United States Supreme Court holds that a highly paid oil rig executive employee is not exempt from the Fair Labor Standards Act (FLSA)

Published on

Contributors

In Helix Energy Solutions Group, Inc. v. Hewitt, Case No. 21-984, the United States Supreme Court held that an offshore oil rig supervisor who was paid nearly $1,000 for each day he worked was not exempt from the Fair Labor Standards Act (“FLSA”) because he was not paid a predetermined amount per week and, thus, was not compensated on a “salary basis” in accordance with applicable regulations. As a result, his employer was held liable for plaintiff’s overtime pay.

Factual background

Michael Hewitt filed an action against his employer, Helix Energy Solutions Group, 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 as a “tool-pusher” on an offshore oil rig, typically working 84 hours a week while on the vessel. Reporting to the captain, Hewitt oversaw various aspects of the rig’s operations and supervised 12 to 14 workers.

Helix paid Hewitt on a daily-rate basis, with no overtime compensation. As a result, Hewitt’s paycheck, issued every two weeks, amounted to his daily rate times the number of days he had worked in the pay period. Under that compensation scheme, Hewitt earned over $200,000 annually.

Key provisions of the FLSA

Under the FLSA, employers may exempt bona fide executive, administration and professional employees from the law’s overtime pay requirements if the following conditions laid out in Part 541 of the FLSA’s regulations are met:

  • The employee earns total annual compensation of $107,432 or more, which includes at least $684 per week, paid on a salary or fee basis.
  • The employee’s primary duty includes performing office or nonmanual work.
  • The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.

Part 541.602 (“Section 602”) defines the term “salary basis” as an arrangement in which the employee earns a “predetermined amount constituting all or part of the employee’s compensation which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” The employee must receive this amount each pay period on a weekly or less frequent basis.

District Court and Fifth Circuit rulings

Helix asserted that Hewitt was exempt from the FLSA because he qualified as “a bona fide executive” pursuant to 29 U.S.C. section 213(a)(1) of the FLSA. The District Court agreed, but the Fifth Circuit Court of Appeals reversed and held that the plaintiff could not be considered an exempt executive, regardless of his income level, because his compensation structure did not satisfy the plain text of Section 602(a) of the FLSA, nor the “special rule” of Section 604(b), both of which defined daily-rate workers as salaried employees under certain circumstances. Thus, according to the Fifth Circuit, Hewitt was owed overtime pay.

Supreme Court opinion

The Supreme Court first set forth the applicable principles. In particular, the Court noted that the FLSA guarantees that covered employees receive overtime pay when they work more than 40 hours a week. However, there are exceptions. One such exception applies if the employee works “in a bona fide executive, administrative, or professional capacity,” as those terms are defined by agency regulations. (29 U.S.C. § 213(a)(1).) Under the regulations, an employee falls within the “bona fide executive” exemption only if (among other things) he is paid on a “salary basis.” (29 CFR §541.100(a)(1) (2015); see §541.601(b)(1).) Additional regulations elaborate on the salary-basis requirement, as applied to both lower-income and higher-income employees.

The Court then framed the issue to be decided: “The question here is whether a high-earning employee is compensated on a “salary basis” when his paycheck is based solely on a daily rate—so that he receives a certain amount if he works one day in a week, twice as much for two days, three times as much for three, and so on.”

The Court held that such an employee, like Hewitt, is not paid on a salary basis, and thus is entitled to overtime pay under the FLSA. Specifically, the only question raised to the Supreme Court was whether the “daily rate” of pay satisfied the salary-basis requirement under Section 602(a). The Court observed that, as a matter of “common parlance,” a salary provided “the stability and security of a regular weekly, monthly, or annual pay structure.” Even though pay was distributed on a bi-weekly basis, it was calculated using the number of days actually worked; if there were days he was not working, he was not paid for them. Accordingly, Helix’s policy violated the principle that an employee be paid either a true salary or overtime.

The Court held that under the regulations, an employee is paid on a “salary basis” if the employee receives a fixed amount per week no matter how many days he has worked. The Court rejected the employer’s argument that Hewitt was paid on a salary basis because he was paid at least $963 (the daily rate) in any week in which he worked, because this was not a flat, predetermined amount fixed independently of the number of days Hewitt worked.

The Court stated that employees paid on a daily or hourly basis can still be exempt from the FLSA’s overtime pay requirement if their employers also guarantee a weekly amount of pay that is more than $455 “regardless of the number of hours, days or shifts worked,” and “a reasonable relationship exists between the guaranteed amount and the amount actually earned.” 29 C.F.R. § 541.604(b).

Impact

The impact of the Supreme Court’s ruling may be limited because most employees who perform executive duties and who qualify as “highly compensated employees” under the Department of Labor’s regulation are paid a fixed salary, not one based on a daily rate. Furthermore, although the Court’s decision addressed only executive employees, but the regulation also covers administrative and professional employees.

However, in light of this opinion employers who pay employees on a day-rate basis believing such employees are exempt from overtime pay will need to move quickly by: (1) paying such employees overtime, (2) adding a weekly guarantee to their day rate to meet the FLSA’s requirements, or (3) converting them to a straight salary for the weeks they work.