The Fair Labor Standards Act (“FLSA”) establishes a standard 40-hour work week by requiring employers to pay a 50% overtime penalty for any time worked over 40 hours per week. These principles apply, of course, only to those workers who are in fact covered by the Act. Congress exempted “bona fide executive, administrative, [and] professional” employees from the overtime laws. This case of Hewitt v Helix Energy Solutions Group involved a toolpusher who is purportedly an “executive” employee under the regulations – and a “highly compensated” one at that, earning over $200,000 per year.
Helix Energy Solutions Group paid Michael Hewitt a daily rate. Hewitt worked as a toolpusher for Helix for over two years. In that position, Hewitt managed other employees while on a “hitch” – that is, while working offshore on an oil rig. Each hitch lasted about a month. According to the summary judgment record in the trial court, Helix paid Hewitt based solely on a daily rate. Helix conceded it required Hewitt to work over 40 hours per week. Helix nevertheless attempted to avoid the FLSA overtime penalty by characterizing Hewitt as either an executive or highly compensated employee – both of which are exempt from the FLSA overtime requirements. To prevail under either formulation, Helix was required to show that it paid Hewitt on a “salary basis” as defined by the regulations or, alternatively, Helix could attempt to invoke the highly compensated employee exemption by showing that it paid Hewitt on a “fee basis.”
Hewitt contended in response that Helix did not pay him on a “salary basis” because the company calculated his pay using a daily rate. As such, it did not satisfy the requirements of the FLSA. At the trial court level, Helix responded it was not required to comply.
The district court judge ruled in favor of Helix and Hewitt appealed.
Under the regulations, an employee whose pay is computed on a daily basis – rather than on a weekly, monthly, or annual basis – could in theory be regarded as paid on a “salary basis.” So, a daily rate worker can be exempt from overtime, but only “if” two conditions are met: (1) the minimum weekly guarantee condition and (2) the reasonable relationship condition. First, “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.” Second, “a reasonable relationship exists between the guaranteed amount and the amount actually earned.”
This two-prong test protects employees in two ways.
First, the “minimum weekly” guarantee ensures that a daily-rate employee still receives a guaranteed amount each week “regardless of the number of hours, days or shifts worked.” In other words, it sets a floor for how much the employee can expect to earn, “regardless” of how many hours, days, or shifts the employee works.
Second, the reasonable relationship test ensures that the minimum weekly guarantee is not a charade – it sets a ceiling on how much the employee can expect to work in exchange for his normal paycheck, by preventing the employer from purporting to pay a stable weekly amount without regard to hours worked, while in reality routinely overworking the employee far in excess of the time the weekly guarantee contemplates.
The Ruling on Appeal:
The Fifth Circuit summarized the issue as follows: Can a daily rate employee ever be regarded as being paid on a “salary basis” and therefore exempt from overtime pay under the FLSA?
The Fifth Circuit Court found that Helix did not comply with either prong outlined above.
First, it paid Hewitt a daily rate without offering a minimum weekly required amount that is paid “regardless of the number of hours, days or shifts worked.” Rather, it noted Helix theorized the daily rate that it paid Hewitt is a minimum weekly guaranteed amount – even though it is the very opposite of an amount that is paid “regardless of the number of…days…worked.”
Second, Helix did not comply with the reasonable relationship test. To the contrary, it paid Hewitt orders of magnitude greater than the minimum weekly guaranteed amount theorized by Helix – namely, Hewitt’s daily rate. Not surprisingly, Helix did not even bother to contend that it satisfied the reasonable relationship test.
The argument by Helix was because Hewitt was already well compensated, extending overtime protection to him conflicted with the purpose of the FLSA. The Fifth Circuit rejected that by stating the regulations “…instead required both that the employee be paid at least a certain amount of compensation” and that the compensation be paid “on a salary basis.”
Helix also contended that because Hewitt was well paid, he had no right to complain about his hours. The Appeals court also rejected this argument: “…it should surprise no one that many people value more free time over more money. And honoring that preference has always been at the heart of the FLSA.”
Last, there was the argument that this ruling “…will wreak havoc on the oil and gas industry.” In responding to that, the Fifth Circuit concluded “…the industry can lobby Congress or the Secretary of Labor to amend the salary basis test – either on behalf of all employers, or for just those in the oil and gas business.” But what the industry cannot do is to ask judges to “alter the text [of the regulations] in order to satisfy…policy preferences.”
The Court of Appeals therefore reversed the grant of summary judgment to Helix and remanded the case to the trial court to render a decision in line with their ruling.
But, alas, all is not lost. The Fifth Circuit announced on March 9th that the case will now be re-heard by the entire Court or en banc.
The recent decision from December can be viewed by clicking here, but note that it is vacated pending the en banc hearing and their decision.
Stay tuned for the next chapter in this interesting and significant case.