One relatively common misapprehension by employers is that generous wages or popular methods of payment will satisfy the Fair Labor Standards Act (FLSA). On February 22, 2023, the Supreme Court reiterated the need not simply for “fair” employment policies or high wages but for adherence to the specific tests for exempt employees.
In Helix Energy Solutions Group, Inc. v. Hewitt, Case No. 21-984 (U.S. Sup. Ct. Feb. 22, 2023), the plaintiff was a supervisor working on an oil rig for the defendant. It was undisputed that he performed executive exempt duties as a supervisor and made over $200,000 per year. The issue was the manner in which he was paid. For the so-called white-collar exemptions under the FLSA, the regulations require that the employee be paid “at least $455 per week … on a salary or fee basis.” 29 C.F.R. section 602 (emphasis added). Rather than a weekly salary, the employee was paid a per diem (daily) rate of at least $963. Because the employee typically worked 84 hours per week while on shift, that would have amounted to 44 hours per week of overtime.
The district court granted summary judgment to the employer, but the Fifth Circuit, sitting en banc, reversed, finding that the method of payment did not satisfy the salary test and that the employee therefore was not exempt and should have received overtime.
The Supreme Court, in an opinion written by Justice Elena Kagan (joined by, among others, Justice Clarence Thomas and Justice Amy Coney Barrett), affirmed. The majority found that by regulation the salary test was an essential requirement to meet the exemption. By using a daily rate rather than a weekly salary, the employer had not met that requirement. Based on what it saw as a clear directive in the text of the regulation, the Court rejected arguments asserted by the defendant based on policy, cost, or windfall concerns. Thus, it found that, despite the high wage rate, the employee was not exempt and should have been paid overtime.
Interestingly, the dissent, authored by Justice Brett Kavanaugh, raised the mathematical fact that an employee receiving a daily rate of at least $963 would automatically have received more than the FLSA’s weekly salary requirement of $455. Thus, he asserted, the weekly salary requirement was met.
Hewitt was not a class or collective action, but it is likely to spur the filing of more collective action suits asserting technical FLSA violations for highly compensated employees paid under creative payment arrangements. While it involved the executive exemption, its holding would also apply when the employer is relying on the administrative or professional exemptions. It is a warning to employers to follow the FLSA’s often archaic requirements even when the employee is very highly compensated and the parties have agreed to other kinds of arrangements.
The bottom line: Structure matters under the FLSA, and those seeking to take advantage of the executive, salaried or professional exemptions should make sure that their arrangements satisfy the salaried employee requirements even if they don’t always make sense.