- Salary threshold upheld. In a test of the FLSA overtime rule, the Supreme Court ruled that highly compensated employees can be eligible for overtime pay if they are paid on a daily basis instead of salaried.
- Rigid requirements in FLSA. The decision reiterates that the FLSA and other wage and hour laws can have very rigid requirements. Even though the employee in this case was highly compensated, the court nevertheless denied the employer the overtime exemption based on a very technical reading of the regulations.
- Employer action item. Employers should ensure they pay all employees covered by the executive, administrative and professional exemptions within the strict guidelines of the salary basis and salary level regulations.
- Salary basis test’s future. In his dissent, Justice Kavanaugh raised the argument that the salary basis test should possibly be struck down as contrary to the law. If that argument prevails in future litigation, it will provide more flexibility to employers on this issue, legal analysts note.
In a 6-3 vote, the U.S. Supreme Court ruled Wednesday that an offshore oil rig employee who earned $200,000 per year or more should receive overtime pay when working more than a 40-hour week.
According to the decision, the employer, Helix Energy Solutions Group in Houston, argued that Michael Hewitt did not qualify for overtime pay because of Fair Labor Standards Act (FLSA) provisions regarding salaried versus hourly employees. The company, which classified Hewitt as a “bona fide executive” in its pleading, according to the Court’s decision, noted that Hewitt worked up to 84 hours per week.
The case boiled down to whether being paid a minimum amount per day can count as a salary. The court ruled that Helix didn’t pay a salary as defined under the FLSA, which means Hewitt was not an exempt employee.
Justice Elena Kagan wrote the majority opinion, which in a rarity had conservative Justices Clarence Thomas, Amy Coney Barrett and John Roberts joining the Court’s three liberal Justices — Kagan, Sonia Sotomayor and Ketanji Brown Jackson — in the ruling.
In its majority opinion, the Court said it all boils down to whether Hewitt, whose job title is “tool pusher,” was paid via salary or hourly.
“The question here is whether a high-earning employee is compensated on a ‘salary basis’ when his paycheck is based solely on a daily rate — so that he receives a certain amount if he works one day in a week, twice as much for two days, three times as much for three, and so on,” Kagan wrote.
“We hold that such an employee is not paid on a salary basis, and thus is entitled to overtime pay,” Kagan wrote.
Employer Takeaway
According to Patrick Dalin, Of Counsel in Fisher Phillips’ Philadelphia office, the decision reiterates that the FLSA and other wage and hour laws can have very rigid requirements. He added that while the employee in this case was very well paid, the court nevertheless denied the employer the overtime exemption based on a very technical reading of the regulations.
“In light of this decision, employers should ensure that they pay all employees covered by the executive, administrative and professional exemptions within the strict guidelines of the salary basis and salary level regulations,” Dalin said, adding that Fisher Phillips has posted a client alert on the matter.
Research: FLSA Research
Additionally, he noted, employers should be careful not to “paint outside the lines” of the strict requirements of the wage and hour laws and regulations. He warns that even where an employer and its employees agree to a creative compensation arrangement, the employer can be subject to substantial back pay and liquidated damages liability if the arrangement does not comport with the law’s strict requirements.
Justices Samuel Alito, Jr. joined Brett Kavanaugh in the latter’s minority opinion, and Neil M. Gorsuch, in a separate dissenting opinion, said he would dismiss the case as having been “improvidently granted” by the Supreme Court -- meaning the plaintiff had no standing in the case.
A federal district court judge who first heard the case agreed with Helix, finding Hewitt was paid on a salary basis and thus was not entitled to overtime.
With its majority decision, the Court affirmed a 2021 ruling by the New Orleans-based 5th US Circuit Court of Appeals that Helix must face Hewitt’s 2017 lawsuit seeking overtime pay. The litigation now moves back to a federal judge in Houston.
Finally, Kagan noted in the majority opinion that the text of a 1949 regulation — that highly compensated workers (currently defined as those earning $107,000 a year or more) would not receive overtime pay if they have supervisory duties and are paid at least $455 per week in the form of a salary — clearly indicated that it did not apply to employees who are paid based on how many days they work and are not guaranteed minimum weekly wages.
Another takeaway, Dalin said, is that in his dissent Justice Kavanaugh raised the argument that the salary basis test should possibly be struck down as contrary to the law.
“While the court did not address that issue in this decision, if that argument prevails in future litigation, it will provide more flexibility to employers on this issue,” he said. “For the time being, however, employers should be careful to comply with the salary basis rules for exempt employees.”
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