The fundamental premise of being an exempt employee is that the worker is paid by a “salary” as that term is defined in the FLSA regulations. Even paying someone an exorbitant amount of money, if it is not (at least in part) a salary, means, by definition, that the person is non-exempt. The Fifth Circuit has just emphasized this tenet in a case involving an employee who earned more than $200,000 per year. This is in the energy industry, where many workers (exempt or otherwise) make great deal of money. The case is entitled Hewitt v. Helix Energy Solutions Group, Inc. and issued from the Fifth Circuit Court of Appeals.

The required duties for white collar exemptions vary, but the salary requirement cuts across all three of these exemptions (with minor carveouts for lawyers and doctors). In Hewitt, the employee was titled a Tool Pusher; he worked on an offshore oil rig where he earned over $200,000 per year. But and it is a big “but,” the employee was compensated via a day rate, rather than on a weekly or annual basis. The Court noted that daily paid employees may qualify for the exemption, but at least $684 per week (the FLSA minimum salary for exempts) of the total compensation must be paid by salary and there must exist a so-called “reasonable relationship” between that salary and the usual/expected weekly compensation.

The employer argued that since the basic day rate of $963 was paid to the worker if he performed even a minute’s worth of work, that meant he was guaranteed the compensation required for exemption and was far above it. The Court rejected this argument, specifically distinguishing between the guaranteed payment of a day rate and the weekly guarantee that inures to payment of a bona fide salary. In other words, the guarantee of the day rate was not the equivalent of a salary and because the employee earned “orders of magnitude” more than the minimum exempt salary, i.e. $684, there did not exist a reasonable relationship between the guarantee of $863 and the $4000 (or so) weekly total compensation.

There are two other Circuits, the Sixth and the Eighth Circuits (and the USDOL) who have held in this manner. These Courts will not apply the Highly Compensated Exemption (HCE) principles to these very highly compensated people, even though, as a practical matter, the employees should be considered exempt if they perform a single exempt function as the HCE demands.

The Takeaway

There is a split in the Circuits on this issue and the matter may end up before the Supreme Court. For employers, the fix, going forward, is relatively easy. Ensure that at least, on a weekly basis, $684 of the total compensation is paid as a true “salary.” This case is a shame because the employer clearly intended that the employee be exempt and the level of compensation is one that is not, obviously, paid to non-exempt workers.

Expensive mistake…