Court Rules on When Fixed Salary May Be Paid to Workers with Fluctuating Hours

Takeaway: This decision provides greater clarity on the interpretation of the Belo plan exception and emphasizes the importance of considering the nature of employees’ work when implementing such compensation structures. HR professionals should carefully assess job duties and industry-specific factors when determining whether a Belo plan is appropriate for their workforce.

The 6th U.S. Circuit Court of Appeals, considering claims of unpaid overtime by employees with fluctuating work hours, reversed summary judgment for them after finding a genuine dispute of fact as to whether their job duties necessitated irregular hours of work. The case centers on the interpretation of Section 207(f) of the Fair Labor Standards Act (FLSA) and the application of the so-called Belo plan exception, which allows employers to pay a fixed salary to employees with fluctuating work hours, provided certain prerequisites are met.

The plaintiffs, oilfield technicians at a hydraulic fracturing and acidization services business, argued that their employer failed to pay lawful overtime premiums for hours worked over 40 per week, violating the FLSA, the Ohio Minimum Fair Wage Standards Act and the Ohio Prompt Pay Act. The company contended that it paid its oilfield technicians in accordance with a Belo plan, a statutorily authorized exception to the FLSA’s overtime provisions that allows an employer to pay a fixed salary to employees who work fluctuating hours.

On cross-motions for summary judgment, the district court found that the company could not establish one of the four prerequisites for a valid Belo plan and granted summary judgment to the current and former employees. The company appealed.

On appeal, the 6th Circuit outlined the four requirements for a valid Belo plan:

• The employees work subject to a bona fide individual contract or collective bargaining agreement.
• Job duties necessitate irregular hours of work.
• The employees’ contracts specify a “regular rate of pay” for up to 40 hours of work per week and time-and-a-half for hours over 40.
• The employer guarantees weekly pay for no more than 60 hours.

[SHRM members-only HR Q&A: What is the difference between the fluctuating workweek compensation method and a Belo contract?]

The appeals court, noting that the district court granted summary judgment on the basis that the employer could not convince a reasonable jury that its oilfield technicians’ job duties necessitate irregular hours, focused its attention on the same issue, one of first impression in the 6th Circuit.

The 6th Circuit determined that the term “necessitate” requires the inherent nature of an employee’s work to place their hours beyond both the employee’s and the employer’s control or predictability.

In this case, the parties agreed that the oilfield technicians’ work hours varied widely from week to week—nearly 80 hours total in some weeks and fewer than 20 in others. The plaintiffs attributed this irregularity to the two preset work calendars from which Producers Service Corp. requires its oilfield technicians to choose: working 14 consecutive days before taking a week off or working a seven-on, four-off, then seven-on and three-off schedule. These scheduling options result from the industry’s around-the-clock operations and the remote locations of many oil and gas wells, which require technicians to frequently live in hotels while on the job, the court noted.

The plaintiffs maintained that most of the irregularity in their weekly working hours resulted from their prearranged time off. However, the employer observed that plaintiffs sometimes worked fewer than 40 hours in weeks during which they took little or no scheduled time off. The employer also presented evidence that lack of work caused by fluctuations in the energy industry was responsible for some of the irregularity in technicians’ weekly hours. The company contended that “it implemented its Belo plan for precisely the purpose the Supreme Court identified in the Belo case”: to guarantee its oilfield technicians a consistent wage in a cyclical, inconsistent industry and to retain talent through up and down cycles.

The court, holding that the employer had presented enough evidence to create a genuine dispute of fact that must be presented to a jury, reversed the grant of summary judgment and remanded the decision for further consideration.

Employers, especially those in industries with fluctuating demand, should be vigilant in documenting and presenting evidence supporting the necessity of irregular hours due to the inherent nature of the work, as demonstrated in this case.

This decision underscores the importance of understanding the nuances of the FLSA and the Belo plan exception. HR professionals must carefully evaluate whether their compensation structures comply with the law and be prepared to provide evidence supporting their positions in cases involving overtime compensation disputes.

Jones v. Producers Serv. Corp., No. 23-3247, 6th Cir. (March 6, 2024).

Rosemarie Lally, J.D., is a freelance legal writer based in Washington, D.C.

ChatGPT was used in the initial drafting of this article.