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Six-Figure Income Plus Overtime Ruling Hits Energy Sector Pay

Sept. 15, 2021, 3:53 PM

A federal appeals court in New Orleans recently ruled that an offshore oil rig manager can get overtime despite making $200,000 a year, prompting energy sector concerns about the decision’s broad effects on industry pay practices.

The full U.S. Court of Appeals for the Fifth Circuit last week issued a 12-5 decision that found Helix Solutions Group employee Michael Hewitt’s pay was calculated using a “day rate” and not by “salary basis,” and thus he didn’t qualify for an exemption from the Fair Labor Standards Act’s time-and-a-half pay requirements for work exceeding 40 hours per week.

That is despite the fact that he made double the $100,000 a year threshold that applied at the time for the overtime carveout covering “highly compensated” workers, eliciting cries from dissenting judges that the ruling defies “common sense” of wage-and-hour laws.

The energy sector, in particular, uses day rates to compensate the workforce, including highly paid employees on oil field or offshore jobs. Petroleum trade groups and five Republican-led states pushed for the court to apply the overtime exemption, arguing there would be devastating consequences for the industry otherwise.

“Everyone agrees that this is how it works in this sector, but the question is whether it’s legal or not,” said Peter Hall, a partner with Holland & Knight LLP in Atlanta, who has litigated cases involving the salary-basis issue but didn’t represent parties in the Helix case.

Whether an employer is compensating an employee on a “salary basis” has been a gray area in wage-and-hour law for the past five to 10 years, Hall said. The Fifth Circuit’s ruling adds to a circuit split that could eventually go to the U.S. Supreme Court. Similar cases are bubbling in Colorado, New Mexico, and Pennsylvania, as well as the Gulf Coast area where offshore drilling is concentrated, he said.

“The main thing that strikes me is that this is one of those areas where the law and common sense don’t line up,” Hall said. “It’s just one of those unique areas of where law and the industry and economics clash.”

But Hewitt’s attorney, Ed Sullivan with Oberti Sullivan LLP in Houston, said despite what the energy industry argues, “This is not a controversial issue to anyone who litigates FLSA cases.”

“Helix rolled the dice in hopes that the Fifth Circuit would substitute the company’s subjective policy preferences in favor of settled law,” Sullivan said. “This is not a new or novel issue. Helix’s real problem is not with Mr. Hewitt or the Fifth Circuit. It’s with the law, and its remedy is to lobby Congress to reform the overtime laws.”

Helix’s attorney declined to comment.

Energy Sector Practices

The Texas Oil & Gas Association and the Independent Petroleum Association of America said the ruling will likely cause disruption to common practices in the industry. Alabama, Louisiana, Mississippi, Montana, and Utah also asked the full court to rule that Hewitt should be exempt from overtime.

The oil and gas association, for example, told the court that oil-field consultants like Hewitt, who can make as much as $1,000 a day, should clearly fall under the “highly compensated employee” exemption.

“These guarantees further reflect the historic economic balance the industry must maintain given the highly unpredictable nature of oil patch work,” the association said in its friend-of-the-court brief. It continued that a decision in favor of Hewitt, “destabilizes the financial foundation underpinning exploration and production in the most hydrocarbon-rich region in the United States.”

The oil and gas group declined to comment on the ruling, while the petroleum association didn’t respond to an emailed request for comment.

Holland & Knight’s Hall said the FLSA does recognize that some workers, including firefighters and police officers, should be given special overtime considerations when their duties don’t align with a typical 40-hour work week.

There isn’t such a carveout for the oil and gas industry, he said, even though they also have unique scheduling. He said the industry could restructure work as a result of the ruling, and potentially lean more heavily on independent contractors.

Wiggle Room

Yet, the Fifth Circuit ruling leaves room for highly paid workers who receive day rates to be exempt, said Jackie Staple, a labor and employment associate at Jackson Walker LLP in Houston. She said the ruling didn’t consider the impact to the oil and gas industry but instead focused on the text of the FLSA and U.S. Labor Department regulations.

“There could be a different fact pattern presented and the worker could meet the requirements for overtime exemption,” Staple said.

The Fifth Circuit did say a day rate could be considered a salary—and therefore trigger the FLSA exemption—if the employee is guaranteed at least $684 per week, and a reasonable relationship exists between that guaranteed amount and the actual amount earned in the work week. The majority determined Helix didn’t meet these conditions.

“The court went on to say, that’s a political issue,” Staple said. “If lawmakers want to revise the FLSA statute or Department of Labor regulations, they can do that.”

Other Circuits

The Fifth Circuit’s ruling aligns with some federal circuits, but veers from others on salary-basis questions.

Circuit Judge James Ho, who wrote for the Fifth Circuit majority, cited decisions from the Sixth and Eighth circuits, as well as DOL rules, to conclude that the overwhelming majority of federal district courts have said daily-rate employees shouldn’t be exempt from overtime rules, regardless of how much they make.

The First Circuit, however, allowed an exemption for those workers under a salary-basis test, as did the Second Circuit.

Hall said the concept of a salary threshold when the FLSA was drafted decades ago recognizes that salary is “essentially a proxy for exempt job duties.”

“The money is a proxy for the duties that are an essential driver of the exemption,” he said. “In these kinds of cases, the tail is wagging the dog, the salary in and of itself, is the key issue.”

To contact the reporter on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Andrew Harris at aharris@bloomberglaw.com

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