BUSINESS
The Fifth Circuit Court of Appeals Rules That an Oil Rig Supervisor Paid a High Day Rate is Still Entitled to Overtime Pay By: Julie Offerman and Lee D. Snelgrove
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n September 9, 2021, the en banc Fifth Circuit Court of Appeals released its decision in the case of Hewitt v. Helix Energy Solutions Group, Inc., in which it considered whether an employee paid a day rate satisfies the “salary basis” requirement for certain overtime exemptions from the federal wage law — the Fair Labor Standards Act (FLSA). The Fifth Circuit ultimately held that an offshore oil toolpusher who managed at least a dozen employees and earned more than $200,000 a year is entitled to overtime pay because the $963 day rate he received was not a “salary” within the meaning of the FLSA. This ruling has major ramifications for the oil and gas industry, where it is a common practice to pay supervisors high day rates for each day worked. Under the Fifth Circuit’s ruling, workers paid a day rate may also be entitled to overtime pay for every hour worked over forty hours in a given week, no matter how high the day rate. This article analyzes the Fifth Circuit’s ruling and identifies alternative compensation structures for day rate workers, as well as risk management strategies that businesses should consider. The Fifth Circuit’s Decision Limits Who Qualifies as a “Highly Compensated Employee” Under the FLSA The FLSA requires employers to pay employees overtime pay of at least 1.5 times the employee’s regular rate of pay for all hours worked over 40 hours in a single workweek. However, certain employees are exempt from overtime. In the oil and gas sector, companies frequently rely on the “highly compensated employee” (HCE) exemption for supervisory workers. This exemption from the overtime pay requirement applies to employees who: (1) have a total annual compensation of at least $107,432, which must include at least $684 per week “paid on a
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salary or fee basis,” and (2) regularly and customarily perform at least one of the duties of an executive, administrative, or professional employee, as set forth in the FLSA. The Hewitt case asked the Fifth Circuit to decide whether an employee who is compensated solely by a day rate is paid on a “salary basis” for purposes of the HCE exemption. Interpreting the federal regulations, the Fifth Circuit held that day rate workers could be considered salaried for purposes of the overtime exemptions only if two conditions are met: (1) the employee is guaranteed a minimum weekly amount (which currently must be at least $684 per week), regardless of the hours, days, or shifts worked and (2) a “reasonable relationship” exists between the guaranteed weekly amount and the amount actually earned. According to the Fifth Circuit, these conditions protect employees in two ways. The “minimum weekly” guarantee sets a baseline for how much the employee can expect to earn,
and the “reasonable relationship” test prevents the employer from overworking the employee far in excess of the time the weekly guarantee contemplates. Notably, the FLSA does not require payment of the guaranteed weekly amount for work weeks in which no work is performed. However, if the employee works any time during a given week, the minimum weekly guarantee is triggered, subject to various deductions and exceptions allowed under the FLSA regulations. The Fifth Circuit concluded that the $963 day rate paid to Hewitt failed to satisfy either of the two conditions. First, the Fifth Circuit found that a day rate cannot satisfy the minimum weekly guarantee requirement because a day rate is paid “with regard to,” and not regardless of, the number of days worked. Second, the Fifth Circuit found that even if the $963 day rate had satisfied the minimum weekly guarantee requirement, it would still fail the reasonable relationship test because the amount Hewitt actually earned per week was several multiples of the $963 day rate, depending upon the number of days worked. The Fifth Circuit rejected Helix’s argument that the “reasonable relationship” test does not apply to the HCE exemption for employees who are paid a day rate that exceeds the FLSA’s $684 weekly salary threshold. Under the FLSA regulations, a “reasonable relationship” exists if the weekly guarantee is “roughly equivalent” to the employee’s usual earnings at the assigned daily rate for the employee’s normal scheduled workweek. Although there is no precise measure, the U.S. Department of Labor has opined that a 1.5-to-1 ratio of actual earnings to guaranteed weekly salary is a “reasonable relationship,” but that a ratio of 1.8-to-1 would be impermissible. This ruling is unlikely to be the final chapter for the Hewitt v. Helix case, which already has
