What Potential SCOTUS Ruling on Overtime Pay for Worker Who Earned $200K Could Mean for Your Business

Is a supervisor who makes six figures a year entitled to overtime? That’s the question the United States Supreme Court will grapple with during oral arguments scheduled for October.

Legal experts say Helix Energy Solutions Group, Inc. v. Hewitt could have an enormous impact on employers using the “daily pay rate” model — a common payroll practice in the oil, gas, and energy industries.

Lawsuit filed to receive overtime

Michael Hewitt worked as a supervisor on an offshore oil rig as a “toolpusher,” a supervisory, administrative position, making him the “second-in-command” on the vessel for Helix Energy Solutions, Inc.

Helix paid Hewitt a daily rate of $963 to $1,341 bi-weekly. The company said the man was paid $200,000 in 2015 and 2016.

Hewitt worked 28-day “hitches,” a standard industry practice where he lived on the oil rig for 28 days at a time and was on duty for 12 hours each day during the hitch.

Hewitt filed a class action lawsuit against the Houston, TX-based company. The company owed him overtime pay after his termination, according to the filing.

He said he should have received overtime pay because he was paid on a daily basis, not on a salary basis.

If an employee “regularly receives a predetermined amount of compensation each pay period,” whether weekly, bi-weekly, or monthly, they are a salaried employee. This predetermined, fixed salary cannot go up or down because of the quality or quantity of their work.

The employer did not take deductions from Hewitt’s pay based on the quality or quantity of his work.

The Fair Labor Standards Act (FLSA) requires that employers pay employees time-and-a-half for all hours worked over 40 in a workweek unless an exception applies. Helix said the former employee qualified for the federal law’s “highly compensated employee” exception to premium pay. Therefore, it did not have to pay the former employee overtime compensation.

Highly compensated employee overtime question

According to the U.S. Department of Labor, “highly-compensated employees” are not eligible for overtime pay if several conditions are met:

• The employee earns at least $107,432 a year, which includes at least $684 per week, paid on a salary or fee basis
• The employee’s primary duty includes performing office or non-manual work
• The employee regularly performs the duties of an executive, administrative, or professional employee

Generally, a company does not have to pay overtime rates to a white-collar worker who is an executive, administrative, or professional.

Another exception to FLSA overtime pay requirements occurs when an employee qualifies for one of the “white collar” exceptions. Generally, a company does not have to pay overtime rates to a white-collar worker who is an executive, administrative, or professional.

Court rulings about overtime

The district court agreed with the employer. The court noted that Hewitt conceded that he earned at least $100,000 each year and performed executive duties.

The district court ruled that Hewitt was exempt in 2 different ways. The court said he was exempt from overtime pay requirements:

1. Under the traditional requirements for executive employees
2. Under the test used for highly compensated employees.

Filing multiple appeals

However, the U.S. Court of Appeals for the Fifth Circuit (5^th Cir.) disagreed and reversed the lower court’s ruling.

The oil worker did not receive a salary basis payment. Therefore, the appeals court initially decided the white-collar and the highly compensated employee exemptions for overtime pay did not apply.

The 5^th Cir. said the former supervisor’s pay structure did not fit the exemption from overtime pay because Helix computed the supervisor’s pay on a daily basis rather than on a weekly, monthly, or annual basis. Therefore, the 5th Circuit said the pay structure was not a “salary” under the highly-compensated employee exception.

The employer then asked the full court to review the case, arguing that the panel’s salary basis reasoning was flawed. As a result, the court withdrew that opinion and issued another opinion.

The appeals court discarded the salary-basis reasoning in the new opinion. However, they still found that Hewitt was eligible for overtime pay. This time, the court said Hewitt qualified for overtime pay because 29 C.F.R. §541.604 applies when determining whether a highly compensated employee is exempt from overtime pay requirements.

Under subsection (b) of §541.604, an employee is eligible for overtime if:

1. He earns the minimum weekly amount paid on a salary basis, and
2. There is a reasonable relationship between the amount guaranteed and the amount actually earned for employees whose pay is calculated on hourly, daily, or per-shift bases.

The employer did not satisfy §541.604(b)’s reasonable-relationship requirement, the court said.

The appeals court noted that neither employer nor employee disputed Hewitt met the duties and income requirements of the “highly compensated employee” exemption.

Split decisions about overtime in the circuits

One of the leading reasons for the Supreme Court to agree to take on a case is to clear up matters when the federal circuits have come to different conclusions on the same topic.

In asking the Supreme Court to take the case, Helix described the decision as a “counterintuitive conclusion” that conflicted with earlier rulings by the 1st and 2nd Circuits, which held that section 541.604 does not apply to highly-compensated employees.

The 5th Circuit said its application of section 541.604 to highly-compensated employees follows similar interpretations of the law by the 6th and 8th Circuits, as well as the Department of Labor. Based on those judicial decisions and the D.O.L. rules, the court concluded that regardless of how much employees who are paid daily earn, they shouldn’t be exempt from overtime pay requirements.

Supreme Court briefs

Helix said in the brief it filed with the Supreme Court that “The Fifth Circuit’s reading would reward supervisors already making hundreds of thousands of dollars with massive windfalls and would impose significant retroactive liability on employers for long-settled practices.”

Industry groups also chimed in. The Independent Petroleum Association of America (IPAA) and Texas Oil & Gas Association said the ruling will disrupt common industry practice.

The oil and gas association said oil-field consultants can make as much as $1,000 a day. With that in mind, they should “clearly fall” under the “highly compensated employee” exemption.

IPAA’s brief filed with the Supreme Court stated, “the outcome of this litigation will affect the amicus curiae members’ payroll practices and use of day-rate subject matter experts.”

The oil and gas association said oil-field consultants can make as much as $1,000 a day. With that in mind, they should “clearly fall” under the “highly compensated employee” exemption.

The U.S. Chamber of Commerce said in their brief filed with the Supreme Court that “the FLSA and its overtime provisions were designed to protect blue-collar employees working oppressively long hours for substandard wages—not attorneys, consultants, and other white-collar professionals making six-figure salaries.”

The Chamber also noted that the highly compensated employee exemption “was meant to provide employers with a straightforward safe harbor from overtime liability for their highest-paid employees.”

Several states have also intervened in the case. Mississippi, Alabama, Louisiana, Montana, Utah, and West Virginia have asked the nation’s top court to support Helix.

How this impacts employers

Because of the split in the federal circuits, attorneys at law firm Fisher Phillips have noted that different legal tests apply depending on where workers are located.

The 5^th Circuit covers Louisiana, Mississippi, and Texas. The attorneys recommend that employers operating in those states “make sure your pay plans are compliant with the findings” with the court’s decision and that the “guaranteed amount should have a reasonable relationship to the employees’ actual earnings.”

The lawyers also recommend that employers “take the safe route.” Those with operations in more than one location should pay particular attention and include weekly, bi-weekly, or monthly salary guarantees in compensation packages. Especially for employees who qualify for the highly compensated employee exemption.