October 1, 2021
On September 9, 2021, in a 12-6 opinion, the Fifth Circuit clarified the requirements for a day rate worker to qualify as exempt under the FLSA’s highly compensated employee exemption. The resulting opinion makes clear that employers must take additional steps to properly classify their day rate workers as exempt employees.
Hewitt, a highly paid tool pusher, sued Helix, his oil and gas services company employer, for alleged unpaid overtime payments under the FLSA. Helix had classified Hewitt as an exempt employee not entitled to overtime because it maintained that the highly compensated employee exemption applied to him. While the parties agreed that Hewitt satisfied both the exemption’s duties requirement and income threshold, they hotly contested whether he could still qualify for the highly compensated employee exemption with his day rate pay structure. The majority held that he technically could, but that he did not in this case because he did not also satisfy the salary basis test. In so deciding, the court explained that two conditions must now be met for day rate workers to satisfy this test in the Fifth Circuit: (1) the employment arrangement must include a minimum weekly guaranteed amount paid regardless of the number of hours, days, or shifts worked; and (2) there must be a reasonable relationship between that guaranteed amount and the amount actually earned.
According to the majority, the court’s holding will not necessarily preclude day rate workers from exempt status, so long as they also meet the minimum weekly guarantee and reasonable relationship requirements. But this will be no small change to the existing legal landscape, particularly within the energy industry. For many years, employers in the energy industry have commonly utilized a day rate pay methodology for certain independent contractors and employees, just as Helix did. However, many such arrangements have not included a minimum guaranteed weekly payment paid regardless of hours or days actually worked each week. Now, employers across industries will need to reevaluate the day rate payment structures they use with workers to mitigate the newly-heightened risk that these workers will no longer qualify for the FLSA’s white collar exemptions in future litigation.
To comply with the Helix ruling, employers must now arrange minimum weekly guaranteed payments for their day rate workers. For example, the Fifth Circuit noted that Helix could have met its requirements under the salary basis test by offering Hewitt a minimum weekly guaranteed $4,000 payment based on his $963 day rate. This insight suggests that Helix could have won the case and avoided paying any overtime to Hewitt had it assured Hewitt that he would never make less than $4,000 per week, even for weeks in which he worked four or fewer days. While the district courts flesh out what kinds of arrangements will satisfy the salary basis test, employers should work with counsel to set for their day rate workers weekly minimum pay amounts that are reasonably related to the amount actually earned each week.
Judge Ho, writing for the majority, insisted that textualist principles compelled the court’s holding despite industry concerns. In his dissenting opinion, Judge Wiener sharply criticized the majority’s “questionably self-labeled ‘textualist’ position” that an employee earning more than 94% of Americans is owed overtime rather than being classified as a highly-compensated, exempt employee. Indeed, as Judge Jones noted in her lead dissenting opinion: “Fewer than six percent of all Americans are paid as much as Hewitt.” A third of the court found it too hard to justify the majority’s conclusion that Hewitt and other such highly-compensated workers otherwise within the highly compensated employee exemption could still be entitled to overtime.
This decision will significantly affect the course of day rate pay FLSA litigation in the Fifth Circuit, especially those cases involving independent contractor misclassification disputes within the energy industry. Companies with day rate employees or independent contractors should contact counsel to help them evaluate and, as necessary, modify their pay practices to comply with the Fifth Circuit’s new requirements, so that they may protect themselves from potentially owing large overtime payments in future wage and hour litigation.