Overtime for Six-Figure Income Worker Tests Bounds of FLSA Rules

An impending US Supreme Court decision in a case asking if a worker making more than $200,000 a year is entitled to overtime compensation is prompting questions over whether federal wage law was intended to protect such highly paid employees.

Helix Energy Solutions Group Inc. is fighting to overturn an appeals court ruling that former oil rig worker Michael Hewitt wasn’t exempt from the Fair Labor Standards Act’s overtime requirement for work performed over 40 hours in a workweek because Helix paid him a day rate and not a guaranteed weekly salary.

The justices last week wrestled with the nuances of the FLSA’s implementing regulations concerning executive, administrative, and professional employees who are exempt from overtime, but gave no clear indication of how they might rule.

The court’s liberal wing challenged Helix’s claim that day rate pay could be considered a salary because the company gave Hewitt a daily rate of at least $963—well above the required minimum weekly amount for salaried employees. Justice Ketanji Brown Jackson said the regulations were intended to ensure workers get predetermined payments regardless of the quality or quantity of work performed in a given workweek.

But conservatives, including Justice Clarence Thomas, were concerned about the practical implications of granting overtime to a highly paid worker, and said an ordinary person wouldn’t view someone making $200,000 a year as a day laborer.

Thomas took “a very common sense approach” because the FLSA was enacted to protect low-wage employees working long hours for substandard wages, not professionals making six-figure salaries, said Corey Devine, a partner at labor and employment law firm Muskat, Mahony & Devine LLP, who represents energy companies.

“To the average person, if you make over $200,000 a year, it’s really hard to understand how you’re not an exempt professional who doesn’t get paid overtime pay,” Devine added. “That comment is not based on the regulations or the way the statute works. That’s a very common sense approach.”

But Joshua Zuckerberg, co-chair of Pryor Cashman LLP’s labor and employment group, said the US Court of Appeals for the Fifth Circuit was right to find that Hewitt “clearly was not paid on a salary basis. That’s what you need to be exempt” from overtime.

At the same time, federal regulations are often technical, and this case suggests that the rules implementing the FLSA might have “reached beyond the stated and initial purpose” of the statute, Zuckerberg said.

The law is “to protect people from exploitation and being underpaid” and that’s not the case here, he added.

Overtime Exemptions

The heart of the case comes down to the relationship between the regulations that govern the overtime pay exemptions for highly compensated executives.

To be exempt, executives must be paid on a salary basis, meaning their predetermined pay must be “calculated on a weekly, or less frequent basis” and not tied to the hours worked per week. They must also earn at least $100,000 annually and have a minimum pay threshold of $684 per week.

The regulations also say workers being paid on an hourly, daily, or shift basis can be classified as salaried, and thus overtime exempt, as long as their employer guarantees “at least the minimum weekly-required amount” despite the number of hours, days, or shifts worked.

Helix argued that, because Hewitt was an executive who received more than the minimum weekly pay and whose compensation never changed, the case should end there. But Hewitt said Helix never offered him a minimum weekly guaranteed pay, so his day rate earnings can’t be classified as a salary.

The regulations make it clear that Hewitt’s day rate pay doesn’t amount to a salary, said Samuel Estreicher, a labor and employment law professor at New York University. This case underscores why employers should properly classify workers who are entitled to certain legal protections and benefits such as minimum wage and overtime, he added.

“This is a very good lesson for employers because they’re not reading” the FLSA or regulations, Estreicher said. “They’re not worried about the technical requirements.”

Carol Igoe, legal counsel for the California Nurses Association who authored an amicus brief in support of Hewitt, said in an interview that Helix could have reached its desired outcome had it offered Hewitt a minimum weekly guaranteed pay based on his day rate.

The regulations don’t impose “incredibly burdensome requirements” on employers, Igoe said. “The problem is, if you take them away, it’s an invitation for employers to look for ways to reclassify” certain hourly and shift workers to avoid paying them overtime, she said.

Potential Impact

The court’s ultimate decision in the Helix case could have ripple effects in the energy industry because of its use of a day rate pay structure to compensate workers, including highly paid employees on oil-field or offshore jobs.

“It’s not an overstatement to say we’re on the edge of our seats,” said Devine. “This is a case of great importance to the oil and gas industry, so listening to the arguments and having the case advance closer to a resolution is top of mind for a lot of my clients. I think people are trying to read the tea leaves.”

Unions representing registered nurses, whose earnings are calculated on an hourly basis even if they reach six figures, believe hospitals would take steps to avoid overtime pay if the justices accept Helix’s view.

“If we allow hospital employees to circumvent overtime for nurses, that’s just going to increase pressure on a workforce already struggling to keep enough folks in the sector,” Igoe said.

More Litigation?

The Supreme Court is likely to resolve a split among federal appeals courts over whether daily rate workers like Hewitt are exempt from overtime. The Eighth, Sixth, and now the Fifth circuits have the same holding—such workers are still entitled to overtime. The First and Second circuits share the opposite view.

But in doing so, they could invite additional lawsuits not just over how to interpret the FLSA regulations, but whether those regulations go beyond what the law requires.

Helix didn’t challenge the legality of the regulations at issue, but Justice Brett Kavanaugh suggested during oral argument that they could be invalid on their face because of the conditions they place on the FLSA’s broad exemption to the overtime requirement.

The statute doesn’t impose a salary basis requirement, and instead discusses categories of employees that may be exempt from overtime, the justice said. Kavanaugh’s comments seem to invite a direct challenge to the regulations, which address in granular detail how workers should be paid, attorneys said.

“I think coming out of this case, depending on what the decision is, we will see a lot of litigation around the regulations themselves and whether they are entitled to agency deference,” Devine predicted.

Estreicher and Zuckerberg also believe the conservative justices might use this case to further rein in agency regulations.

“My prediction is that they want to say this is not the type of person who’s entitled to overtime” and the regulations “don’t make sense,” Zuckerberg said. “I get the sense that’s where we’re heading.”