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In a 12-6 split decision, the en banc 5th Circuit Thursday evening released its ruling in Hewitt v. Helix Energy Solutions Group, Inc., Case No. 19-20023, addressing the issue of when an employee paid a daily rate can qualify for the “salary basis” requirement for certain exemptions from overtime pay under the Fair Labor Standards Act (FLSA). The majority of the 5th Circuit held that, despite earning over $200,000 a year and indisputably performing job duties that qualified for exempt status, the plaintiff was not exempt from overtime pay because he was paid a day rate that did not comport with the “salary basis” requirement.

The FLSA exempts certain “executive,” “administrative” and “professional” employees from overtime pay. The Department of Labor (DOL) regulations interpreting these exemptions require that, in order to qualify, employees must (1) perform certain job duties and (2) be paid at least $684 per week on a “salary basis.” The DOL regulations also exempt certain “highly compensated” employees (HCEs) who (1) receive $107,432 in total annual compensation, which must include at least $684 per week paid on a salary basis, and (2) customarily and regularly perform at least one exempt executive, administrative or professional job duty.

In Hewitt, there was no dispute that the employee performed the requisite job duties or earned sufficient annual compensation to qualify for the HCE exemption. The only dispute was whether Hewitt’s compensation — which consisted of $963 for each day he worked — met the requirement that his total annual compensation include at least $684 per week paid on a salary basis.

In an opinion authored by Judge James C. Ho (who also authored the original panel decision), the majority of the en banc 5th Circuit held that a daily-rate worker can be exempt from overtime only if the employer meets two conditions found in DOL regulation 29 C.F.R. § 541.604(b): (1) the employee receives “a guarantee of at least [$684] paid on a salary basis regardless of the number of hours, days or shifts worked;” and (2) “a reasonable relationship exists between the guaranteed amount and the amount actually earned.”

The court found that Hewitt’s pay did not comply with either condition. Specifically, the court found that Hewitt’s day rate did not comply with the first condition because “a daily rate, by definition, is paid with regard to—and not ‘regardless of’” — the number of days the employee works. The court also found that Hewitt’s pay did not comply with the second condition because his total pay was “orders of magnitude greater” than the minimum guarantee of his $963 day rate.

The majority also rejected Helix’s argument that the above conditions contained with
§ 541.604(b) did not apply to Hewitt because he qualified as an HCE under 29 C.F.R. § 541.601, which does not expressly incorporate § 541.604. Rather, the court found that Hewitt could not be an HCE unless his total annual compensation satisfied the salary basis test, and “the only way for an employee to have his pay ‘computed on a daily basis’ ‘without violating the salary basis requirement’ is to comply with § 541.604(b).” Although the 1st and 2nd circuits have held that the requirements of § 541.604 do not apply to HCEs,<a href="#_ftn1" name="_ftnref1">[1]</a> the 5th Circuit found “no actual conflict” with these decisions because in those cases, the employees “were undisputedly guaranteed weekly base salaries above the qualifying level” rather than being paid purely on a day-rate basis like Hewitt.

Six of the 5th Circuit judges dissented, in two separate opinions authored by Judge Edith H. Jones and Judge Jacques L. Wiener Jr., respectively. The primary focus of these dissents is that the majority improperly grafted § 541.604’s requirements onto section § 541.601’s HCE exemption, at least for HCEs whose compensation is paid purely on a daily basis. The dissents also opine that, since HCEs are protected by the requirement that they receive $107,432 in total annual compensation, a reading of the regulations that does not require HCEs to meet the reasonable relationship test harmonizes with the purpose and structure of the FLSA. Additionally, the dissents reason that the majority’s decision that an employee who unquestionably meets the job duties requirements for exempt status is not actually exempt based solely on the way he was paid is not faithful to the FLSA’s exemptions, which focus on the employee’s job duties.

It remains to be seen whether Helix will seek certification from the Supreme Court on the 5th Circuit’s ruling. However, given the impact of this decision on numerous employers, especially in the oil and gas industry, and the array of inconsistent decisions from other circuits on these issues in recent years (including the 1st, 2nd, 6th and 8th circuits), it appears that this case would be ripe for Supreme Court review to provide certainty and clarity regarding the “salary basis” requirements for the FLSA’s overtime pay exemptions.

<a href="#_ftnref1" name="_ftn1">[1]</a> Litz v. Saint Consulting Group, Inc., 772 F.3d 1 (1st Cir. 2014); Anani v. CVS RX Services, Inc., 730 F.3d 146 (2nd Cir. 2013).

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Sharply Divided En Banc 5th Circuit Opines on Salary Basis Requirement for Day Rate Employees Under the FLSA