Publications

On February 24, 2023, the U.S. Supreme Court added another layer to the already-complicated matrix of overtime exemptions when it concluded that an employee earning $963 per day, and over $200,000 per year, failed to satisfy the “highly compensated employee” exemption to overtime compensation under the Fair Labor Standards Act (FLSA), and was therefore entitled to time-and-a-half for hours worked in excess of forty (40) in a week.

The FLSA

Before getting into the specifics of the Court’s holding in Hewitt v. Helix Energy Sols. Grp., Inc., 598 U.S. __, 2023 WL 2144441, a brief review of the FLSA is helpful. As a general rule, the FLSA requires that hourly employees be paid overtime, or time and a half compensation, for all hours worked over 40 during any workweek.  There are a number of exemptions to this rule, however, which apply to employees who earn (1) a minimum salary level per week (the “salary basis test”) and (2) perform certain job duties (the “job duties test).”

To satisfy the salary basis test, the employee’s total compensation must equal or exceed $684 per week, paid on a “salary basis,” meaning the employee “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount . . .” 29 C.F.R. §§ 541.601-602.  The job duties test is met where the employee works in a “bona fide executive, administrative, or professional capacity,” 29 U.S.C. § 213(a)(1), as those categories have been defined by the Department of Labor (DOL).  There is a further exemption for “highly compensated employees” who (1) earn $107,432 per year, inclusive of $684 per year paid on a salary basis, and (2) perform non-manual work that regularly includes at least one of the duties in the exemption test for executive, administrative, or professional employees.

Employers have the burden of proving an employee satisfies both the salary basis test and the job duties test such that he or she can be classified as exempt from overtime.  Misclassification can be extremely costly, as an employer deemed liable is on the hook for any unpaid overtime premiums, as well as liquidated damages in an equal amount, and, on top of that, attorneys’ fees and costs.

Hewitt v. Helix Energy

The plaintiff, Michael Hewitt, worked for Helix Energy Solutions Group Inc. on an offshore well services vessel.  Hewitt earned a guaranteed daily minimum of $963 per day.  When his employment was terminated, Hewitt brought suit against Helix claiming he was misclassified as exempt and demanding overtime compensation. Helix, of course, argued that Hewitt satisfied the highly compensated employee exemption because he earned at least $963 if he worked any amount of time during any day of the workweek, thus satisfying the weekly minimum salary of $684.  Writing for the majority, Justice Kagan rejected the assertion that a “salary” can be a daily minimum guarantee, reasoning that the regulatory language reflects “the standard meaning of a ‘salary,’ which connotes a steady and predictable stream of pay, week after week after week. Put it all together and a daily-rate worker does not qualify under §602(a) as a salaried employee — even if (like Hewitt) his daily rate is high.”  The Court noted there is a further exception to overtime for an employee paid on an hourly, daily, or shift basis but the operative DOL regulation requires that “the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned.”  29 C.F.R. § 541.604(b).  This provision was inapplicable because Helix did not guarantee Hewitt a minimum weekly salary.

Next Steps for Employers

The Hewitt decision provides yet another opportunity for employers to revisit their overtime classifications to ensure compliance with DOL regulations, ideally by examining the compensation rate and actual job duties of each individual employee.  Employers should also be on the look-out for future changes to the salary basis and/or job duties test for two reasons.  First and foremost, the DOL has long planned to revise its overtime regulations under the FLSA by increasing the minimum salary requirement, with new rules expected by October 2022 that have yet to be issued.  Second, Hewitt could open the door for a larger-scale challenge to the DOL’s regulations.  In his dissenting opinion, Justice Kavanaugh questioned whether the salary basis component of the regulations were lawful, positing that they might not “survive if and when they are challenged as inconsistent with the statute.”  With this nudge and the conservative majority’s decision in June 2022 limiting the Environmental Protection Agency’s regulatory authority in West Virginia v. E.P.A., 597 U.S. __, 2022 WL 2347278, we are likely to see a challenge to the salary basis regulations in the coming years.