Helix Energy Solutions Group, Inc. v. Hewitt
598 U.S. 39 (2023)
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Rule of Law:
For an employee to qualify for the Fair Labor Standards Act's "bona fide executive" exemption, a daily-rate compensation scheme, even if highly paid, must satisfy the specific conditions of 29 CFR §541.604(b) in addition to other requirements; merely exceeding the weekly salary-level test with a high daily rate does not meet the "salary basis" test of 29 CFR §541.602(a).
Facts:
- Michael Hewitt worked for Helix Energy Solutions Group (Helix) as a "toolpusher" on an offshore oil rig from 2014 to 2017, overseeing operations and supervising 12 to 14 workers.
- Hewitt typically worked 12 hours a day, seven days a week (84 hours/week) during a 28-day "hitch," followed by 28 days off.
- Helix paid Hewitt on a daily-rate basis, ranging from $963 to $1,341 per day, with no additional overtime compensation.
- Hewitt's paychecks, issued every two weeks, were calculated by multiplying his daily rate by the number of days he had worked in the pay period.
- Under this compensation scheme, Hewitt earned over $200,000 annually.
- Michael Hewitt filed an action against Helix seeking overtime pay under the Fair Labor Standards Act (FLSA).
Procedural Posture:
- Michael Hewitt sued Helix Energy Solutions Group in the District Court (trial court of first instance), seeking overtime pay under the FLSA.
- The District Court granted summary judgment in favor of Helix, concluding that Hewitt was compensated on a salary basis and thus exempt from FLSA overtime requirements.
- Hewitt appealed this decision to the United States Court of Appeals for the Fifth Circuit (intermediate appellate court).
- The Fifth Circuit, sitting en banc, reversed the District Court's judgment, holding that Hewitt was not paid on a salary basis and therefore was entitled to FLSA overtime protections.
- Helix Energy Solutions Group filed a petition for writ of certiorari with the Supreme Court of the United States, which was granted.
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Issue:
Does an employee, who is compensated on a daily-rate basis and whose total annual compensation exceeds $100,000, qualify as being paid on a "salary basis" under 29 CFR §541.602(a) for the purpose of the Fair Labor Standards Act's "bona fide executive" exemption, even if their compensation does not meet the conditions of 29 CFR §541.604(b)?
Opinions:
Majority - Elena Kagan
No, a high-earning employee whose paycheck is based solely on a daily rate is not paid on a salary basis under 29 CFR §541.602(a) and thus is entitled to overtime pay, unless their compensation satisfies the specific conditions of 29 CFR §541.604(b). The Court reasoned that the plain text of 29 CFR §541.602(a) excludes daily-rate workers because it requires an employee to receive a "full salary for any week in which [he] performs any work without regard to the number of days or hours worked." A daily-rate worker's pay is, by definition, directly tied to the number of days worked, which contradicts this requirement for a predetermined amount. The common understanding of "salary" implies fixed, stable compensation, unlike daily wages that fluctuate with the number of days worked. The Court rejected Helix's interpretation that "receive[s] each pay period on a weekly[] or less frequent basis" refers to paycheck frequency, clarifying that "basis" refers to the unit of calculation for pay, like weekly, daily, or hourly. Further, the Court's interpretation is reinforced by the regulatory structure, particularly the role of 29 CFR §541.604(b). This provision specifically addresses how daily, hourly, or shift rates can meet the salary-basis requirement, but only if stringent conditions (a guaranteed weekly payment reasonably related to usual earnings) are met. If §541.602(a) were also to cover daily-rate employees, it would render §541.604(b)'s specific conditions superfluous. The two provisions are designed to be non-overlapping paths to satisfy the salary-basis requirement. The Court clarified that the Highly Compensated Employee (HCE) rule (29 CFR §541.601) incorporates both §541.602(a) and §541.604(b) for the salary-basis test; the HCE rule's "streamlining" only applies to the job duties test, not the salary-basis requirement. The Court dismissed Helix's policy arguments about "windfalls" for high earners, increased industry costs, or retroactive liability. It reiterated that the FLSA's purpose includes deterring overwork, and Congress intentionally chose not to exempt all highly paid workers. The salary-basis test is not a novel concept, dating back to the FLSA's early days. The Court also pointed out that Helix's interpretation would paradoxically deprive lower-earning daily-rate employees (those making under $100,000 annually) of overtime protections, which is inconsistent with the FLSA's design.
Dissenting - Neil Gorsuch
The Court should dismiss this case as improvidently granted, as the "critical question here" regarding the application of 29 CFR §541.602 was not the issue the Supreme Court agreed to review. Justice Gorsuch argued that Helix's petition for certiorari asked the Court to decide the interaction between 29 CFR §541.601 (the HCE rule) and 29 CFR §541.604(b), and Helix explicitly stated in its briefing that the issue was not with the salary-basis test of §541.602. He contended that the Court is addressing a question it never granted certiorari to decide and on which it received insufficient briefing. Furthermore, he noted that Helix forfeited a more foundational statutory argument—that the regulations' focus on salary structure, rather than solely on job duties, might be inconsistent with the FLSA itself—which makes reaching a potentially incorrect regulatory interpretation even more problematic. Therefore, he believed the Court should have left the question of §541.602's operation for another day.
Dissenting - Brett Kavanaugh
Yes, Michael Hewitt was a "bona fide executive" and therefore not entitled to overtime pay because he satisfied the salary-basis test under 29 CFR §541.602(a), and the specific two-thirds requirement of 29 CFR §541.604(b) did not apply to highly compensated employees. Justice Kavanaugh argued that Hewitt's compensation structure met the requirements of 29 CFR §541.602(a). Hewitt earned approximately $200,000 per year and received a predetermined daily rate of at least $963. Since this daily rate far exceeded the $455 per week minimum salary level, Hewitt was guaranteed at least $455 for any week he worked. The regulation specifies that the predetermined amount can constitute "all or part" of the employee's compensation, and Hewitt's high daily rate comfortably satisfied this as a part of his weekly earnings. He asserted that the majority's conclusion that Hewitt was not guaranteed $455 per week, despite being guaranteed $963 per day, was illogical. He further contended that the conditions of 29 CFR §541.604(b), particularly the requirement that a certain proportion of compensation be a guaranteed weekly salary, do not apply to highly compensated employees (HCEs) like Hewitt, who earn over $100,000 annually. He pointed to the regulations' introductory statements, the lack of cross-reference to §541.604(b) in the HCE rule (§541.601), and provisions allowing catch-up payments for HCEs as evidence that HCEs are exempt from §541.604(b)'s stricter requirements. Finally, Justice Kavanaugh questioned the underlying legality of the Department of Labor's regulations themselves, suggesting that their focus on how an employee is paid, rather than primarily on their job duties, might be inconsistent with the FLSA's statutory language regarding "bona fide executive . . . capacity," leaving this statutory question open for future challenges.
Analysis:
This decision significantly clarifies the application of the FLSA's "salary basis" test for the bona fide executive exemption, especially for highly compensated employees paid on a daily rate. It reinforces that a high income alone does not exempt workers from overtime and that payment schemes must genuinely reflect a fixed, predetermined weekly salary or strictly adhere to the specific conditions for daily-rate workers outlined in §541.604(b). The ruling prevents employers from leveraging high daily rates to avoid overtime obligations without providing the predictable income stream characteristic of a true salary. This will likely necessitate a reevaluation of compensation structures in industries that employ high-skilled workers on a daily-rate basis, potentially leading to increased labor costs or a shift towards guaranteed weekly pay models.
