U.S. Supreme Court Rules Highly Compensated “Daily Rate” Employees Entitled to Overtime under FLSA
In a reminder that it takes more than a big paycheck to be exempt from the overtime requirements of the Fair Labor Standards Act (“FLSA”), the U.S. Supreme Court held in Helix Energy Solutions Group, Inc. v. Hewitt that a highly compensated employee (in this case earning $200,000 or more per year) paid a “daily rate” is entitled to overtime for working over 40 hours in a week.
The FLSA guarantees that covered employees receive overtime pay when they work more than 40 hours a week. The law exempts bona fide executive, administrative, and professional employees. Generally speaking, to qualify for these “white collar” exemptions, an employee must (1) perform exempt job duties, (2) be paid on a salary or fee basis, and (3) receive a salary of at least $684 per week (formerly $455 per week).
Plaintiff Michael Hewitt worked for Helix Energy Solutions Group, Inc. as a tool-pusher on an offshore oil rig. He typically worked 7 consecutive 12-hour days in a week and was paid a daily rate that ranged from $963 to $1341 per day, with no overtime pay. Hewitt was only paid for the days he worked. Because Hewitt and Helix agreed that Hewitt performed exempt job duties and was always paid more than the required minimum salary, the only question for the Court was whether this payment arrangement met the “salary basis” requirement.
Helix argued that Hewitt was paid on a salary basis because his daily rate exceeded the statutory minimum weekly salary for an employee to be exempt, such that he was effectively guaranteed to receive at least the required minimum salary for any week in which he worked. In a 5 to 3 decision, the Court rejected this position.
The Court reasoned that the regulation governing the salary basis requirement says that an employee is paid on a salary basis only if he “receive[s] the full salary for any week in which [he] performs any work without regard to the number of days or hours worked.” The Court interpreted this provision to mean that whenever an employee works at all in a week, he must get his “full salary for [that] week” – what the regulation calls “the predetermined amount” – which must be “without regard to the number of days or hours worked,” and “is not subject to reduction because” the employee worked less than the full week. The Court found that Hewitt, as a daily rate worker, by definition was paid for each day he works and no others, and therefore does not fit that description. The Court further found that a daily rate worker’s weekly pay is always a function of how many days he has labored, and can only be calculated by counting those days once the week is over and not, as the regulation requires, by ignoring that number and paying a predetermined amount.
Helix also argued that a ruling in Hewitt’s favor would have “far-reaching” and “deleterious” consequences, would give “windfalls” to high earners, would disrupt and “increase costs” of industry operations, and would impose significant retroactive liability. The Court rejected this argument because a “clear textual directive” such as the one in the FLSA statute cannot be overcome with a policy argument. The Court also relied on Jewell Ridge Coal Corp. v. Mine Workers, a 1945 Supreme Court decision holding that employees are “not deprived of the benefits of overtime compensation simply because they are well paid.”
This decision may have significant implications for certain employers, particularly in the energy sector, that pay employees day rates rather than a fixed salary for periods of a week or more. More broadly, it serves as a reminder that employees are not exempt just because they are well paid. To the contrary, higher compensation only serves to increase a non-exempt employee’s overtime rate.
If you have questions regarding the Supreme Court decision, please reach out to any Franczek attorney.