SCOTUS Ruling Clarifies Overtime for Daily-Rate Employees Under FLSA
On February 22, 2023, in Helix Energy Solutions Group, Inc. v. Hewitt, No. 21-984, the U.S. Supreme Court in a 6-3 decision held that a “highly compensated executive employee” who was paid at a daily rate and not paid on a “salary basis” at the then-required $455 weekly salary was not exempt from the overtime provisions of the Fair Labor Standards Act (FLSA).
The employer, an offshore oil and gas company based in Houston, claimed that its former employee, a highly paid executive, earning more than $200,000 per year at a daily pay rate, was exempt from overtime pay because he received at least $455 each week, meeting the minimum standard for salaried workers at the time. The former employee claimed that he was entitled to overtime payments as he was not paid at FLSA’s then-required $455 weekly salary. According to the Curt’s record, the former employee from 2015 to 2017 lived on an offshore oil rig for 28 days at a time while being on-duty for 12 hours each day. He was paid during this period from $963 to $1,341 per day, and earned $248,053 in 2015 and $218,863 in 2016.
In analyzing the FLSA regulations governing what constitutes being paid on “salary basis” and the “highly compensated employee” exemption, the Supreme Court, in an opinion authored by Justice Kagan, found that a daily rate, even one that exceeded the weekly salary minimum, did not satisfy the “salary basis” test required by the regulation because it constituted a guaranteed payment per day, not per week. According to Justice Kagan, however, employers can satisfy the “salary basis” test for “highly compensated” employees paid at a daily rate paying the employee a defined weekly amount, along with a day rate for extra days, so long as there is a “reasonable relationship” between the weekly guarantee and the total amount actually paid.
Unfortunately for employers, the issue of what constitutes a “reasonable relationship” is not defined by FLSA regulation, other than the U.S. Department of Labor’s guidance in FLSA opinion letter 2018-15 on this issue. While this FLSA opinion letter acknowledges that the 1.5-to-1 ratio of guaranteed weekly salary to actual earnings may signify the existence of a reasonable relationship, the Department further stated in this letter that where actual or usual earnings are approximately 1.8 times the guaranteed weekly salary—or nearly double—the guaranteed weekly salary “materially exceed[s]” the permissible ratio of the regulation. Accordingly, employers should therefore seek the advice of counsel in classifying “highly compensated” employees as exempt even when they are paid at the current guaranteed FLSA salary of $684 per week to determine if a “reasonable relationship” exists between the employee’s actual and guaranteed weekly earnings within the meaning of the Department’s FLSA guidance.