Overtime Pay Mandate for Six-Figure Earners to Spur Litigation

The US Supreme Court’s recent decision that a worker making $200,000 a year still can be eligible for overtime pay is raising the question of whether Congress intended to provide such protections to highly paid employees.

Management-side attorneys conceded that the language of Labor Department regulations implementing the Fair Labor Standards Act supports the majority’s finding that the worker wasn’t paid on a salary basis, and thus is entitled to overtime pay.

But the ruling doesn’t align with the FLSA’s purpose of protecting low-wage employees working long hours for substandard wages—not professionals making six-figure salaries—they said.

“I think the opinion was a common sense reading of the regulations and I probably would have come to the same conclusion if I was ruling on it,” said Peter Choi of Gordon Rees Scully Mansukhani LLP. “But the concern I have is that it seems counterintuitive from a public policy standpoint. Part of the aim of the FLSA is to ensure employees are properly compensated and paid more money for more work.”

“That’s not a question for the court but the legislature,” Choi said.

Corey Devine, a partner at labor and employment firm Muskat, Mahony & Devine LLP, said he’s “suffering from a bit of whiplash” after initially expecting a pro-employer ruling. Devine, who represents oil companies, agreed that the decision doesn’t align with the FLSA’s policy objectives.

The majority’s approach was nonetheless practical, as the opinion noted the regulations were intended to ensure workers get predetermined pay regardless of the quality or quantity of work performed in a given workweek, he added.

Yet a dissent from Justice Brett Kavanaugh, joined by Justice Samuel Alito, potentially opens the door to future litigation.

Jennifer M. Trulock, chair of Baker Botts LLP’s labor and employment practice group, said she found “fascinating” Kavanaugh’s claim that the Labor Department might have overstepped its statutory authority in issuing the regulations.

“I think he’s possibly inviting a challenge to the regulations” to have the department rewrite them because “they are outdated and don’t really fit with today’s workforce,” she said.

‘Highly Compensated Employees’

To be exempt from overtime, DOL regulations provide that “highly compensated employees” 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 payment threshold of $684 per week.

Workers 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, the regulations provide.

In the case before the Supreme Court, Helix Energy Solutions Group Inc. sought to vacate an appeals court decision that former oil rig worker Michael Hewitt was entitled to overtime pay for work performed over 40 hours in a workweek because the company paid him a daily rate rather than a guaranteed weekly salary.

Helix argued that Hewitt was an executive who received more than the $684 minimum weekly pay, and his compensation never changed, and so the case should end there.

But the majority agreed with Hewitt that Helix never offered him a guaranteed minimum weekly pay rate, so his day rate earnings can’t be classified as a salary regardless of how high they were.

The ruling is most likely to have ripple effects in the energy industry because of its day rate pay structure, which also applies to highly paid employees on oil-field or offshore jobs.

Employers in the industry were “taking a wait-and-see approach” and didn’t want to change their pay practices until the Supreme Court decided the issue, Devine said.

A key lesson from this case is that employers cannot escape overtime by offering a high salary, said Douglas Lipsky, a partner at worker-side firm Lipsky Lowe LLP.

Employers should also reexamine their exemption practices because the Helix decision could open the door to more litigation from highly paid employees over whether they were appropriately classified as overtime exempt, said Andrew P. Burnside, a shareholder at Ogletree, Deakins, Nash, Smoak & Stewart, PC.

Legal Battles Ahead

Kavanaugh’s dissent has set the stage for future court challenges testing the legality of the DOL’s World War II-era regulations and whether they’ve gone beyond what the law requires.

His opinion mirrors assertions he made during oral arguments in October that the regulations—which address in granular detail how workers should be paid—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, Kavanaugh said in his dissent. This “statutory question remains open for future resolution in the lower courts and perhaps ultimately in this court,” he wrote.

The dissent is “basically an invitation for defense lawyers to take on the legitimacy of the implementing regulations. I expect that a lot of ink will be spilled around this issue in the coming years,” Devine said.

But Lipsky said Kavanaugh ignored the FLSA’s salary basis and duties requirements for executives to be exempt from overtime.

“One of the purposes behind a salary is that it is a guaranteed sum” that isn’t dependent on the number of hours a week someone has worked, he said.

Trulock said the majority addressed Kavanaugh’s concerns by pointing out that Helix disregarded the salary and duties tests.

“I personally don’t think it makes a lot of sense to pay overtime to people making over $200,000 a year,” but a daily rate was paid in this case, she said.