As previously reported in EPTW, the U.S. Supreme Court (SCOTUS) was considering whether an oil rig worker that could earn over $200,000 per year could be classified as exempt from overtime pay. Last week SCOTUS ruled that because the job’s compensation was based upon a day rate and not a bona fide salary under the Fair Labor Standards Act (FLSA), the job could not be classified as exempt and therefore must be paid overtime for any hours worked over 40 in a week.
This ruling continues SCOTUS’s narrow interpretation of the FLSA. This means employers should apply the FLSA exemption classification tests literally. Though there are up to 28 exemptions in the FLSA, the four major exemptions most employers use are the Executive, Professional (learned and artistic), Administrative, and Outside Sales. The Executive, Professional, and Administrative exemptions require meeting three tests outlined below.
To be classified as exempt the position must be:
1. Paid on a salary basis,
2. At a salary level of $684/week, and
3. Meet the duties test of the particular exemption classification.
The Outside Sales exemption recognizes commission-based pay to meet its particular classification requirements.
The salary basis test was the main point of contention in this case. Helix Energy Solutions Group, the employer, classified one of its oil rig workers as exempt. However, from an FLSA standpoint the job was paid on a day rate basis, not on a regular salary basis as the FLSA regulations state. The argument the employer tried to make is the exempt classification met a sub-classification of exemption called the Highly Compensated Employee exemption whereby a position making at least $107,432/year can be classified as exempt under this sub-set rule if it makes that level of pay and also meets a more relaxed version of the particular exemption classification’s duties test.
“Helix argued that only the so-called general rule of the salary basis test in Section 541.602(a) applied to highly compensated employees and that a separate regulation, Section 541.604(b), which governs pay on a shift or day basis, did not.”
Thereby the employer argued, the position could be paid on other than a salaried basis as long as it made over the $107,432 annual salary amount.
“Section 541.604(b) provides an alternative path to satisfying the salary basis test. This section states that an employee’s earnings may be computed on an hourly, daily, or shift basis, without violating the salary basis requirement, if the employee receives a guarantee of $455 per week (now $684) and there is a “reasonable relationship” between “the guaranteed amount and the amount actually earned.” The Department of Labor (“DOL”) has construed the ‘reasonable relationship’ requirement to mean that the guaranteed portion constitutes at least two-thirds of total compensation.”
This decision is an example of the application of textualism. The strict letter interpretation of law or regulation in this case by the Court to support a ruling. This is usually a conservative’s tool in court ruling. However, in this case a liberal justice used it to support an employee-friendly outcome – some irony there. Conservative Justice Kavanaugh; however, dissented saying that the DOL’s regulations around exemptions may just be wrong possibly opening up a future challenge based upon the assertion the regulations are inconsistent with the Fair Labor Standards Act itself.
Justice Kagan asserted in support of her position that if this position was found exempt just because it made a lot of money regardless, a ruling based upon that would threaten lower paid workers too. She explained:
Some nurses working on a per-day or per-shift basis are likely to meet [the standard urged by Helix for losing overtime]; and their employers would assure them [a token weekly payment] in a heartbeat if doing so eliminated the need to pay overtime. And nurses … are not alone: They "are just one of the many examples" of workers paid less than $100,000 a year who would, if Helix prevailed, lose their entitlement to overtime compensation.
Employers are advised to review exempt classified positions to ensure if they are determined under the Executive, Administrative, or Professional exemptions they are paid on salary basis. Employers should also review all exempt classified jobs to ensure that they are properly classified. In other words, meet the exemption tests including the particular exemption’s duties test. Just paying a position a salary or calling a position a manager or supervisor does not necessarily mean they are exempt. As this case also holds, determination of exempt and non-exempt is fact based upon what the position actually does and how it is paid.
ASE has a class on determining proper FLSA classification determination coming up on May 4, 2023. This is a half-day class and will be presented in person at ASE’s Troy office training facility. Register here.
ASE also can provide a FLSA classification analysis and determination on any position an employer needs a review on. This is a fee for service ASE resource. Learn more here.
Sources: Law 360 Employment Authority. High Court Decision Affirms Salary Regs – For Now (2/22/2023); Seyfarth Shaw. Supreme Court Holds That Highly Compensated Employees Solely Paid A Day Rate Must Meet Reasonableness Relationship Test (2/22/2023); Sources: Law 360 Employment Authority. High Court Decision Affirms Salary Regs – For Now (2/22/2023); Seyfarth Shaw. Supreme Court Holds That Highly Compensated Employees Solely Paid A Day Rate Must Meet Reasonableness Relationship Test (2/22/2023); Law 360 Employment Authority There’s More to the Helix FLSA Opinion Than Meets the Eye (2/24/2023)