On September 9, 2021, the en banc Fifth Circuit confirmed in a 12-6 decision that highly compensated employees cannot be exempt from overtime under the Fair Labor Standards Act (FLSA) based solely on their high income—they must also be paid on a salary basis.
In Hewitt v. Helix Energy Sols. Grp., Inc., the Fifth Circuit overturned the U.S. District Court for the Southern District of Texas’s grant of summary judgment in favor of Helix, resulting in the Fifth Circuit finding that employee Michael J. Hewitt was owed time-and-a-half overtime pay under the FLSA.
The court initially pointed out that Congress “has repeatedly rejected efforts to categorically exempt highly paid employees from overtime requirements.” Instead, the regulations enacted by the U.S. Secretary of Labor exempt certain high-earning individuals from overtime requirements only when they are also engaged in the performance of certain executive, administrative and professional duties, and are paid on a salary basis. Whether Hewitt was paid on a salary basis was the main issue in this case, as both parties agreed that Hewitt met both the income threshold and the duties requirements. Hewitt was paid a day rate for his work for Helix, and the company admitted that Hewitt’s pay was “computed on a daily basis.”
FLSA regulations define “salary basis” as compensation paid on a weekly or less frequent basis, “without regard to the number of days or hours worked.” 29 C.F.R. § 541.602(a)(1). An employee who is paid a daily rate, by definition, is paid based on the number of days actually worked. As such, by the plain text of the regulation, Hewitt could not be an exempt employee. The court was careful to point out, however, that it was not holding that “an hourly or daily rate can never meet the salary-basis test.” Instead, the court noted that the Secretary of Labor has promulgated a specific exception whose regulatory requirements must be met before an employee whose pay is computed on an hourly, daily or shift basis may satisfy the salary-basis test.
Specifically, a day-rate employee may be exempt from the FLSA’s overtime requirements only if two conditions are met: 1) a guaranteed weekly minimum pay regardless of the number of hours, days or shifts worked; and 2) a reasonable relationship between the guaranteed weekly amount and the amount of work actually expected. 29 C.F.R. § 541.604(b). The Fifth Circuit noted this regulation protects employees by setting both “a floor” for how much an employee can expect to earn weekly, and a “ceiling” on an employer’s ability to require work far in excess of the time contemplated by the weekly guarantee.
Helix attempted to theorize that Hewitt’s day rate was the minimum weekly guaranteed amount, and therefore his employment satisfied the exception. However, the appellate court noted this amount would then fail to satisfy the second factor, as Hewitt was routinely paid far in excess of his day rate each week. Ultimately, the court held, “[t]he plain text of the regulations” was decisive in this appeal—Hewitt was not a salaried employee, was not exempt from the overtime provisions of the FLSA, and was therefore owed overtime wages for weeks in which he worked more than 40 hours during his employment with Helix.
Employers everywhere, including Texas (part of the Fifth Circuit), and especially those in the energy industry where the use of “day-rates” still remains prevalent, should take notice of this decision, and carefully examine whether all of the company’s highly-compensated overtime-exempt employees, especially those who are paid daily, hourly, or by the shift, satisfy the rules set out in the Hewitt case.