The federal Fair Labor Standards Act (“FLSA”) provides for the payment of overtime at the rate of one and a half times an employee’s regular rate of pay for each hour worked in excess of 40 during a 7-day workweek.  There are a number of exemptions to the FLSA’s overtime pay requirements, the details of which are specified in regulations issued by the U.S. Department of Labor.  The most common are the so-called “white collar exemptions” that are available with respect to certain professional (4 year-degreed), executive (supervisor) and certain administrative employees (who must exercise discretion and independent judgment regarding matters of significance related to the management of the employer’s business).  To qualify for the “white collar” exemptions, the FLSA requires that the employee: (i.) satisfy the applicable duties test for the exemption; (ii.) be paid at least $684 per week; and (iii.) (in most cases) that such minimum pay be made to the employee on a guaranteed “salary basis.”  The Department of Labor regulations also provide for a relaxed “duties” test with respect to certain “highly compensated” employees who are paid total annual compensation of $107,432 or more.

The Department of Labor regulations provide that the FLSA overtime exemptions are to be narrowly applied, and that it is the employer’s burden to show that each of the elements required for the exemption are satisfied.  In the recent case of Hewitt v. Helix Energy Solutions Group, Inc. et al.  (No. 19-20023) (5th Cir.  9/9/2021), the Fifth Circuit Court of Appeals reinforced these strict construction principles and held that the FLSA executive overtime exemption will not be allowed if the salary basis payment requirements are not met, even in the case of highly compensated employees.

Michael Hewitt worked for Helix as a Tool Pusher and was responsible for supervising other employees in this position.  Hewitt worked offshore on a rotational “hitch” basis and frequently worked more than 40 hours per week.  There was no dispute that Hewitt’s primary duties were supervisory in nature, such that he met the “duties” test for the FLSA executive overtime pay exemption.  Likewise, his earnings far exceeded the $684 per week minimum earnings threshold.  However, Hewitt was not paid on a salaried basis – but was instead paid on a flat “day rate” of $963 per day worked.  Based on his high rate of pay and the number of days he worked, Hewitt earned well in excess of $200,000 per year.

Despite his high rate of pay, Hewitt filed suit on behalf of himself and other similarly situated employees contending that overtime premium pay was owed by the employer under the FLSA. The federal district granted Helix’s motion for summary judgment and dismissed Hewitt’s claim on the basis that he was a “highly compensated” employee.  Hewitt appealed.  In a contentious 2 to 1 decision (in which the majority and the dissent exchanged barbed quotes from Shakespeare’s Macbeth and Talladega Nights: the Ballad of Ricky Bobby), a three-judge panel of the Fifth Circuit reversed and found that the executive overtime pay exemption did not apply because Hewitt (although highly compensated) did not receive a guaranteed weekly salary.  Helix requested en banc review of the panel decision, which the Fifth Circuit granted.  On September 9, 2021, the Fifth Circuit (by a vote of 12 to 6) issued an en banc decision reversing the district court’s ruling for the employer and held that the FLSA executive overtime pay exemption could not be applied to Hewitt.  The case was remanded to the district court for further proceedings.

In reaching this result, the Fifth Circuit majority relied on a textual application of the FLSA (and relevant Department of Labor regulations).  The Court found that payment of Hewitt on a day rate basis did not satisfy the FLSA salary basis payment requirement because he was not guaranteed the required minimum salary without regard to the number of days or hours he worked.  The majority acknowledged that a Department of Labor regulation (29 C.F.R. 541.604(b)) allows an employer to compensate its exempt employees on a day rate basis (as an alternative to a weekly salary), but only if the pay arrangement also included a minimum weekly pay guarantee without regard to the days and hours worked and the guarantee bears a “reasonable relationship” to the employee’s usual weekly earnings.  The Court explained that an employer cannot meet this alternative requirement by guaranteeing a weekly payment substantially lower than the employee’s regular earnings because that would render the salary “illusory” (the majority reasoned that Helix could have met this requirement on these facts by guaranteeing Hewitt $4,000 per week).  In this case, no weekly wage guarantee was provided by the employer.  Therefore, the majority concluded that this Department of Labor regulation did not apply, and the day rate compensation method used by the employer did not satisfy the executive employee exemption.  Accordingly, Hewitt could not be treated as an overtime exempt employee.

Notwithstanding the harsh results for the employer on the facts of this case, the Court rejected the employer’s arguments that a highly compensated employee like Hewitt should not be entitled to overtime pay – without regard to the salary basis requirement:

“Our job is to follow the text—not to bend the text to avoid perceived negative consequences for the business community. That is not because industry concerns are unimportant. It is because those concerns belong in the political branches, not the courts. ‘We will not alter the text in order to satisfy the policy preferences’ of any person or industry. Barnhart v. Sigmon Coal Co., 534 U.S. 438, 462 (2002). ‘These are battles that should be fought among the political branches and the industry.’ Id.”

The Court also explained that its literal application of the FLSA to highly compensated energy industry workers is consistent with the approach taken by the Sixth and Eighth Circuit Court of Appeals, as well as a growing number of federal district courts considering these issues.  The fact that 8 of the 12 Fifth Circuit Judges who voted in Hewitt’s favor were Republican appointees, including the author of the majority opinion, Judge Ho (a 2018 Trump appointee), makes clear that this decision is not an anomaly in what is considered one of the most conservative, employer friendly Circuit Courts in the country, and that employers cannot rely on a high level of employee compensation as a substitute for technical FLSA compliance.  An amicus brief filed in support of Helix’s position estimated that Hewitt might be owed at least $52,000 per year in unpaid overtime.

Under the FLSA, an employee can recover the amount of overtime pay owed (for a period of up to 3 years), an equal amount of “liquidated damages” and attorney’s fees.  FLSA claims are often pursued on a collective action basis (a form of opt in class action – in which current and former employees can join).  The exposure presented by FLSA claims is significant, and underscores the importance of employers carefully reviewing their pay practices for FLSA compliance – and to strongly consider whether highly compensated employees who they intend to treat as overtime exempt should be paid on a salaried basis.