Supreme Court to Decide: If I Earn My Pay One Day at a Time, Am I a Salary Employee?
A frequent debate between employers and employees is whether the employee is exempt or nonexempt. The reason why that matters is usually linked to whether overtime is due to be paid under the Fair Labor Standards Act (FLSA). Nonexempt employees receive overtime and exempt employees do not. Sometimes, employers try to work matters out rather cleverly to avoid paying overtime, such as happened with Mr. Hewitt.
Facts of the Case:
- Mr. Hewitt was a supervisor working on an offshore oil and gas rig. Oil and gas rig work are physically demanding and dangerous, and you frequently work 80 hours a week for 7 to 28 days straight. You live on the oil rig during that time. (Often there is a gym, unlimited meals, maid service, etc.)
- Mr. Hewitt received his pay biweekly, but not at a set amount. His pay due was based on a daily rate rather than a weekly or biweekly rate. In other words, Mr. Hewitt never knew how much he would make every two weeks until after he worked those two weeks. He received a salary for each day that he worked, and it did not matter if he put in 8 or 16 hours. He supervised other men, and the money was good.
- Mr. Hewitt never challenged his pay until he was terminated. At that point, he filed a putative class action seeking retroactive overtime pay for himself and others. He contended that under this regulation, his pay did not meet the salary basis requirement because his pay was calculated at a daily rate. Thus, the regulation did not exempt him from the FLSA requirement of overtime pay.
- Helix contended that Mr. Hewitt was either an exempt executive (29 C.F.R. § 541.100) or a highly compensated employee (§ 541.601). However, Mr. Hewitt countered that if he was paid biweekly, he should have been paid a salary biweekly, instead of having to work the entire two weeks only to learn how many days he would be paid.
- Further, even though he was making $200,000 per year, everyone makes excellent wages working on an oil rig because it is dangerous, hard work, and you have to live there away from your home. Mr. Hewitt lost, however, as the district court agreed with Helix.
Believing that the lower court had misconstrued the regulation requirements, Mr. Hewitt appealed to the Fifth Circuit. In Hewitt v. Helix Energy Sols. Grp., 956 F.3d 341 (5th Cir. 2020) the Court noted:
“The Department of Labor provides a regulation, 29 C.F.R. § 541.602, which defines what it means for an employee to be compensated on a “salary basis”— a requirement that must be met for an employer to qualify for certain exemptions under the FLSA. As the regulation makes clear, an employee is paid on a “salary basis” if he “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount”— and if that salary is paid “without regard to the number of days or hours worked.” It held that “Hewitt’s pay cannot be squared with this provision. He was paid on a daily rate—so he was paid “with” (not “without”) “regard to the number of days or hours worked,” in direct conflict with the plain language of § 541.602(a)(1). So § 541.602(a)(1) confirms that Hewitt was not paid on a salary basis.” Id. at 344 (5th Cir. 2020).
Helix was not content to leave the issue alone and petitioned for the United States Supreme Court to hear the case. It agreed to hear the case, and now the oral argument is set for October 12, 2022. The issue before the Court is whether a supervisor making over $200,000 each year is entitled to overtime pay because the standalone regulatory exemption set forth in § 541.601 is subject to the detailed requirements of § 541.604. If it is, then the FLSA requires overtime pay for all who are compensated with a salary set on less than a weekly basis.
Many employers will have their eye on this case and certainly many employees. There are many “creative” arrangements that employers engage in, in trying to avoid overtime. This case will provide direction on some of those arrangements one way or the other.