The Supreme Court issued a judgment in February that has employers on notice as a 6-3 majority opinion in “Helix Energy Solutions Group v. Hewitt” found that daily-rate workers, no matter their income level, are not exempt from overtime pay unless they are paid on a salary basis as required by the Fair Labor Standards Act (FLSA).
“The basic rule is simple: If you earn an hourly wage and you work more than 40 hours in a week, you are probably entitled to “time and a half” overtime pay. But that widely known formula can give way to complexity, as it did in Helix Energy Solutions Group v. Hewitt, a case about whether plaintiff Michael Hewitt is owed overtime pay by his former employer,” wrote Charlotte Garden in the SCOTUSblog. “After parsing detailed regulatory language, a six-justice majority sided with Hewitt; the opinion, authored by Justice Elena Kagan, ultimately turns on the intuitive conclusion that someone who earns a day-rate is not paid on a “salary basis.”
Oil and Gas Industry and Others Keep a Keen Eye on Decision
The case has far-reaching ramifications which is why “amicus briefs” supporting Helix Energy Solutions Group were filed by:
- Texas Oil and Gas Association
- American Petroleum Institute
- Petroleum Association of America
- Offshore Operators Committee
- Attorney generals from Alabama, Louisiana, Mississippi, Montana, Utah, and West Virginia
- Chamber of Commerce of America
Day-rate employees often include professions such as oil rig workers who work long shifts for consecutive days followed by a long period off.
“The FLSA and its overtime provisions were designed to protect blue-collar employees working oppressively long hours for substandard wages – not attorneys, consultants, and other white-collar professionals making six-figure salaries,” argued the Chamber of Commerce brief. “The HCE (highly compensated employee) exemption was meant to provide employers with a straightforward safe harbor from overtime liability for their highest-paid employees.”
The Texas Oil and Gas Association forewarned that the opinion would have a nationwide, economic impact considering America’s reliance on oil and natural gas and the number of upstream, midstream, and downstream energy jobs.
“An industry-wide pay practice that has successfully aged for 120 years without censure should be upheld pursuant to the plain text and intent of the FLSA. The U.S. oil and natural gas industry should not be upended because of non-textualist, inapposite interpretations of the word salary,” said the Texas Oil and Gas Association brief.
The Facts of “Helix Energy Solutions Group v. Hewitt”
In “Helix Energy Solutions Group v. Hewitt” the respondent (Michael Hewitt) was an oil rig “toolpusher” who earned a daily rate ranging between $963 and $1,341.
Wrote Garden: “Oil-rig employees like Hewitt work “hitches”; for Hewitt, a hitch was 28 consecutive 12-hour days, for which he was paid at least $963 per day – but no overtime pay, even though he routinely worked 84 hours per week. Hewitt sued, and Helix asserted that Hewitt fell under the Fair Labor Standards Act’s exemption for “bona fide executive, administrative, or professional” (EAP) employees.”
Shipman & Goodwin LLP explained that the FLSA governs minimum wage and overtime requirements for most employees in the U.S. with states able to set a higher minimum wage and impose more protective provisions if they see fit.
“The FLSA requires that most employees are paid overtime at the rate of time and one-half the regular rate of pay for all hours worked over 40 hours in a given workweek. There are limited exemptions to the overtime requirements for employees whose jobs fall within certain categories defined by their primary duties, i.e., the “duties test,” wrote Shipman & Goodwin.
Those exemptions include employees whose primary role is in an executive, administrative, professional, or outside sales function. The FLSA also exempts employees, under the HCE exemption, who:
- (1) Make a total annual compensation of $107,432 or more.
- (2) Are paid on a salary or fee basis.
- (3) Perform office or non-manual work.
“In Hewitt, the employer argued that the plaintiff was exempt from overtime under one of the FLSA’s white-collar exemptions. For a white-collar exemption to apply, the employee must have exempt job duties and be paid a set salary each week (i.e., one that is not subject to reduction based upon the quantity of work), known as the salary basis test,” wrote Gould & Ratner LLP.
“Salary Basis” Became the Central Issue in the Case
“Salary basis” became the crux of the case.
“Both parties agreed that Hewitt performed at least one executive duty and that he earned over both thresholds. That left one question: whether Hewitt was paid on a “salary basis,” wrote Garden.
“Salary basis” is defined in another regulation, according to SCOTUSblog, referred to as Section 602:
- The employee must “regularly receive each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation,” regardless of the quantity or quality of work.
- Further, the 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.”
“The court indicated that a threshold question is whether the employee was paid on a “salary basis.” In Hewitt, as the employee was paid a day rate, he was not paid on a salary basis. Thus, the amount of his compensation was irrelevant,” said Gould & Ratner LLP.
Bottom Line: Salary Test Still Applies to Highly Compensated Individuals
The bottom line for employers is that highly compensated employees are not exempt from overtime rules unless they are paid on a salary basis.
“In other words, employers cannot avoid paying overtime to employees simply because they earn a high hourly or daily rate. Rather, employers must provide employees with a reliable, predetermined compensation regardless of the number of days or hours worked in a given workweek, in order to satisfy overtime exemptions,” wrote Shipman & Goodwin LLP.
Employers with highly compensated workers with irregular schedules on daily or hourly rates may need to create pay structures to meet overtime exemptions.
“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),” concluded Bass, Berry & Sims PLC.
Garden cautions, however, that “this decision is a victory for Hewitt, but it is unlikely to put an end to litigation over whether highly paid day-rate workers are entitled to overtime.”