Seyfarth Synopsis: On Monday, the Supreme Court agreed to hear a case addressing whether an employee paid on a day rate and earning over $200,000 a year is entitled to overtime under the FLSA

The U.S. Supreme Court has agreed to hear Helix Energy Solutions Group, Inc. v. Hewitt, a case addressing whether a supervisor who earned a day rate of $963, and more than $200,000 annually, was paid on a “salary basis” under the FLSA. This question affects the entire spectrum of highly paid white-collar workers whose compensation includes a guaranteed amount, plus additional payments based on an hourly, daily, or per-shift rate.

For background, the FLSA requires employers to pay covered employees one-and-one-half times their regular rate of pay for all hours worked over 40 in a workweek. This requirement, however, does not apply to certain exempt employees. One such exemption is the highly-compensated employee (“HCE”) exemption. Under the HCE exemption in effect when Helix was originally decided, an employee “with total annual compensation of at least $100,000 [was] deemed exempt,” as long as (1) their compensation included “at least $455 per week paid on a salary or fee basis” and (2) they customarily and regularly performed certain duties. (As noted here, effective January 1, 2020, the annual and weekly thresholds were increased to $107,432 and $684, respectively.)

At issue in Helix is when a highly-compensated employee is paid “on a salary basis.” The regulations define “salary basis” to mean that an employee “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation[.]” 29 C.F.R. § 541.602(a).

The plaintiff in Helix, a highly skilled supervisor, received paychecks bi-weekly—i.e., he “received” pay “on a weekly, or less frequent basis”—and in any week in which he worked a single minute, he was guaranteed a “predetermined amount” that always exceeded the minimum weekly salary of $455 (i.e., his daily rate of $963). Following the plain text of § 541.602(a), the district court ruled that the plaintiff had received at least $455 per week paid on a salary basis.

On appeal, however, a three-judge panel of the Fifth Circuit held otherwise. Citing to 29 C.F.R. § 541.604(b), the Fifth Circuit found that there was no “reasonable relationship” between the plaintiff’s day-rate of $963 and his total weekly compensation, which could be thousands of dollars, and ruled as a result that he was not paid on a salary basis. The Fifth Circuit agreed to the hear the case en banc and, in a 12-6 split, affirmed.

Yet, the HCE regulation makes no mention of § 541.604(b). Rather, the HCE regulation only cites to § 541.602. The unequivocal inference from this omission has not been lost on other courts, including the First and Second Circuits, which have rejected the notion that § 541.604 applies to the HCE exemption. Moreover, superimposing § 541.604(b)’s “reasonable relationship” test on the HCE regulation makes little sense. After all, until 2020, the HCE regulation expressly contemplated an exempt employee earning $100,000 or more in total annual compensation, inclusive of just $455 per week in salary (the equivalent of $23,660 annually).

The question of whether the “reasonable relationship test” applies to day rate employees taking home over $200,000 per year could impact a wide spectrum of exempt-classified workers whose compensation encompasses hourly, daily, or per-shift wages. The Supreme Court’s decision, which we anticipate will be issued in the first half of 2023, should provide guidance to employers on when and under what circumstances they may rely on the HCE in determining how to pay these employees.