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Do high-earning professionals always qualify for overtime exemption?

ABSTRACT: The U.S. Supreme Court recently held that under the Fair Labor Standards Act, high-earning professionals may only be treated by an employer as exempt from overtime pay requirements if they are paid on a salaried basis.

In Helix Energy Solutions Group Inc., et al. v. Michael J. Hewitt, the U.S. Supreme Court recently held that highly compensated professional employees who were not paid a fixed salary could not be treated as overtime-exempt under the Fair Labor Standards Act (“FLSA”). The FLSA provides that employees with a total annual salary of $107,432 or more, with “at least $684 per week paid on a salary or fee basis,” may be exempt from FLSA’s overtime pay requirement under 29 C.F.R. §541.601.

Over a four-year period, Hewitt worked for Helix Energy Solutions on an offshore oil rig, generally working more than 80 hours per week during his time on the vessel. Helix paid Hewitt on a daily-rate basis, which ranged from $963 up to $1,341 per day. He received no overtime compensation. Helix calculated Hewitt’s paychecks by multiplying his daily rate by the number of days he worked during the pay period. He consistently earned more than $200,000 annually.

Helix argued that the salary basis test should not apply to highly compensated employees who would otherwise qualify for the “relaxed duties” test under §541.601, which measures whether the employee “customarily and regularly” performs at least one of the duties of an exempt executive, administrative, or professional employee. The Court rejected this argument, affirming the Fifth Circuit’s en banc decision that Helix Energy violated FLSA’s overtime pay requirement because Hewitt was paid a daily rate rather than on a salary basis.

The Court held that a daily rate pay does not satisfy the salary basis requirement because the amount the employee earned would change depending on the number of days worked. “Salary basis” is defined in 29 C.F.R. §541.602 as pay that is “regularly received each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation,” regardless of the quantity or quality of work. The Court explained that to qualify as a salary, the employee must receive a “steady and predictable stream of pay, week after week,” regardless of the number of days worked. Justice Elena Kagan emphasized that “an employee is paid on a salary basis only if [he] receives the full salary for any week in which [he] performs any work without regard to the number of days or hours worked. The full salary amount is not subject to reduction because the employee worked less than the full week.

Justice Kagan summarized the majority’s interpretation of Section 541.601: “[m]ost simply put, an employee paid on an hourly basis is paid by the hour, an employee paid on a daily basis is paid by the day, and an employee paid on a weekly basis is paid by the week.” Under this narrow interpretation of FLSA’s language, a daily pay rate does not meet the salary requirement even if they would otherwise exceed the weekly or annual salary requirements.

In a dissent joined by Justice Samuel Alito, Justice Brett Kavanaugh agreed with Helix Energy Solutions, noting that Hewitt’s daily rate was higher than the required weekly threshold. Just Kavanaugh argued that Section 602 allows for a “predetermined amount” to be part of the employee’s compensation. Under this loose reading of Section 602, rejected by the majority, Hewitt’s salary would be sufficient for FLSA’s overtime exemption.

Because the Court failed to consider multiple arguments raised by the parties that it deemed waived, employers may anticipate more litigation on the application of Section 601 and 602 in the future.