If a highly paid worker is paid by the day, are they entitled to overtime? Probably – for now.
on Oct 14, 2022 at 5:28 pm
On Wednesday, the Supreme Court heard oral argument in Helix Energy Solutions Group, Inc. v. Hewitt, a case about which highly paid employees may claim overtime pay. More specifically, the justices considered the meaning of Department of Labor regulations that define who qualifies as a “highly compensated” “executive” employee; such employees are exempt from the usual requirement that workers are owed overtime when they work more than 40 hours in a week. The stakes are high for workers who, like plaintiff Michael Hewitt, earn six figures, but are paid by the day or shift; Hewitt was an oil-rig “toolpusher,” though workers in other occupations, such as nurses, will also be affected by this decision.
The argument focused mainly on the relationship between various Department of Labor regulations that implement the Fair Labor Standards Act’s overtime exemption as it applies to “highly compensated” “executive” employees. That exemption applies to employees who perform at least one executive duty, and earn more than $107,432 per year ($100,000 at the time Hewitt worked for Helix), including “at least $684 per week [$455 at the relevant time] paid on a salary or fee basis.” The parties agree that Hewitt performed an executive duty, and that he earned more than $200,000 per year. The dispute centers on whether Hewitt, who was paid a daily rate of at least $963, nonetheless earned a “salary.”
Two other provisions shed light on this question. First, a regulation referred to at argument as “602” tells us that payment on a “salary basis” means the employee “regularly receives … on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation.” And 604 states that an employee paid on an hourly, daily, or shift basis may still qualify as a salaried employee if their employer guarantees “at least the minimum weekly-required amount,” provided the guaranteed amount has a “reasonable relationship” to the amount actually earned.
Helix, represented at argument by Paul Clement, maintains that because Hewitt’s daily rate was larger than $455, his pay structure met the literal definition of 602. According to Helix, that should have been the end of the matter, because 604 does not apply to employees in Hewitt’s position. Hewitt, represented by Edwin Sullivan, argued that payment by the day cannot qualify as a “salary,” unless the arrangement falls within the safe harbor provision of 604. (Helix does not argue that it satisfied 604’s “reasonable relationship” requirement.) Anthony Yang, an assistant to the solicitor general, also participated in argument, supporting Hewitt’s position.
Several justices questioned Helix’s premise that a day rate could be a salary. Justice Ketanji Brown Jackson led the questioning on this point, focusing in part on the practical importance of a salary. She pointed out, for example, that “the regularity of a predetermined amount is how people pay mortgages.” In a related vein, Justice Sonia Sotomayor emphasized that being paid a salary usually means greater control of one’s schedule, so that a salaried “employee who wanted to take a Friday afternoon off wouldn’t be penalized” in their pay.
But other justices’ questions implied that they conceptualized salary differently. For example, Justice Clarence Thomas observed to Sullivan that “you certainly don’t normally think of someone making $200,000 a year as a day laborer.” Similarly, Justice Samuel Alito suggested that “ordinary people when the FLSA was enacted” would have thought to be an executive someone who was compensated as well as Hewitt and who supervised other employees – though Sullivan replied that it was “almost universally recognized” at that time that executives would earn a salary.
The justices were also interested in other aspects of the regulatory text. For example, Justice Elena Kagan questioned whether Helix had really satisfied 602’s requirement that workers “receive” a predetermined amount on a weekly or less-frequent basis simply by issuing Hewitt’s paychecks on a bi-weekly basis: “If you tell a client, Mr. Clement, that he has to pay you on an hourly basis, are you … referring to your hourly billable rate, or are you saying that the client has to give you a check every hour?” But later, Justice Brett Kavanaugh suggested that 602 was just “straightforward,” unless “receives in context doesn’t really mean the actual physical receipt.”
A few justices also asked about the case’s policy implications. For example, Alito asked about both the “effect of this on lower income workers” and “how … the energy industry should structure the pay of these people who work out on oil rigs.” And Sotomayor asked Clement how his reading of the statute would affect nurses, citing an amicus brief that, as Sotomayor put it, argued “that your view would basically destroy the health care industry because nurses are already kept on for more than 12 hours … days on end, because there’s a shortage of them.”
Finally, several justices expressed doubts that the regulations were consistent with the statutory language. Ordinarily, this would have been good news for Helix – except for the fact that the justices also seemed to think this argument was waived. But the exchange was still telling for two reasons. First, it seems likely that justices who raised the statutory argument did so because they were not convinced by Helix’s regulatory argument. For example, Justice Neil Gorsuch told Clement that “I actually think you probably have a pretty good argument on the statute,” before asking him whether he would prefer a decision that “answer[ed] the [regulatory] question adversely,” or for the court to dismiss the cert petition as improvidently granted. In other words, while it seemed that a majority of the court was leaning towards Hewitt’s position, this case is unlikely to be the last word on when highly compensated employees are exempt from overtime.