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Supreme Court Decides Highly Compensated Daily-Rate Employees Are Not Paid a Salary and May Be Entitled To Overtime

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Attorney Harrison Oldham

 

 

 

On February 22, 2023, the Supreme Court decided Helix Energy Solutions Group v. Hewitt, which clarified the requirements for highly compensated employees to be considered executives exempt from overtime pay under the Fair Labor Standards Act (“FLSA”).  In Helix Energy, the Supreme Court ruled that a highly compensated former employee was entitled to overtime pay despite earning more than $200,000 annually because he was paid a “daily rate.”

 

Case Overview

 

Before digging into the ruling, let’s quickly examine the underlying case.

 

Michael Hewitt was a former oil-rig employee who worked for Helix Energy Solutions Group in 28-day “hitches,” meaning he would work 28 consecutive 12-hour days, followed by 28 days off. Helix paid Hewitt a “daily rate” for the days worked during each of the hitches. During Hewitt’s employment, his daily rate ranged from $963 to $1,341, ultimately leading to Hewitt earning more than $200,000 annually.

 

Hewitt brought suit against Helix Energy under the FLSA, alleging that he was entitled to overtime pay as a non-exempt employee. Following its review, the Supreme Court agreed with Hewitt.

 

Case Analysis

 

Under the FLSA, employers must pay non-exempt employees at least minimum wage for all hours worked and, for all hours worked over 40 hours in a workweek, overtime pay at not less than one and a half times the regular pay rate. However, certain employees may be classified as exempt if they work in a “bona fide executive, administrative, or professional capacity.” To be exempt, employees must be:

 

  1. Paid on a salary basis (salary basis test).
  2. Be paid no less than a minimum threshold (salary level test).
  3. Perform certain duties required by the specific exemption claimed-executive, administrative, or professional (duties test).

 

Additionally, for highly compensated employees – those making $107,432 or more – the duties test is satisfied if the employee customarily and regularly performs at least one duty that is generally related to:

 

  1. Managing the business or a department of the business.
  2. Directing and overseeing at least two or more other full-time employees.
  3. The ability to hire/fire other employees.

 

During its review, the Supreme Court found that Hewitt satisfied the executives’ salary level and job duties test.  However, the Court focused on whether Helix Energy’s pay methods met the salary basis test. Under applicable regulations, an employee is paid on a “salary basis” if the employee “regularly receives each pay period (on a weekly, or less frequent basis), a predetermined amount of pay 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 Court ultimately concluded that daily-rate employees such as Hewitt are excluded from this regulation because it requires an employee’s compensation to be predetermined for at least one week at a time. In short, to pass the salary basis test, an employee must receive a predetermined amount for each week that is not subject to reduction based on the number of days, hours, or shifts worked.

 

In response, Helix Energy argued that the salary basis test was satisfied because, in any week Hewitt worked, his minimum amount was far above the required threshold.  Despite this, the Supreme Court affirmed that courts will rely on the plain text of the FLSA and ignore the irregularities associated with paying overtime to highly compensated daily rate workers.

 

Thus, if an employee is paid based on a daily rate, the employee must be guaranteed at least a minimum weekly required amount of pay, and there must be a reasonable relationship between that guaranteed amount and the amount earned. Because Hewitt’s weekly pay fluctuated based on the number of days he worked in a given week, the Court held that Hewitt could not pass the salary basis test under either regulation, was not exempt, and thus was entitled to overtime pay.

 

Employer Takeaways

 

This case should serve to warn employers that simply because an employee is highly compensated does not mean they are exempt from overtime requirements. In particular, this case may have far-reaching implications for employers in the energy and oil industries, who typically provide high day rates to employees on offshore jobs. Based on the Court’s ruling, employers should ensure that they are strictly complying with the applicable FLSA tests, even if an employee is paid at a rate far beyond the “highly compensated” threshold of $107,432 per year.

 

 


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About Harrison Oldham

Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.

Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://lonestarbusinesslaw.com/.

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