In April 2020, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit held that paying an employee a set amount for each day he works (i.e. on a “day rate” basis) does not satisfy the “salary basis” component required to qualify as overtime-exempt under the Fair Labor Standards Act (FLSA), regardless of whether the employee earns the weekly minimum salary (currently, $684) required for the exemption. The panel revised its opinion in December 2020, but its holding remained the same. That decision has now been vacated and the case will be reheard by the full (en banc) Fifth Circuit. Hewitt v. Helix Energy Solutions Group, Inc., No. 19-20023 (5th Cir. Mar. 9, 2021). The Fifth Circuit includes the federal courts in Texas, Mississippi, and Louisiana.

In Hewitt, the plaintiff worked on an offshore oil rig for periods of about a month at a time, known as “hitches.” The company paid the plaintiff a set amount for each day that he worked, and he received bi-weekly paychecks. Despite earning over $200,000 during each of the two years he was employed, and admittedly being paid at least $455.00 for each week in which he worked (the minimum salary required for exempt status during the time of his employment), the plaintiff filed suit, claiming he was entitled to overtime for each week he worked in excess of 40 hours.

The relevant U.S. Department of Labor (DOL) regulation provides that

an employee will be considered to be paid on a ‘salary basis’ within the meaning of this part 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.

29 C.F.R. § 541.602(a). The regulation further provides 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.” Id. § 541.602(a)(1).

Because the plaintiff was paid – albeit handsomely – only for the days he worked, he did not receive a “predetermined amount . . . without regard to the number of days or hours worked.” Therefore, concluded the panel, the “salary basis” requirement was not met. In so concluding, the panel aligned itself with the Sixth Circuit Court of Appeals, which had similarly ruled in Hughes v. Gulf Interstate Field Services, Inc., 878 F.3d 183 (6th Cir. 2017).

In its original opinion, the panel did not address the potential applicability of Section 541.604(b) of the regulations, which provides in part that

an exempt employee’s earnings may be computed on an hourly, a daily or a shift 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 hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned.

In its revised opinion, however, the majority opinion pointed out that the employer might have been able to avoid the result had it simply guaranteed the plaintiff a salary of at least $455 per week (the minimum requirement at the time of plaintiff’s employment), but did not do so and did not even argue that the “reasonable relationship” provision applied.

Given that “day rate” pay is a common practice in the oil industry in the Gulf of Mexico, the Fifth Circuit’s ultimate decision on this issue is particularly important, and whether the full court will uphold the panel’s conclusions or reach a different result remains to be seen. In the meantime, if you have any questions about this decision, exemptions under the FLSA, or any other wage and hour issue, please contact the Jackson Lewis attorney(s) with whom you regularly work.