A recent United States Supreme Court decision, Helix Energy Solutions Group, Inc. v. Hewitt, held that to qualify for the highly compensated employee exemption to the overtime requirements under the Fair Labor Standards Act (FLSA), the employee must be paid a salary. Helix Energy demonstrates that, at least in the wage and hour arena, form can matter as much as substance, and the failure to follow the technical requirements of the FLSA can have dire consequences for employers.
Background
Helix Energy employed plaintiff Michael Hewitt as a “toolpusher” on an oil rig. Despite its name, a toolpusher is not a manual worker, but rather, a supervisor position that is largely responsible for managerial and administrative tasks. As is common in the energy industry, Hewitt worked 28-day hitches, where for 28 straight days, he worked and lived on the oil rig, taking daily shifts of up to 12 hours. On any given day in which he worked at least one minute, Helix Energy paid Hewitt a daily rate that ranged from $963 to $1,341 over the course of his employment. Hewitt worked for Helix Energy from 2015 to 2017 and earned more than $200,000 each year. In 2017, Helix Energy terminated Hewitt’s employment for performance-related reasons.
After his employment ended, Hewitt filed suit claiming that he was entitled to overtime under the FLSA. Helix Energy defended the claim, arguing that Hewitt was exempt from overtime.
Under the FLSA, bona fide executive, administrative, and professional employees are exempt from overtime. These exemptions are known as the “white collar exemptions.” The U.S. Department of Labor (DOL) has promulgated regulations to define and delimit when an employee qualifies for these overtime exemptions. To meet these exemptions, the employer must satisfy a salary test and a duties test. Under the salary test, the employee must:
- Be paid on a salary basis
- Earn at least $684.00 per week[1]
In addition, there is a streamlined test for the white-collar exemptions for well-paid employees known as the Highly Compensated Employee exemption (HCE). Under the HCE, if an employer pays an employee at least $107,432 (previously $100,000) in total annual compensation, the employee will be deemed exempt if the employee customarily and regularly satisfies the executive employee’s duties test (or the duties test set forth under the administrative or professional exemptions). The term “total annual compensation” must include at least $684 (previously $455) per week paid on a salary or fee basis.
In Helix Energy, the parties agreed that Hewitt satisfied the duties test under the executive employee exemption. The parties also agreed that Hewitt could be classified as an exempt executive employee or HCE if he was paid on a “salary basis.” Accordingly, the issue for the courts was whether Hewitt’s daily payment of at least $984 was a payment on a salary basis. Because he was paid a daily rate, every week in which Hewitt worked at least one minute, Helix Energy paid him at least $984. As such, the District Court held that Hewitt satisfied the HCE exemption. The 5th U.S. Circuit Court of Appeals disagreed, holding that a daily payment, even if more than the minimum weekly salary requirement, did not satisfy the requirement under the HCE exemption that Hewitt be paid on a “salary basis” as the payment was based, in part, on the amount of time Hewitt worked during any given week.
Helix Energy appealed to the Supreme Court, which granted certiorari.
The Supreme Court Decision
In a 6-3 decision authored by Justice Kagan, the Supreme Court agreed with Hewitt, holding that Helix Energy had not paid Hewitt on a salary basis and therefore he was entitled to overtime.
The court reached its conclusion after comparing the application of two regulatory provisions, 29 CFR Sections 541.602(a) and 541.604(b). Each provision applies the well-known “salary basis” test to determine whether employees are exempt from the FLSA’s overtime requirements under the aforementioned white-collar exemptions. Section 602(a) states that an “exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.” Section 604(b) allows employers to base an employee’s pay on “an hourly, daily, or shift rate” as long as it provides a guaranteed minimum pay rate “regardless of the number of hours, days or shifts worked” and that amount is “roughly equivalent to the employee’s usual earnings” at that assigned rate. Helix Energy conceded that Section 604(b) did not apply and thus the court only had to reckon with Section 602(a).
In determining that Section 602(a) does not apply to employees paid a daily rate like Hewitt, the court relied solely on the text of the regulation that requires employees be paid a predetermined amount each week that is not subject to change based on the quality or quantity of the work performed. That is, to satisfy the salary test under Section 602(a), FLSA regulations state that an employee must be paid a set amount each week regardless of how many hours or days the employee works during that week. A daily rate, such as the kind Helix Energy paid Hewitt, clearly does not satisfy this standard. As such, Hewitt was not paid on a salary basis. Because he was not paid on a salary basis, Hewitt could not satisfy the requirements to be exempt from overtime under the FLSA as either an exempt employee or an HCE. This was the case irrespective of the fact that Helix Energy paid Hewitt over $200,000 per year.
Practical Implications
Helix Energy is another reminder that under the FLSA form matters as much as substance. Even though Helix Energy paid Hewitt significant sums, because it failed to pay him a weekly salary, the Supreme Court held that Hewitt was entitled to overtime. Indeed, regardless of the amount of money the employee receives, if the employee is not paid on a “salary basis” as that term is defined under the FLSA, the employee cannot satisfy the white-collar exemptions, including the HCE.
After Helix Energy, in order to satisfy the white-collar exemptions, including in industries where day rates are common — such as construction, healthcare and energy — employers must ensure they pay a guaranteed minimum weekly salary to such employees for any week they work. In fact, for employers concerned about new liability for overtime pay, Justice Kagan offered a road map for compliance: (1) employers can adjust the employee’s per-day rate to a weekly guarantee that satisfies the regulatory requirements of Section 604(b); or (2) employers can convert an employee’s daily compensation to a weekly salary for any week the employee engages in work. Either way, employers who continue to classify as exempt employees paid on a daily rate should carefully review the rate, frequency and method of calculating pay to avoid costly FLSA claims.
[1] When Hewitt worked for Helix Energy, the salary requirement was $455.00 per week.
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