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Supreme Court Confirms That a Day Rate is Not a Salary
Helix Energy Solutions Group Inc. v. Hewitt
In a widely anticipated opinion, on February 22, 2023, the Supreme Court of the United States ruled that an employee who was paid a daily rate more than $684 per day, who received a total of more than $200,000 per year, was not paid on a “salary basis” as required for application of the highly-compensated employee (HCE) exemption. As such, the court held that he was entitled to overtime pay under the Fair Labor Standards Act (FLSA) notwithstanding his high total annual earnings.
The ruling will have wide-ranging implications the oil and gas industry, the nursing field, and other industries which often rely on “day rate only” pay schemes and pay schemes which pay high hourly rates (but no overtime) to attract workers to remote locations, often on short notice.
The case concerned an employee who alleged he had been misclassified as exempt from the FLSA’s overtime provisions, and improperly denied overtime premium compensation. He worked twenty-eight day “hitches” on an offshore oil rig where he would work daily twelve-hour shifts, often seven days per week, totaling 84 hours a week. Throughout his employment, the plaintiff was on a daily-rate basis, without overtime compensation, earning between $963 and $1,341 per day, an amount that equated with more than $200,000 annually.
Helix had argued that the plaintiff fell under the DOL’s exemption for highly compensated employees found in 29 C.F.R. §541.601. At the time of the toolpusher’s employment, the highly compensated employee (HCE) exemption applied to employees whose primary duties included performing office or non-manual work; who customarily and regularly performed at least one duty of an exempt executive, administrative, or professional employee; and who were paid at least $455 per week on a “salary or fee basis”; and who earned at least $100,000 annually. (Currently, the threshold salary and total compensation amounts are $684 per week and $107,432 annually, respectively.)
Opinion of the Court
In its decision, the high court stated that the “critical question” in this case was whether the plaintiff was paid on a “salary basis” pursuant to 29 C.F.R. §541.602(a). That regulation states that an employee is paid on a “salary basis” when 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.”
Helix had argued that in any week in which the employee performed any work, he was guaranteed to receive an amount above the $455 weekly threshold, such that his compensation met the requirements of the salary basis test.
The court rejected this argument, holding that §541.602(a) “applies solely to employees paid by the week (or longer)” and the test is “not met when an employer pays an employee by the day.” The court noted that a companion regulation, 29 C.F.R. §541.604(b), allows an employee’s earnings to be computed on an hourly, daily, or shift basis without violating the salary basis requirement, that regulation states that the arrangement must include a guarantee of at least the minimum weekly required amount paid on a salary basis and that there be a reasonable relationship between the guaranteed amount and the amount actually earned. However, the parties in this case agreed that the plaintiff’s compensation failed the reasonable relationship test, such that the sole issue was whether his admitted day rates qualified as a “salary basis” within the meaning of §541.602(a).
Writing for the court, Justice Elena Kagan stated that “[i]n demanding that an employee receive a fixed amount for a week no matter how many days he has worked, §602(a) embodies the standard meaning of the word ‘salary’” which generally refers to a “steady and predictable stream of pay.” Justice Kagan stated that even a “high-earning employee” who is compensated on a “daily rate—so that he receives a certain amount if he works one day in a week, twice as much for two days, three times as much for three, and so on” is “not paid on a salary basis, and thus entitled to overtime pay.”
The court’s decision will likely have wide-ranging impact. Employers have long-argued that the FLSA was not intended to protect highly-compensated employees, notwithstanding the unambiguous language of the statute itself and the DOL’s regulations. The majority squarely rejected this reasoning, adopting a typically conservative textualist approach and holding that the regulations mean precisely what they say and must be strictly construed to protect employees, both low-wage and higher-wage.
Click Helix Energy Solutions Group Inc. v. Hewitt to read the entire opinion of the court and the dissents.