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 that 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 full Fifth Circuit subsequently heard the case and, in a 12-6 opinion, reached the same conclusion. Hewitt v. Helix Energy Sols. Group, Inc., 15 F.4th 289 (5th Cir. 2021), cert. granted, No. 21-984 (U.S. May 2, 2022). The Sixth and Eighth Circuit Courts of Appeal previously had arrived at the same conclusion. The U.S. Supreme Court has now granted certiorari and, presumably during next Fall’s term, will determine whether the analysis of Fifth, Sixth, and Eighth Circuits regarding the FLSA’s salary-basis requirement was sound.
The FLSA Regulation
The relevant U.S. Department of Labor (DOL) regulation provides:
[A]n 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). Furthermore,
[a]n 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. The reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek.
29 C.F.R. § 541.604(b) (emphasis added).
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 for each week in which he worked (the minimum salary required for exempt status under the FLSA 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.
Citing the DOL’s regulations, the en banc Fifth Circuit concluded that “respect for text forbids us from ignoring text. As a matter of plain text, we hold that, when it comes to daily-rate employees like Hewitt, Helix must comply with § 541.604(b).” Because the Company admitted that it paid the plaintiff strictly on a day-rate basis without a weekly guarantee, it failed to satisfy the “salary basis” requirement of the FLSA’s overtime exemption provisions. The Court of Appeals added that Helix easily could have complied with this requirement by guaranteeing the plaintiff $4,000 or so weekly, which reasonably would have equated to the $963 daily rate it actually paid. The Fifth Circuit noted that the Sixth and Eighth Circuit Courts of Appeal, as well as the U.S. Department of Labor and most federal district courts, likewise have concluded that Section 541.604(b)’s weekly guarantee must be satisfied, even for highly paid employees like the plaintiff.
Because “day rate” pay is a longstanding common practice in the energy industry, the Supreme Court’s decision on this issue is particularly important. We will continue to provide updates on this case but 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.