On February 22, 2023, the United States Supreme Court issued the long-awaited decision in Helix Energy Solutions Group, Inc. v. Hewitt. The Supreme Court held that a highly compensated employee who is paid solely on a day-rate basis is not exempt from the overtime provisions of the Fair Labor Standards Act (“FLSA”).
The case focused on Section 541.602(a) of the FLSA’s regulations that permits certain white collar workers to be exempt from overtime pay requirements if they perform specific duties and are paid on a salary basis. The latter is defined as a guaranteed weekly amount that does not fluctuate based on the quality or quantity of work performed.
Mr. Hewitt worked as a supervisor for Helix Energy Solutions (“Helix”) on an offshore oil and gas rig. During his employment with Helix, Mr. Hewitt typically worked 28 days consecutively and then received 28 days off. Mr. Hewitt was paid at a daily rate that ranged between $963 and $1,341, which exceeded the FLSA’s minimum salary threshold level of $684 per week (and the old threshold of $455 a week at the time of litigation). Under this pay scheme, Helix paid Mr. Hewitt over $200,000 annually. Mr. Hewitt filed suit under the FLSA to recover overtime pay. Helix argued that Mr. Hewitt was exempt from overtime pay because he qualified as a bona fide executive. The parties agreed that Mr. Hewitt satisfied the duties test. However, Mr. Hewitt denied that his compensation satisfied the salary basis test. The trial court agreed with Helix’s view that Mr. Hewitt’s compensation met the salary basis test and granted summary judgment in Helix’s favor. On appeal, the U.S. Court of Appeals for the Fifth Circuit reversed the trial court’s judgment and found that Hewitt was not paid on a salary basis and, therefore, was entitled to overtime compensation. Helix subsequently sought certiorari review with the United States Supreme Court.
The Supreme Court agreed with the Fifth Circuit and affirmed the decision in favor of Mr. Hewitt. The Supreme Court held that, because Mr. Hewitt’s weekly compensation varied based on the number of days worked, he was not paid on a salary basis and is entitled to overtime pay. The Supreme Court noted that 541.602(a) applies solely to employees paid weekly or less frequently and requires that the employee receive his full salary for any week in which he performs any work without regard to the number of days or hours worked. Here, Helix did not meet that requirement when it paid Mr. Hewitt only for each day he worked. The Supreme Court further noted that daily-rate workers could satisfy the salary basis test under 541.604(b) if: (1)the compensation arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked, and (2) a reasonable relationship exists between the guaranteed amount and the amount actually earned. However, Helix’s compensation program did not satisfy those requirements either.
According to the Amicus Brief filed by the Independent Petroleum Association of America, the pay method used by Helix is the model used by the oil industry for many years. The Amicus Brief stated that the “[o]il industry employers pay outside contractors, including day rate specialists, and some of their own employees, for services on a day-rate basis…” It went on to argue that “[f]orcing the industry to change compensation practices that meet the plain meaning of 29 U.S.C. § 213 and the regulations…only forces an entire industry (and potentially other industries as well) to adopt less efficient compensation plans and practices.”
Based on this new decision, employers who pay exempt employees on a daily basis should reassess their pay practice with their employment counsel to ensure compliance with the FLSA. If you have any questions regarding the issues raised in this client alert, please contact your Labor and Employment counsel at Smith, Gambrell & Russell, LLP.