In a majority opinion on February 22, 2023, the United States Supreme Court in Helix Energy Solutions Group, Inc. v. Hewitt held that a highly paid employee was not exempt from the overtime requirements of the Fair Labor Standards Act (“FLSA”) because he was paid a daily rate and not a guaranteed salary. In light of this ruling, highly compensated executive employees may be entitled to overtime pay if they are paid at daily rates.
Here, the respondent Michael Hewitt (“Hewitt”) worked on an oil rig for petitioner Helix Energy Solutions Group (“Helix”) at a daily rate of $963, typically working 84 hours per week, seven days per week. Hewitt did not receive overtime compensation. Hewitt’s paycheck every two weeks equaled his daily rate times the number of days worked in the pay period and therefore he earned over $200,000.00 per year.
Hewitt filed suit against Helix claiming that he should be entitled to overtime pay under the FLSA which guarantees overtime to covered employees when they work more than 40 hours per week. In response, Helix asserted that Hewitt was exempt from overtime pay under the FLSA’s “bona fide executive” exemption. Under this exemption, executives must be paid on a “salary basis,” meaning that their predetermined pay must be calculated on a weekly or less frequent basis and not tied to the hours worked per week. The current regulations require that they must also have a minimum pay of $684 per week. Succinctly, the issue before the Court was whether highly compensated executive employees who are paid at daily rates are paid on a “salary basis.”
The Court’s Ruling
The Court held, on the facts of the case, that Hewitt was not exempt from receiving overtime under the FLSA. According to the Court, a daily rate is not the same as a salary for purposes of the FLSA. Merely meeting the required level of compensation is not sufficient. Therefore, employees paid on a daily rate are entitled to overtime unless they qualify for another FLSA exemption. The Court noted that “[e]mployees are not ‘deprived of the benefits of [overtime compensation] simply because they are well paid.’”
This decision will have broad implications for employers not only in the oil and gas industry, but also other industries that have historically paid employees on a day-rate basis. In light of this decision, an employer paying a daily rate to an employee classified as exempt should review its pay practices with counsel to determine whether the practices present any risk for unpaid overtime and take prompt steps to mitigate that risk – as this issue could be the subject of future litigation.
Employers should note, however, that applicable state and local laws may have different requirements from the FLSA, and impose overtime or other requirements that do not have exemptions mirroring the FLSA. In light of this decision, the Shulman Rogers Employment and Labor Law Group recommends that employers review their compensation practices – especially if using/based on a daily rate as opposed to an annualized salary.
The contents of this Alert are for informational purposes only and do not constitute legal advice. If you have any questions about this Alert, please contact the Shulman Rogers attorney with whom you regularly work or a member of the Shulman Rogers Employment and Labor Law Group.
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