An Analysis of Helix Energy Solutions Group, Inc. v. Hewitt and the Salary Basis Test—a Test that Provides Benefits to Employers and Employees

By Don J. foty

The Fair Labor Standards Act (FLSA) is the federal law that requires employers to pay employees an hourly wage rate of no less than the federal minimum wage and to pay overtime wages when employees exceed 40 hours of work in one week.1 However, Congress has identified that there are certain workers in the U.S. who are exempt from these requirements. Specifically, any employee who is “employed in a bona fide executive, administrative, or professional capacity” is exempt from the overtime and minimum wage requirements.2 However, the FLSA does not define these phrases. Instead, Congress expressly delegated the responsibility to the Secretary of Labor to define “employed in a bona fide executive, administrative, or professional capacity.”3 In early 1940, the Department of Labor did so and enacted a standard that has three distinct parts.

To qualify for these exemptions, three elements must be met. The first element is the “salary basis test,” which requires an employer to pay a “predetermined and fixed salary” to the employee. The second is the “salary level” test, which requires an employer to pay a salary that exceeds a specified amount. The third is the “duties test,” which requires the employee to perform certain job duties. In Helix Energy Solutions Group, Inc. v. Hewitt, the Supreme Court finally resolved an issue that had confused the lower courts: whether a highly paid worker whose paycheck is based solely on a daily rate meets the “salary basis” test.4 In a 6-3 decision, the Supreme Court said “no.”

Background of Helix Energy Solutions Group, Inc. v. Hewitt

The plaintiff was an offshore oil rig worker who was paid on a day rate basis as low as $963 per day and as high as $1,341 per day.5 Annually, his compensation exceeded $200,000.6 His weekly compensation was determined by multiplying his daily rate times the number of days he worked in the week.7 Under this pay system, the plaintiff’s compensation each week varied depending upon the number of days he worked.8

Before the Supreme Court, Helix made two primary arguments. First, Helix argued that the payment of a day rate constitutes a salary because the employee is guaranteed a payment if the employee works at least one day in a week and that payment always meets the salary level test.9 The Supreme Court rejected this argument. The Supreme Court relied upon the plain text of the regulation and held that a “salary” is a fixed amount of pay for a week no matter how many days the employee worked in the week.10 “Put it all together and a dailyrate worker does not qualify... as a salaried employee.”11

Next, Helix argued that because the plaintiff was highly paid and earned more than $200,000 per year, the salary basis test did not apply to him. The Supreme Court rejected this argument, as well. The Supreme Court reaffirmed the premise that employees “are not ‘deprived of the benefits of [overtime compensation] simply because they are well paid.’”12 Instead, the Supreme Court held that the plain text of the regulation requires the payment of a salary even for a highly compensated employee.13 the Supreme Court reaffirmed the “reasonable relationship” test

Finally, the majority’s decision reaffirmed the validity of the “reasonable relationship” test.14 The reasonable relationship test provides that an employer can pay an employee on a day rate basis and still satisfy the salary basis test so long as the employer also pays the employee a guaranteed weekly amount that bears a “reasonable relationship” to the amount the employee “actually earned” in a typical week. The Supreme Court stated that an employee who is paid on a daily rate basis can be classified by the employer as exempt from overtime if, and only if, the employer satisfies the reasonable relationship test.

The reasonable relationship test requires the employer to pay the employee a weekly guaranteed amount that meets the salary level test and the guaranteed amount is high enough that it is roughly equal to the amount the employee earns in a typical week.15 In other words, the employer must guarantee a weekly amount of pay to the employee (who is paid on a day rate basis) in an amount that is the equivalent of what the employee normally earns each week from working for the employer.16 The reason for this requirement is because “[t]hose conditions create a compensation system functioning much like a true salary—a steady stream of pay, which the employer cannot much vary and the employee may thus rely on week after week.”17

Justice Kavanaugh’s dissent

Justice Kavanaugh, with Justice Alito joining him, issued a dissent which suggests that the regulations issued by the Department of Labor are inconsistent with the text of the FLSA.18 According to Justice Kavanaugh, section 213(a)(1) of the FLSA focuses on whether the employe performs exempt duties.19 However, the regulations inexplicably add two additional requirements that look to “how much an employee is paid and how an employee is paid.”20

At first blush, some employers may view Justice Kavanaugh’s dissent as a way of ar- guing against the requirement to meet the salary basis test. Yet, when analyzing this argument further, it is apparent that instituting the salary basis test was a proper exercise of the authority delegated to the Department of Labor by Congress.

First, the text of the FLSA, and section 213(a)(1) in particular, does not focus solely on the duties a worker performs. Instead, the plain language of the text written by Congress states that the employee must be “employed in a bona fide executive, administrative, or professional capacity.”21 The statute does not say that an employee must be “employed in a position that performs bona fide executive, administrative, or professional duties.” Instead, Congress used the word “capacity,” and the use of this word is significant. According to dictionary.com, “capacity” means a “specified position.” Employed in a “specified position” requires an employee to perform certain duties in exchange for certain pay. The Department of Labor’s test requires the worker to perform certain duties in exchange for certain pay.

Second, the argument that the salary basis test is inconsistent with the text of the FLSA is not a new argument. To date, every circuit court to have addressed whether the salary basis test is valid has held that it constitutes a “reasonable exercise” of the authority of the Department of Labor.22 Nothing new has changed.

the Salary requirement Is necessary and Provides Benefits to Both Employers and Employees

Nevertheless, the question remains as to whether a salary requirement provides benefits to employers and employees alike. Having a salary requirement provides clarity to both employers and employees. The Department of Labor “has long recognized that the salary paid to an employee is the ‘best single test’ of exempt status, which has... provid[ed] a ready method of screening out the obviously nonexempt employees’ and furnished a ‘completely objective and precise measure which is not subject to difference of opinion or variations in judgment.”23 That is because the salary basis test is objective in nature.24 When employers are making decisions to classify certain job positions as exempt or not, having an objective test provides a level of transparency that is welcome in the workplace. Similarly, the salary basis test benefits employees because it enables employees to know the amount of their compensation each week before they perform the work. This provides assurances to employees and enables them to make better financial planning decisions. Ultimately, the salary basis test has been in existence for approximately 80 years, and it is unlikely to be going away any time soon.

Don J. Foty is a partner with the law firm of Hodges & Foty, LLP. Mr. Foty routinely represents workers in wage and hour disputes across the country and has served as class counsel in nearly 100 class and/or collective actions.

Endnotes

1. 29 U.S.C. §§ 206, 207.

2. 29 U.S.C. § 213(a)(1).

3. Id

4. 143 S. Ct. 677 (2023).

5. Id. at 684.

6. Id

7. Id

8. See id

9. Id. at 685.

10. Id. at 686–87.

11. Id. at 688.

12. Id. at 682.

13. Id. at 689–90.

14. The reasonable relationship test states: “[a]n exempt employee’s earnings may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if 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).

15. 143 S. Ct. 677 at 684.

16. Id

17. Id

18. Id. at 695.

19. Id

20. Id

21. 29 U.S.C. § 213(a)(1).

22. Usery v. Associated Drugs, 538 F.2d 1191, 1193 (5th Cir. 1976); Craig v. Far W. Eng’g Co., 265 F.2d 251, 259 (9th Cir. 1959).

23. 69 Fed. Reg. at 22,165.

24. Evans v. McClain of Ga., Inc., 131 F.3d 957, 965 (11th Cir. 1997).