This is a day I have been waiting for. The Supreme Court has decided to take on a case in which it will decide whether someone earning more than $200,000 per year, albeit paid on a day rate, can nonetheless meet the FLSA test for the executive (and possibly administrative) exemption. At issue is the salary basis test for exemption. The case is entitled Helix Energy Solutions Group, Inc. v. Hewitt, and issued from the Fifth Circuit Court of Appeals.
To be exempt under the FLSA, a person must perform certain duties and be paid a salary of $684 per week ($455 when this case developed). For the so-called Highly Compensated Exemption (“HCE”), an individual must earn at least $107,000 ($100,000 when this case developed) of which at least $684 must be a salary and perform a single exempt job function. A salary, as defined in the FLSA regulations, is when an employee “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation.” 29 CFR 541.602(a).
The named plaintiff, a supervisor in an oil field, received paychecks bi-weekly and in any week in which he worked a single day, or a single hour on a day, he was “guaranteed” his day rate of $963 which was double the FLSA minimum salary. On that basis, the lower court agreed that he was “salaried” within the definition of the regulation, i.e. he received at least $455 per week as a salary.
The Fifth Circuit reversed, finding there was no “reasonable relationship” between the day rate and the aggregate compensation, which would be a great deal more than that $963. The entire Fifth Circuit then heard the case and, voting 12-6, affirmed the decision of the first panel. Yet, the HCE regulation makes no reference to the reasonable relationship test and this key difference has been noted by other Circuits (the First and Second Circuits), thus creating a split in the federal courts that requires Supreme Court resolution.
I have always believed that, especially with highly compensated workers, the “reasonable relationship” concept is inapplicable, especially in the energy industry, where these modes of compensation are widely utilized. The salary component of the exemption tests was instituted to ensure that such workers receive a certain base income to avoid such people being taken advantage of. In a situation like this, there is no danger whatsoever of these workers earning $200,000 being exploited. This case has wide ranging implications and could impact all kinds of workers in all kinds of industries.
Keeping fingers crossed…