U.S. Supreme Court Holds Employees Paid on a ‘Per- Day Rate’ are Entitled to Overtime Pay
On February 22, 2023, the United States Supreme Court issued its opinion Helix Energy Sols. Group, Inc. v. Hewitt, 2023 U.S. LEXIS 944 (Feb. 22, 2023), holding that paying an employee a “day rate” did not satisfy the “salary basis” component of the “white collar” executive exemption under the Fair Labor Standards Act (“FLSA”). Because of this ruling, employers going forward need to keep in mind that even highly compensated employees may be eligible to receive overtime if they are paid solely on a day-rate basis.
Exempt Employees in Puerto Rico
The FLSA requires employers to pay covered employees at least the federal minimum wage for all hours worked and overtime pay at not less than one-and-one-half times their regular rate of pay for all hours worked over 40 in a workweek. Nonetheless, not all employees are eligible for overtime pay. Employees who satisfy the requirements of the executive, administrative, or professional employee exemptions (“white collar,” exemptions) are exempt from receiving overtime. To qualify for these exemptions, Department of Labor (DOL) regulations provide that employer must satisfy three requirements: (1) the employee must be paid on a “salary basis”; (2) the employee’s salary must be at least $684 per week ($455 per week in Puerto Rico); and (3) the employee must perform the required duties associated with the exemption.
In Puerto Rico, Act No. 379 of May 15, 1948 (“Act 379”) regulates the hours and days of work of employees who work on the Island and establishes the payment for hours worked in excess of the regular workday. Like the FLSA, Act 379 excludes managers, executives and professionals from overtime pay and the applicable regulation defining these terms covered by said exemption is similar to the FLSA. However, under Act 379, as previously mentioned, the minimum fixed weekly amount to be considered an exempt employee is $455, and under the FLSA it is $684.
Due to the similarity between Act 37 and the FLSA, when interpreting the exemptions provided by Act 379, the Puerto Rican courts review and regularly adopt rulings from other jurisdictions interpretating the FLSA. Thus, the decision in Helix Energy Solutions Group, Inc. v. Hewitt, supra, unquestionably applies to Puerto Rico.
Michael Hewitt filed a lawsuit against his employer Helix Energy Solutions Group, seeking overtime pay under the FLSA, which guarantees overtime pay to covered employees when they work more than 40 hours a week. From 2014 to 2017, Hewitt worked for Helix on an offshore oil rig, typically working 84 hours a week. He was paid between $936 and $1,341 per day, no matter how many hours he worked in each day. He received this day rate for every day he worked, which amounted to an annual salary more than $200,000. Because Hewitt was guaranteed a minimum of $963 per day for any week in which he worked, he satisfied the salary level requirement of the white-collar exemptions previously discussed. Moreover, because he regularly supervised 10-12 employees, Hewitt satisfied the duties requirement of the executive exemption. Thus, the only dispute was whether Hewitt’s daily-rate pay met the “salary basis” requirement of the exemption.
The district court held that because Hewitt received at least $936 in any week that he performed work for his employer, he was properly classified as exempt. Reversing the trial court, the Fifth Circuit Court of Appeals disagreed, and held that the salary-basis requirement was not met and therefore, Hewitt was entitled to overtime pay.
The Supreme Court’s Opinion and Analysis
The Supreme Court affirmed the Fifth Circuit’s ruling. In a 6-3 decision authored by Justice Elena Kagan, the Court concluded that the day-rate basis on which Hewitt was paid did not satisfy the regulatory salary-basis requirement of the white-collar exemptions even though the employee at issue earned more than $200,000 per year and met the salary-level of that exemption. Employees paid on this day-rate arrangement, despite their salary scale, are thus entitled to overtime pay unless they qualify for some other exemption. The Supreme Court observed that nothing in the regulatory description of a salary applies to a daily rate worker, who is paid for each day they work and no others.
The Supreme Court, however, further advised that such employees could meet the salary requirement, and therefore not be entitled to overtime pay, if the employer: (1) adds to the per- day rate a minimum weekly pay guarantee, regardless of the number of hours, days or shifts worked, and (2) there is a reasonable relationship between the amount guaranteed and the amount actually earned. Thus, going forward, employers should be careful paying on a day-rate basis to those employees they claim to be exempt, and, if they do, ensure they meet the salary basis requirement established in this case, which as mentioned before, applies to Puerto Rico.
Should you have any questions about this Supreme Court’s decision and the implications in your business, please contact our Labor and Employment Practice Team.