Last Wednesday, February 22, 2023, the US Supreme Court (or “Court”) issued its opinion in Helix Energy Solutions Group, Inc. v. Hewitt (“Helix”), holding that paying an employee a day rate does not satisfy the salary basis test under the white-collar exemptions in section 13(a)(1) of the Fair Labor Standards Act (“FLSA”). Due to this ruling, highly compensated employees may be eligible to receive overtime pay if they are paid on a day-rate basis.
Background to Helix
In Helix, the plaintiff previously worked on an offshore oil rig from 2014 to 2017. Irrespective of the number of hours he worked in a day, he was compensated between $936 and $1,341 per day. This day rate amounted to an annual salary of more than $200,000. After the plaintiff was fired, he sued his employer, claiming that he was misclassified as an exempt employee, and therefore entitled to overtime pay. The federal district court in Texas held that he was not misclassified as an exempt employee because he was guaranteed to receive at least $963 for any amount of time in one day during the workweek, which was more than sufficient to meet the $684 weekly amount (and a prior weekly minimum of $455) under the FLSA. This satisfied the salary basis test.
The plaintiff appealed to the Fifth Circuit. The Fifth Circuit agreed with the plaintiff, reasoning that the salary basis test requires an employee to be paid the same amount of pay on a weekly basis or less frequently, regardless of the days worked in the particular workweek. The variation in the plaintiff’s pay based on the number of days he worked in a workweek meant that his pay did not meet the definition of a “salary” under the white-collar exemptions in the FLSA. The employer appealed to the US Supreme Court.
Supreme Court Decision: Why Was the Salary Basis Test Not Satisfied?
The Supreme Court affirmed the Fifth Circuit’s ruling, holding that when an employee’s paycheck is based solely on a daily rate, they are not compensated on a salary basis and therefore cannot qualify for the white-collar exemptions under the FLSA. Thus, employees paid on a day-rate basis are entitled to overtime pay. In looking at the FLSA’s text and structure, the Court noted that there was nothing in the description of a “salary” that applies to a daily rate employee. For the purposes of the FLSA, a day rate is not the same as a salary.
In dissent, Justice Kavanaugh questioned whether the Court’s reasoning was consistent with the FLSA’s statutory language. He noted that the statutory text focuses on the duties of an individual and does not mention how or how much an employee is compensated. Ultimately, he questioned whether these salary requirements “will survive if and when the regulations are challenged as inconsistent with the [FLSA].”
Tips for Employers
Employers should carefully review their compensation practices, particularly employers who are in the energy, oil, and gas industries because the daily rate is commonly used in such industries. Alongside the federal regulations on the white-collar exemption, employers should be aware of state regulations. Not all states recognize the exemption (e.g., California), so if you are an employer in a state that does not recognize the exemption, you need to adopt payroll policies to comply with the applicable state’s laws.
For more information on the salary basis test and white-collar exemptions under the FLSA, please contact us at info@mnklawyers.com.
This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.
