Employment and Privacy Law Update – March 2023

Edition 3 – The Helix Energy overtime Supreme Court case

In this edition of the JAME Consulting Employment and Privacy Law update, we discuss what could be a landmark decision by the US Supreme Court in the area of wage and hour law, the case of Helix Energy Solutions Group, Inc. vs Hewitt[1].   If you are a company with offshore workers that pays a day rate to your employees, you must get familiar with this case.

Background:

The Plaintiff (Michael Hewitt) was an offshore worker for Helix Energy and was paid a flat day rate ranging from $963.00 to $1,341.00 for each day worked, with no overtime compensation.  Day rate payment has been fairly common for companies with offshore workers due to the unique work schedule.  Hewitt, like many offshore rig employees, lived on an offshore rig for 28 day “hitches” and worked 12-hour shifts for each assigned workday.  Hewitt typically worked 84 hours a week while offshore and was paid every two weeks.  His annualized average pay was over $200,000 per year.  Despite his high annual pay, Hewitt filed suit against Helix under the Fair Labor Standards Act (FLSA) alleging he should have been paid overtime because he was not paid on a “salary basis”.  The FLSA requires overtime pay for all hours worked over 40 hours per week unless an exemption applies.

Helix Energy (Helix), on the other hand, argued that Hewitt met the “bona fide executive” exemption under the FLSA and therefore was not eligible for overtime.  In order to qualify for the bona fide executive FLSA exemption, the general rule is that an employee must meet the salary basis test, the salary level test and the job duties test.  Since Hewitt earned over $200,000, the Supreme Court applied the Secretary of Labor’s highly compensated employee standard (for those making over $100,000 a year) which relaxed the focus on the salary-level and job duties tests.  Therefore, the primary focus in this case was whether the manner in which Hewitt was paid met the salary-basis test. The district court in the case ruled in favor of Helix’s salary basis argument for overtime exemption and granted summary judgement, while the Fifth Circuit Court of Appeals disagreed and reversed.  Therefore, the Supreme Court was in the position of resolving the contradictory rulings of the two lower courts.

Supreme Court Ruling:

The Supreme Court ruled that day-rate workers “of whatever income level” only qualify as being paid on a salary basis (and therefore exempt from overtime) if the full salary for any week in which [he] performs any work without regard to the number of days or hours worked [emphasis added].  The Court did not accept Helix’s argument that the frequency (or amount) of pay alone should carry the day. The Court further clarified that, while an employee’s earnings may be computed on a daily, hourly or shift rate (unit of pay), the actual payment must still be made to provide a guaranteed weekly payment that is not subject to reduction/fluctuation. The Court also offered two ways that a similar day rate structure could be compliant with the salary-basis test under the FLSA[2]:

• An employer could add a minimum, weekly guarantee of pay that otherwise meets FLSA requirements with such guarantee being paid regardless of the number of hours or days worked, or
• An employer could convert the employee’s compensation (even if calculated on a day rate) to a straight weekly (consistent) salary for the time spent offshore.

Key take-aways for Employers:

• Properly analyzing the various FLSA overtime exemptions (including the underlying job duties, salary level and salary basis tests) is probably one of the most complicated and challenging aspects of wage and hour law;
• Being highly compensated, or paid weekly/bi-weekly alone does not end the analysis for FLSA overtime exemptions;
• To meet the salary basis test, the payment of a full, consistent salary (not subject to deduction based on number of hours/days worked) will be one of the most heavily weighted factors under the FLSA;
• The salary basis test is heavily linked to the stability and security of a regular weekly, monthly or annual pay structure;
• Employers can continue to use day rates and not pay overtime, so long as the manner of payment otherwise meets the salary level, job-duties AND the salary basis test;
• Violations for FLSA non-compliance may require payment of back wages/overtime and civil penalties can be assessed of between $1,000 to $10,000 per violation.

JAME Consulting can help:

If you need help in analyzing your FLSA compliance, JAME Consulting can provide the below services:

• Review of job and employee classifications;
  • Exempt/non-exempt
  • Contractor/employee
• Review of regular, straight and overtime pay calculations;
• Records and policy review;
• Employee/manager training

Please also see our contact information below:

Website: www.jameconsulting.com

Phone: 713-446-1060

Email: JBarrett@jameconsulting.com

[1] Helix Energy Solutions Group, Inc. et al. v Hewitt, 598 U.S. ___ (2023);  https://www.supremecourt.gov/opinions/slipHelixvHewitt.pdf

[2] LeFave, Nicole S., Jordan, David B., Palmer, Kelcy L., and Williams, Allison C. “Supreme Court Holds Day Rate Pay Cannot Satisfy the Salary Basis Test”, Littler Mendelson, 23 February 23 2023, https://www.littler.com/publication-press/SCHelixHewitt (Accessed 25 February 2023).