The ground rules that determine whether an employee qualifies for overtime pay or is classified as "exempt" are set by the Fair Labor Standards Act (FLSA) and regulations under that law issued by the Department of Labor. Based on the FLSA, an employee who's exempt is considered ineligible for overtime pay. As a general matter, employees are deemed exempt if they perform executive duties and earn at least $100,000.Many skilled employees in fields where demand for such workers is high earn more than $100,000. However, they aren't treated as exempt because they don't perform executive duties. And many who earn far less than $100,000 and do perform executive duties are treated as exempt. Determining the right classification in such situations requires a close look at how extensive their executive duties are and what form their compensation takes.
In a case now before the Supreme Court of the United States (SCOTUS) — Helix Energy Solutions Group, Inc. v. Hewitt, 21-984 — involves a former supervisor (Hewitt) on Helix's offshore oil vessels who was paid at least $963 each day that he worked. He was paid at two-week intervals.
Over a three-year period his average annual pay exceeded $200,000. "It is undisputed that [Hewitt] performed executive duties," Helix pointed out in its request to SCOTUS to overturn the lower appeals court's ruling (which found that Hewitt was nonexempt). Also undisputed was the fact that Hewitt's pay dramatically exceeded the $100,000 threshold.
But after Hewitt was terminated by Helix over performance issues, Hewitt sued the company seeking to receive retroactive overtime pay. He argued that he'd been treated as a nonexempt employee.
While the employer succeeded in convincing the local U.S. district court to reject Hewitt's argument, it failed to do so on appeal to the U.S. Court of Appeals for the Fifth Circuit. Hence, Helix took its case to SCOTUS, which in May agreed to hear it.
The majority of Fifth Circuit judges hearing the case pinned their decision on a highly technical issue of whether a particular set of regulations governing highly compensated executives (HCE) status determination is relevant to the case at hand. Part of the dispute has to do with the fact that Hewitt's pay was a flat per-day rate, paid biweekly, instead of calculated more in line with a standard salary.
From Hewitt's perspective, the way he was paid was more in keeping with a wage-based pay plan than a salary. However, as pointed out by the American Petroleum Institute (API) in a friend-of-the-court amicus brief supporting Helix's position, "This pay practice has been relied upon and survived for decades without censure."
The API refers to oilfield workers like Hewitt as "consultants who are sought-after, shrewd, and tough workers" who, unlike ordinary nonexempt employees, "drive their compensation negotiations, with ever-growing increases in the compensation guarantees they demand."
This isn't a category of employees "comprised of minimum wage earners who perform rote tasks in less-than-ideal conditions," API pointed out. Annualized pay for these consultants ranges from $140,000 to $385,000.
SCOTUS only accepts a small proportion of cases brought to it. But an important factor that might have persuaded them to hear the case is that two other appeals courts have ruled on the other side of this issue in similar cases. SCOTUS often decides to have the final say when conflicting rulings dot the national judicial landscape.
In its request for SCOTUS to hear the case, Helix's attorneys highlighted the views of the minority of judges in the Fifth Circuit that sided with Helix. "As the dissenting judges forcefully demonstrated, the decision [of the court's majority] is wrong as a matter of text, context, and common sense."
On a more practical level, Helix argued that "If allowed to stand, the [circuit court opinion] would give rise to massive retroactive liability, especially given the ability to file nationwide [class action suits] in the Fifth Circuit."
While the outcome of the case is pending, it might be prudent to take a fresh look at how you classify your workers. If one of your well-paid employees who you're treating as exempt gets the notion that he or she should be treated as nonexempt and eligible for over-time pay, the results could be costly.
Even if you're correct in classifying such employees as exempt, defending yourself in litigation can be expensive, not to mention damaging to labor relations. Prevention is the best medicine. Ensuring that both you and your exempt employees are up to date on the current standards for exempt status may be the best way to stay "healthy" in this area.
Consult your financial and legal professionals to make sure you're on the right track, no matter which way the Supreme Court ultimately rules in this case.
Get in touch today and find out how we can help you meet your objectives.
