Employers Beware: U.S. Supreme Court Rules that Highly Compensated Employees May be Eligible for Overtime Pay

In a ruling that caught many employers by surprise, the U.S. Supreme Court recently held that an employee who earned more than $200,000 per year was nonetheless entitled to overtime pay under the Fair Labor Standards Act (FLSA). The Court’s ruling in Helix Energy Solutions Group, Inc. v. Hewitt makes clear that just because someone is a highly compensated employee, it doesn’t mean they’re ineligible for overtime pay.

FLSA Overtime Rules

To be exempt from overtime regulations under the FLSA, most employees need to be paid at least $684 per week or $35,568 annually, a threshold referred to as the “salary level” test. To be exempt, an employee must also pass the “job duties” test (executive, administrative, professional or outside sales work), the elements of which vary depending on the job/position at issue.

The Supreme Court Case

The case involved an oil rig “toolpusher,” who filed suit against Helix Energy Solutions Group, alleging that he was wrongly classified as exempt and denied overtime pay. The toolpusher worked twenty-eight day “hitches” on an offshore oil rig, where his duties included supervising other offshore oil rig workers. He was paid a daily rate ranging from $963 to $1,341 per day, which amounted to earnings in excess of $200,000 annually. The worker’s daily rate increased each consecutive day worked.

Helix argued that the toolpusher fell under the DOL’s exemption for highly compensated employees. However, the Court stated that the “critical question” was whether the toolpusher was paid on a “salary basis” as determined under requirements in the DOL regulation. The Court reasoned that the “highly compensated employee” rule isn’t merely a “simple income level” test for the purposes of determining an exemption. It explained that Helix could have satisfied the exemption if the daily rate the toolpusher earned was a weekly guarantee that satisfied applicable regulations, or if compensation had been a straight weekly salary.

The Court rejected Helix’s argument that in any week in which the employee performed any work, his minimum guaranteed amount was well above the $455 per week (the weekly threshold required at the relevant time), so his compensation met the functional requirements of being paid on a salary basis.

According to Justice Kagan, even a “high-earning employee” who gets compensated on a “daily rate—so that he receives a certain amount if he works one day in a week, twice as much for two days, three times as much for three, and so on” is “not paid on a salary basis, and thus entitled to overtime pay.”

The Implications for Business Owners

In light of this decision, and because FLSA violations can give rise to significant penalties, employers, in consultation with legal counsel, should proactively review and analyze their reliance on the highly compensated employee exemption. Many employers likely have been operating based on assumptions—quite possibly incorrect ones—that certain employees are exempt from overtime pay merely because they are highly compensated.

If your business has questions about overtime pay and exemptions under federal and state law, please contact Zana Tomich.