thus was misclassified as “exempt” from the right to receive overtime pay under the FLSA.
Michael Hewitt worked for Helix Energy Solutions as a “tool-pusher” on an offshore oil rig. Helix paid Hewitt bi-weekly, and the amount of his paycheck equaled his daily rate (which varied over the course of his employment) times the number of days he worked in the pay period, with no overtime. Under that compensation scheme, Hewitt earned over $200,000 annually and thus well-exceeded the threshold of $100,000 (currently $107,432) to be considered a highly compensated employee under the overtime exemptions. Helix classified Hewitt as exempt from overtime pay under the highly compensated employee test, given that he was receiving an annual six-figure income.
Hewitt sued Helix under the FLSA to recover years of retroactive overtime pay. Helix responded, arguing that Hewitt was exempt from the FLSA because he qualified as a bona fide executive under the Secretary of Labor’s regulations. Although Hewitt conceded that his employment met two out of the three requirements needed to qualify for the exemption, he disagreed that he met the third requirement – namely, Hewitt argued that he did not receive a weekly guaranteed minimum salary in at least the amount required under the regulations. The lower court disagreed with Hewitt’s argument and granted summary judgment to Helix. Hewitt appealed, and the Fifth Circuit Court of Appeals reversed that judgment and held that Hewitt could claim the FLSA’s protections because he was not paid on a salary basis.
Supreme Court Decision
The critical question before the Supreme Court was whether a high-earning employee whose paycheck is based solely on a daily rate is compensated on a “salary basis” as defined by §541.602(a) of the Secretary of Labor’s regulations. If the answer was “yes,” Hewitt was exempt from the FLSA and not entitled to overtime pay. The 6-3 majority affirmed the Fifth Circuit’s conclusion that the answer to that question is “no,” which meant Hewitt was not properly classified as exempt from overtime pay under the FLSA, despite his being a highly compensated employee and was entitled to overtime.
Speaking for the majority, Justice Kagan ruled that §541.602(a) applies solely to employees paid by the week or longer and is not met when an employer pays an employee by the day, as Helix paid Hewitt. Because both parties conceded that Hewitt’s compensation did not meet the other salary basis test – under §541.602(b) – it could not count as salary, making him non-exempt under the FLSA and therefore eligible for overtime pay.
The takeaway is that employers who pay their workers on a guaranteed daily rate – however high the rate – cannot classify those workers as exempt unless the guaranteed pay includes a weekly guarantee as required by the FLSA regulation’s salary basis test in §541.602(a).
If you have any questions about this ruling and how its implications may affect your business, please contact the author.