Supreme Court Upholds Ruling That FLSA Overtime Exemption Didn’t Apply to Day-Rate Rig Worker

February 27, 2023

On Sept. 9, 2021, the U.S. Court of Appeals for the Fifth Circuit held a highly compensated rig worker was not exempt from the Fair Labor Standards Act’s (FLSA’s) overtime requirements because the employee was paid on a day rate as opposed to a guaranteed salary. On Feb. 22, 2023, the U.S. Supreme Court affirmed this decision.

In a 6-3 ruling, the U.S. Supreme Court in Helix Energy Solutions v. Hewitt found that daily-rate workers, of whatever income level, cannot generally qualify as salaried-exempt employees under §541.602(a) because they are not guaranteed a full salary without regard to the number of days or hours worked in a given week.

The FLSA exempts certain categories of workers from its overtime pay guarantee. Any “employee employed in a bona fide executive, administrative, or professional capacity” has no right to overtime wages under §213(a)(1). Under Department of Labor regulations, to qualify as a “bona fide executive,” the employee must, among other things, be paid on a salary basis and be compensated at a minimum rate of $455 per week. The regulations provide two ways to determine that an employee is paid on a salary basis.

Under §541.602(a), an employee is considered salaried if the employee “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” Alternatively, under §541.604(b), an employer may base an employee’s pay on an hourly, daily or shift rate without “violating the salary basis requirement” or “losing the [bona fide executive] exemption” if: (1) the employer guarantees the employee at least $455 each week “regardless of the number of hours, days or shifts worked”; and (2) the promised amount bears a “reasonable relationship” to the “amount actually earned” in a typical week.

Here, the respondent, Michael Hewitt, worked on an offshore oil rig for the petitioner, Helix Energy Solutions Group, at a daily rate that ranged from $963 to $1,341. Hewitt generally (though not invariably) worked 12 hours per day, seven days per week for a period of 28 days, followed by 28 days off. In total, he was paid more than $200,000 annually. Helix acknowledged that this compensation scheme did not satisfy the requirements of §541.604(b) since Helix did not guarantee that the payments Hewitt received each week would bear a reasonable relationship to the weekly amount he usually earned. However, Helix argued Hewitt was a salaried worker under §541.602(a) because (1) he received a paycheck every two weeks; and (2) his daily rate exceeded $455, meaning he received at least $455 for any weeks he actually worked.

The Fifth Circuit rejected Helix’s arguments, concluding daily-rate employees (like Hewitt) do not fall within the salary-basis provision of §541.602(a), and the Supreme Court affirmed this decision.

The Supreme Court reasoned that to satisfy §541.602(a)’s requirement that an employee receive “a predetermined amount” of compensation “on a weekly, or less frequent, basis,” the compensation must be predetermined for the week (or longer period). It is not enough, as Helix argued, that the employee receives a predetermined amount for each day worked, which was delivered in the form of a weekly (or less frequent) paycheck. As the Court put it, the “basis” in §541.602(a) “is the unit of time used to calculate pay,” not the frequency at which the employee receives a paycheck “and that unit must be a week or less frequent measure; it cannot be a day, or other more frequent measure, as it was for Hewitt.”

The Supreme Court rejected Helix’s appeal to policy arguments, reasoning that no policy concerns could override the text of the regulations. In any event, the Court explained that, because the salary-basis test applied the same to higher and lower income employees, it was Helix’s arguments that could lead to adverse consequences, potentially depriving “workers at the heartland of the FLSA’s protection—those paid less than $100,000 annually—of overtime pay.”

The Court dismissed Helix’s concern that, under the Court’s interpretation, the company would be required to either pay Hewitt his high daily rate, even for days he does not work, or regularly pay him overtime. The Court explained that “the whole point of the salary-basis test is to preclude employers from paying workers neither a true salary nor overtime.” If the company wished to avoid those consequences, the Court explained that Helix could either add to Hewitt’s “per-day rate a weekly guarantee that satisfies [§541.604(b)’s] conditions” or convert Hewitt to a “straight weekly salary for time he spends on the rig.”

For questions about compliance with FLSA, please contact the authors of this alert, your McGuireWoods contact, or a member of the firm’s labor and employment team.