When does a worker who is paid by the day earn a “salary”?
on Oct 11, 2022 at 12:14 pm
At Wednesday’s oral argument in Helix Energy Solutions Group, Inc. v. Hewitt, the court will consider whether Michael Hewitt, an oil-rig worker, was wrongly denied overtime pay. At the heart of the case are rules allowing highly compensated “executive, administrative, or professional” employees to be exempt from overtime – but only if they are paid on a salary basis, whereas Hewitt was paid by the day. The question is when an employee who earns a day rate nonetheless qualifies as salaried.
Hewitt worked for Helix, a Houston-based oil and gas company, as a toolpusher on an offshore oil rig. His work schedule consisted of “hitches,” during which he would work 28 consecutive 12-hour days, at a rate of at least $963 per day. This added up to over $200,000 per year – but that amount did not include overtime pay, even though Hewitt typically worked 84 hours per week. After Helix and Hewitt parted ways, Hewitt filed a lawsuit alleging that he was owed overtime pay. Ultimately, the U.S. Court of Appeals for the 5th Circuit, sitting en banc, agreed.
The Fair Labor Standards Act generally requires employers to pay their employees “time and a half” when they work more than 40 hours per week. But the FLSA exempts from this requirement “bona fide executive, administrative, or professional” (EAP) employees. Under regulations implementing the EAP exemption, a worker qualifies as exempt only if their job duties meet certain criteria, and if they are paid above a minimum threshold – $455 per week when Hewitt worked for Helix – on a salary basis. But a more relaxed set of criteria apply to “highly compensated employees” (HCEs): Employees who earned $100,000 per year (now $107,432) are “deemed exempt” as EAP employees, provided they performed at least one of the duties associated with their job category, and their annual compensation included “at least $455 per week paid on a salary or fee basis.” Both parties agree that Hewitt was highly compensated, and that he performed at least one “executive” duty; they disagree about whether Hewitt was paid on a salary basis.
The HCE regulation cross-references another provision that defines “salary basis.” In relevant part, it states that an “employee will be considered to be paid on a ‘salary basis’ … if 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.” The rule also states that “an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.”
Helix argues that it satisfied this definition by paying Hewitt on a bi-weekly basis and setting his daily rate above $455. In other words, Hewitt could count on receiving at least $963 any week in which he worked at least one day. Further, that amount constituted “part of” his compensation, which would not be reduced based on the quantity or quality of Hewitt’s work, and would be paid regardless of the number of days Hewitt actually worked. (The regulations do not require employees to be paid their salary during weeks that they do not work at all.)
But Hewitt, supported by the solicitor general, argues that even a daily rate above $455 cannot satisfy the definition of salary basis. In Hewitt’s reading, the required “predetermined amount” must cover the employee’s base salary for at least one week’s work, though that amount may also be augmented by additional compensation that is calculated on another basis, such as a commission. A day rate, he reasons, cannot qualify as a week’s salary that is paid “without regard to the number of days … worked.”
The second relevant regulation states that an “exempt employee’s earnings may be computed on … a daily … basis, without losing 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 regardless of the number of … days … worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned.” To Hewitt and the federal government, this provision is a limited exception to the general rule that a day rate is not a salary, and they make arguments based on the text and structure of the regulatory scheme in support of that reading. Further, this exception does not help Helix, because there is no “reasonable relationship” between Hewitt’s pay for a single day and the amount he earned each week.
But Helix argues that the “reasonable relationship” rule does not apply to HCEs. It observes that, unlike the definition of “salary basis,” the “reasonable relationship” provision is not cross-referenced in the HCE provision. Instead, Helix continues, the HCE provision states that high earners are “deemed” exempt as long as they perform a relevant job duty and meet the required earnings thresholds; they need not satisfy the additional requirements that apply to EAP employees who earn smaller amounts. Helix argues for this reading based on the structure of the regulatory scheme, and also reasons that this outcome makes sense because the HCE provision was intended to be a “streamlined path to exemption” for high earners.
Finally, while the regulatory arguments occupy the bulk of the briefs, Helix also briefly argues that Hewitt’s reading of the HCE rules is inconsistent with the FLSA. And it closes with policy arguments, suggesting that Hewitt’s argument, if accepted, would disrupt standard pay practices in the oil industry, and reward “highly paid supervisors with massive windfalls.” Hewitt responds that Helix’s reading of “salary basis” will allow for employer gamesmanship.
While this case is likely to turn on the regulatory text, the parties also frame their arguments in light of the purposes of federal wage-and-hour law. Helix paints the law as aimed at helping low-wage blue-collar workers, not highly paid executives. And the court has previously written that well-paid employees were “hardly the kind of employees that the FLSA was intended to protect.” But Hewitt observes that the FLSA’s overtime provisions are not only about increasing wages – they are also about decreasing hours and increasing overall employment. In other words, this case will bear on the extent of employers’ incentives to hire additional workers, rather than requiring existing employees to work longer hours.