Supreme Court Hears Case on Overtime for Highly Compensated Employees

[Editor's Note: The U.S. Supreme Court ruled 6-3 on Feb. 22 that a former employee who made more than $200,000 a year was eligible for overtime pay because he was paid on a daily basis.]

The U.S. Supreme Court heard oral arguments on Wednesday in a case that could impact how employers determine which employees are exempt from overtime pay. In Helix Energy Solutions Group v. Hewitt, the main question is whether a supervisor making over $200,000 each year is entitled to overtime pay under the federal Fair Labor Standards Act (FLSA).

"It's definitely a case of interest, and depending on the outcome, it will add more to the checklist in terms of how employees are classified," said Heather Robinson, an attorney with Herrick Feinstein in Newark, N.J.

"This case is especially likely to affect the oil and gas industries, the health care field, and other sectors where well-compensated employees are paid per day or shift," said Erika Todd, an attorney with Sullivan & Worcester in Boston.

Background

Helix Energy Solutions Group, an offshore oil and gas company based in Houston, claimed that its former employee, Michael Hewitt, was exempt from overtime pay because he was a highly paid executive, earning more than $200,000 per year. Hewitt claimed he should get retroactive overtime pay because Helix calculated his pay by using a daily rate, and the 5th U.S. Circuit Court of Appeals agreed.

From 2015 to 2017, Hewitt worked 28-day "hitches," living on an offshore oil rig for 28 days at a time and being on duty for 12 hours each day. His pay ranged from $963 to $1,341 per day. He earned $248,053 in 2015 and $218,863 in 2016, according to court records.

Under the FLSA at the time Hewitt was employed by Helix, employees who perform executive duties, earn at least $100,000 per year and receive at least $455 per week paid on a salary or fee basis were exempt from overtime pay. The salary amount has since been raised for the highly compensated employee exemption to $107,432 per year and at least $684 per week paid on a salary or fee basis.

Justices Respond

The arguments this week hinged on whether being paid at least a minimum amount per day can count as a salary.

Justice Ketanji Brown Jackson said there's a "commonsense understanding of the distinction between salaried workers being those who have a steady stream of predetermined amounts week to week versus daily workers or shift workers or hourly workers, whose weekly amounts can vary dramatically."

She added, "The regularity of a predetermined amount is how people pay mortgages. So I don't know or it doesn't really matter that he might get $100,000 over the course of the year. What he has to know is how much is coming in at a regular clip, so that he can get a babysitter, so that he can hire a nanny, so that he can pay his mortgage. It's about, I think, the predictability and the regularity of payment. At the end of each week, we don't know how much he's going to make for the week. That's the point."

Paul Clement, the attorney for Helix, with the firm Clement & Murphy in Washington, D.C., said it's important that the statute specifically incorporates the salary requirement, but not the minimum guaranteed pay requirement.

Justice Neil Gorsuch said, "You probably have a pretty good argument on the statute, which focuses on job function and whether it's executive or administrative. … But the regulations are all about pay, how you're paid, the mechanics of pay."

Justice Amy Coney Barrett said, "The result was counterintuitive here, but the DOL [Department of Labor] didn't exempt altogether highly compensated employees. [The regulation] refers specifically to employees' earnings being computed on an hourly, daily or shift basis."

However, Justice Clarence Thomas said an average person would take $200,000 per year as a sign that the person is salaried. The regulations "say that's an indication that you are a highly compensated executive. For you to say that that's not a salary to the average person is a difficult challenge," he noted.

Justice Sonia Sotomayor brought up an example of nurses working long shifts. "Our case law has said a major goal of the FLSA was preventing overwork and the dangers of overwork. This was crucial to the definition of what a salary was, [what] an employee was, but it also promotes worker safety and well-being," she said. "Hard to imagine how forcing someone to work 84 hours a week 28 days straight promotes that part of the FLSA when you're not giving them a guaranteed minimum."

Action Steps

In light of this case, Robinson said companies should look further at the mechanics of compensation. "We don't know how the court will rule, but there are things employers can do now that would be somewhat protective of them no matter how the court lands," she remarked. "There are ways to shift the compensation mechanics so you would satisfy" the regulations, regardless of the court's final decision. "If pay right now is really based on a day rate or shift rate or hourly rate, you could take that apart and have a portion of that paid weekly or biweekly and disentangle the pay from the day rate or the shift rate," she added.

It's unclear when the court will issue a final ruling. "At the latest, the court will announce its decision next summer," Todd said.