Supreme Court Holds Day Rate Pay Cannot Satisfy the Salary Basis Test
Posted: February 23, 2023
On February 22, 2023, the United States Supreme Court issued its opinion in Helix Energy Solutions Group, Inc. v. Hewitt, holding that paying an employee a "day rate" does not satisfy the salary basis test under the white-collar exemptions to the Fair Labor Standards Act (FLSA).
Because of this ruling, even highly compensated employees may be eligible to receive overtime if they are paid solely on a day-rate basis.
History of Helix
The plaintiff in Helix (case) worked as a tool-pusher on an offshore oil rig from 2014 to 2017. He was paid between $936 and $1,341 per day, no matter how many hours he worked in a given day. He received this day rate for every day he worked, which amounted to an annual salary in excess of $200,000. The plaintiff filed a lawsuit in federal district court in Texas, alleging he was misclassified as exempt and was therefore entitled to overtime. The district court disagreed with the plaintiff, holding that because he received at least $936 in any week that he performed work for his employer — i.e., more than the $455 per week required to meet the minimum requirement for the salary basis test — he was properly classified as exempt.
The plaintiff appealed this ruling to the Fifth Circuit. The Fifth Circuit agreed with the plaintiff, reasoning that the salary basis test requires an employee to be paid the same amount of salary on a weekly basis or less frequently, irrespective of the days worked in the particular workweek. Because the plaintiff's pay varied by the number of days he worked in a workweek, the Fifth Circuit concluded it did not meet the regulatory definition of a "salary" for purposes of the white-collar exemptions under the FLSA. The employer appealed the Fifth Circuit's ruling to the United States Supreme Court.
The Supreme Court's Opinion
The Supreme Court affirmed the Fifth Circuit's ruling. The Court held that a worker is not compensated on a salary basis, and therefore cannot qualify for the FLSA's white-collar exemptions, when the employee's paycheck is based solely on a daily rate, meaning the employee receives a certain amount if the employee works one day in a week, twice as much for two days, three times as much for three, and so on. Employees paid on this day-rate arrangement are thus entitled to overtime pay unless they qualify for some other exemption.
In reaching its conclusion, the Supreme Court pointed to the text and structure of the FLSA's regulations, and observed that nothing in the regulatory description of a salary applies to a daily rate worker, who by definition is paid for each day they work and no others. According to the Court, a day rate is not the same as a salary for purposes of the FLSA.
The Court further advised that an employer could come into compliance with the salary basis requirement in two ways. First, it could add to the plaintiff's per-day rate a weekly guarantee that satisfies certain regulatory conditions, which include that the guaranteed amount meets at least the minimum weekly required amount paid on a salary basis, regardless of the number of hours, days, or shifts worked and that a reasonable relationship exists between the guaranteed amount and the amount actually earned. Alternatively, the employer could convert the plaintiff's compensation to a straight weekly salary for the time he spent on the rig.
A dissenting opinion by Justice Kavanaugh questioned whether the regulations supporting the Court's reasoning are even consistent with the FLSA's statutory language in the first place. Kavanaugh noted that the statutory text of the FLSA focuses on the duties of an individual, and makes no mention of how or how much an employee is paid, and questioned whether these salary requirements "will survive if and when the regulations are challenged as inconsistent with the [FLSA]."
Going forward, employers should be careful paying on a day-rate basis those employees they claim to be exempt, and, if they do, work to ensure that the overall compensation arrangement is in compliance with the salary basis requirement as articulated by the Supreme Court in Helix.
Posted In: Fair Labor Standards Act (FLSA); U.S. Supreme Court; Wage and Hour Laws
Want to know more? Read the full article by David Jordan, Allison Williams, Kelcy Palmer, and Nicole LeFave at Littler Mendelson