On February 22, 2023, in Helix Energy Solutions Group, Inc. v. Hewitt, the U.S. Supreme Court concluded that highly compensated executives will not be considered overtime exempt if they are paid a daily pay rate, even if the daily rate exceeds the minimum weekly salary thresholds. In a 6-3 decision authored by Justice Kagan, the majority found that a daily rate pay is not considered a salary for purposes of the Fair Labor Standards Act (FLSA). Specifically, the Court ruled that an offshore oil rig worker earning more than $200,000 per year was eligible for overtime pay.
The FLSA exempts certain types of employees from overtime pay. Under 29 U.S.C. § 213(a)(1), bona fide executives are exempt from overtime if three tests are met: the "salary basis" test, the "salary level" test, and the "job duties" test. The "salary basis" test requires that the "employee regularly receives each pay period on a weekly, or less frequent basis, 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." See 29 CFR § 541.602(a). The "salary level" test requires that a preset salary exceed a specified amount. In Helix Energy Solutions
Group, Inc. v. Hewitt, the Supreme Court analyzed the applicable DOL regulations in effect as of 2015 (the period in dispute). At the time, for highly compensated employees (HCEs), employees needed to make at least $100,000 annually (now $107,432) and at least $455 per week (now $684). The "job duties" test requires that employees engage in management duties, direct other employees, and exercise power over hiring and firing decisions.
In Helix Energy Solutions Group, Inc. v. Hewitt, the Supreme Court grappled with whether the "salary basis" test had been met when a highly compensated employee was paid a daily rate. From 2014 to 2017, Michael Hewitt ("Hewitt") worked as an oil rig "toolpusher" for Helix Energy Solutions Group, Inc. ("Helix"). Hewitt worked 28-day "hitches" on an offshore oil rig and supervised between 12 to 14 workers. During this time, he was paid a daily rate with no overtime pay, earning over $200,000 annually. Hewitt earned between $936 and $1,341 per day, regardless of the number of hours he worked each day. In addition, Hewitt worked 12 hours shifts, seven days a week, which was approximately 84
hours a week.
Hewitt sued Helix in Texas federal court, alleging that he was improperly classified as overtime exempt. The district court granted summary judgment to Helix, finding that Hewitt was paid on a "salary basis" and not entitled to overtime. On appeal, the Fifth Circuit reversed, holding that Hewitt was not paid on a "salary basis." Ultimately, the Supreme Court upheld the Fifth Circuit’s decision, holding that Hewitt was entitled to overtime pay and that Helix had violated the FLSA by incorrectly classifying Hewitt as an overtime-exempt worker.
Helix’s main contention was that Hewitt’s compensation structure should be considered a salary because it was guaranteed that he would be paid at least the weekly minimum of $455 that was required pursuant to the DOL’s regulations. Additionally, Helix made policy arguments, maintaining that high earners would receive windfalls if the Court held that Hewitt and other workers with a similar pay structure were entitled to overtime pay. Yet, the majority dismissed Helix’s arguments, asserting that the FLSA’s goal is to "preclude employers from paying workers neither a true salary nor overtime." In doing so, the Supreme Court emphasized that the overarching purpose of FLSA is to eliminate
substandard pay, which could be accomplished by compensating workers for overtime pay. Further, the Supreme Court relied on the FLSA’s textual directive and the structure of the DOL’s regulations. The Court reasoned that:
[a]ll that regulatory language—each phrase adding onto and reinforcing the others—reflects the standard meaning of a 'salary,' which connotes a steady and predictable stream of pay, week after week after week. Put it all together, and a daily-rate worker does not qualify under §602(a) as a salaried employee—even if (like Hewitt) his daily rate is high.
In addition to highlighting the importance of the "salary basis" test, the decision demonstrates that even a supervisory employee earning over $200,000 per year might be entitled to overtime pay. The Supreme Court made clear that highly compensated employees are not automatically exempt from overtime. Rather, the way that an employee is paid must also be examined. Furthermore, this case serves as a reminder that overtime-exempt status can be lost if an employer makes certain deductions. In order to meet the "salary basis" test and qualify for an overtime exemption, an employee’s pay may not be reduced based on the "quality or quantity" of work performed.
Employers should be aware that there may be an increase in the filing of improper classification claims as a result of this decision. Although Helix Energy Solutions Group, Inc. v. Hewitt addresses the pay structure of highly compensated executives, the case’s holding has implications for administrative and professional employees, because the "salary basis" test must be met for almost all of the exemptions under the FLSA.
To ensure wage and compliance, employers must make sure that their workers are properly classified as overtime exempt or nonexempt under the FLSA and pay particular attention to the "salary basis" requirement. Calfee's Labor and Employment lawyers are available to assist our clients with compliance with the FLSA’s overtime regulations.