Supreme Court Ruling in Helix Provides Warning to Employers about FLSA Misclassifications

The Fair Labor Standards Act (FLSA) guarantees overtime pay to millions of Americans in the event they work more than 40 hours per week, although there are several exceptions to the rule. A recent Supreme Court decision shows how a mistake in the eyes of the FLSA can be costly for employers.

On February 22, 2023, the Supreme Court of the United States handed down an opinion in the matter of Helix Energy Solutions Group, Inc. v. Hewitt. The lawsuit was originated by a former offshore oil rig executive, who from 2014-2017, often worked 12-hour days, 7 days per week. In a typical 28-day “hitch,” he might work 84 hours per week, followed by a 28-day hiatus, reporting back to the vessel at the conclusion of his time off. Although his employer had classified him as exempt for purposes of the FLSA under the “bona fide executive” exemption, he was paid a daily rate for his work that ranged from $963 to $1,341 per day during his tenure on the rig. His paycheck each biweekly pay period would be the equivalent of the daily rate multiplied by the number of days he had worked that period, guaranteeing that so long as he worked at least one day a pay period, even when he was receiving the lower end of the daily rate range, he was guaranteed at least $963/pay period, which exceeded the weekly minimum salary set by the FLSA for the executive exemption, which at the time was $455/week.

The problem with that? To qualify for the executive exemption under the FLSA, an employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise, the employee must customarily and regularly direct the work of at least two or more other full-time employees (or the equivalent), the employee must have the power to hire and fire, or their suggestions and recommendations as to the employment status of others must be given particular weight, and they must be compensated on a salary basis at a rate of not less than $684 per week ($455/week during the time the employee was employed on the oil rig). Per the Department of Labor, to be paid on a ”salary basis” means the employee must receive “a predetermined amount of compensation each pay period on a weekly, or less frequent, basis.”

The Supreme Court ultimately determined that although the employee was highly paid, he was not exempt from the overtime protections set forth in the FLSA, because he was not paid a “true salary,” but instead a daily rate for his work, which did not satisfy the conditions of the exemption with respect to payment on a salary basis. In holding that the employee, who performed executive duties and earned a six-figure salary each year, was not an exempt employee under the FLSA and therefore was entitled to overtime pay, the decision makes clear that employers with highly compensated employees who are paid in non-traditional ways or on unique schedules should be very careful. While the holding may have a limited impact considering most highly compensated employees are paid a fixed salary, employers may want to evaluate their workforce to ensure they’re not inadvertently setting themselves up for a hefty overtime charge in the future.

Whether an individual is exempt from the FLSA is often a fact-specific inquiry, and one that can have costly consequences if the wrong conclusion is reached. For assistance or questions related to exemptions under the FLSA, contact Katie Campbell or another member of the firm’s Labor & Employment Practice Group.

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Associated People:

Katie Campbell

Practice Area:

Labor & Employment