On May 2, 2022, the Supreme Court of the United States (“SCOTUS”) granted an employer’s petition for review to determine whether highly compensated employees are entitled to overtime compensation under the Fair Labor Standards Act (“FLSA”) if they are paid on a daily rate and not on a salary basis.

Background

The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half the regular rate of pay for all hours worked over 40 in a workweek.

However, Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional, and outside sales employees.  To qualify for exemption, employees must meet certain tests regarding their job duties and be paid on a salary basis at not less than $684 per week.

In addition, pursuant to 29 C.F.R. § 541.601(a), highly compensated employees can be exempt from its overtime requirements if the following requirements are met:

1. The employee earns a total annual compensation of $107,432 per year, which must include at least $684 per week paid on a salary or fee basis;

2. The employee also customarily and regularly performs at least one of the exempt duties or responsibilities of an executive, administrative or professional employee; and

3. The employee performs office or non-manual work as part of his or her primary duties.

Furthermore, an employer may provide an exempt employee with additional compensation without destroying the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount paid on a salary basis.  29 C.F.R. § 541.604(a).

Helix Energy Solutions Group, Inc v. Hewitt, No. 21-984

In Hewitt v. Helix Energy Sols. Grp., Inc., Michael Hewitt (“Hewitt”) brought a claim for unpaid wages against his oil company employer, Helix Energy Solutions Group, Inc. (“Helix”).  Hewitt was a supervisor on offshore oil rigs and was paid at least $963 each day regardless of the number of hours he worked and earned more than $200,000 in annual compensation.  After Helix fired Hewitt, Hewitt sued under the FLSA, arguing that he was entitled to retroactive overtime pay for every week in which he had worked over 40 hours because he was not paid on a “salary” basis.  The district court dismissed Hewitt’s claim on summary judgment, finding that Hewitt was paid on a salary basis because he was paid a predetermined amount that was not subject to reduction, and he never made below the minimum salary required per week.  Thus, the district court held that Hewitt was exempt under the highly compensated employee rule.

The Fifth Circuit reversed.  In a 12-6 en banc decision, the Fifth Circuit held that despite Hewitt’s high pay, the FLSA exemption did not apply to him because he was paid a daily rate and not a salary.  In other words, his compensation fluctuated based on the number of days he worked.

By granting review, SCOTUS will weigh in and finally settle whether highly compensated employees can be paid on a daily rate and still qualify as exempt under the FLSA.  The case is scheduled for argument during the Court’s October 2022-2023 term.

Major Takeaways

This decision will resolve a circuit split over which employees are exempt from federal overtime requirements under the highly compensated employee exemption.  Furthermore, this decision could render large and costly implications for employers, especially those in the oil and gas industry, as it could result in them changing how they classify certain employees and could trigger additional FLSA lawsuits.