He was paid for every week he performed work regardless of how many hours he actually worked which was consistent with the general notion of being paid on salary. Nevertheless, he filed a lawsuit for the failure to pay him at the overtime rate for hours worked beyond forty in a work week.Helix argued that Hewitt met all the requirements for a highly compensated employee under §541.601: (i) he performed executive duties, (ii) earned at least $100,000 a year, and (iii) received at least the minimum salary income in every week he performed work regardless of whether he worked less than or more than forty hours a week. Hewitt conceded that he met all those requirements but claimed that because his compensation was calculated based on a daily minimum, Helix also had to meet the requirements of 29 C.F.R. §541.604(b) which provides:An exempt employee’s earnings may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned.Helix Energy argues that the language in the HCE exemption that the employee once having met the salary amount requirement was “deemed exempt” obviated the need to scrutinize the details of the employment arrangement other than as required in §541.602.

n that approximates what the employee usually earns, even if the weekly compensation is computed on an daily basis) to be exempt.In a 6-3 ruling, the U.S. Supreme Court upheld the U.S. Court of Appeals for the Fifth Circuit's Sept. 9, 2021, en banc ruling that a highly paid employee was not an exempt executive under the Fair Labor Standards Act (FLSA) because he was not paid on a salary basis. (See Holland & Knight's previous alerts, "En Banc Fifth Circuit Holds Highly Paid Rig Worker Not Covered by FLSA Overtime Exemption," Sept. 15, 2021, and "Fifth Circuit Holds Day Rates Do Not Satisfy the Salary Basis Test," April 29, 2020.)The opinion of the Court, delivered by Justice Elena Kagan and joined by Chief Justice John Roberts and Justices Clarence Thomas, Sonia Sotomayor, Amy Coney Barrett and Ketanji Brown Jackson, focused on the question of "whether a high-earning employee is compensated on a 'salary basis' when his paycheck is based solely on a daily rate." 598 U.S. 1 (2023).Under 29 C.F.R. § 541.604(b), an exempt employee's earnings may be computed on a daily basis without losing the exemption or violating the salary-basis requirement "if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of … days … worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned." In its ruling, the Court determined that employees who are paid a daily rate – whatever the income level – must satisfy the salary-basis test set out in § 541.604(b): 1) that the employee is paid at least $455 each week and 2) that the guaranteed amount computed on a daily basis "must bear a 'reasonable relationship' to the 'amount actually earned.'" Id. at 5. (citing § 541.604(b)).Case Background and DecisionHere, respondent Michael Hewitt worked on an offshore oil rig for petitioner Helix Energy Solutions Group at a daily rate of $963, typically for 12 to 14 hours a day, seven days a

i and beyond.Despite the employer's arguments to the contrary, the en banc majority held that, to be entitled to the highly compensated employee exemption, the employer must show that the employee was paid on a salary basis, which may be satisfied by paying a daily or hourly rate only if there is a fixed minimum weekly guarantee that bears a reasonable relationship to the employee's actual compensation, no matter how high his or her compensation.In a decision that will impact pay practices in the oil and gas and many other industries in Texas, Louisiana, Mississippi, and beyond, the en banc U.S. Court of Appeals for the Fifth Circuit affirmed on Sept. 9, 2021, that employers paying a fixed daily rate — even one that results in annual compensation far above what is required to qualify for the Fair Labor Standards Act's overtime pay exemption for highly compensated employees — cannot meet the salary-basis requirement for the exemption unless they also satisfy the conditions set forth in 29 C.F.R. § 541.604(b) (i.e., payment of a fixed minimum weekly guarantee that bears a reasonable relationship to the employee's actual compensation). The ruling upends some employers' practices of paying a fixed daily rate regardless of the number of hours an employee works or paying a fixed daily rate for each day of a multi-day hitch.The en banc court affirmed a prior panel's conclusion in Hewitt v. Helix Energy Solutions Group, Inc. that a former offshore rig employee, who was paid a fixed daily rate and who made more than $200,000 per year, did not qualify for the highly compensated exemption to the FLSA's overtime pay requirements.

The DOL regulations also exempt certain “highly compensated” employees (HCEs) who (1) receive $107,432 in total annual compensation, which must include at least $684 per week paid on a salary basis, and (2) customarily and regularly perform at least one exempt executive, administrative or professional job duty.In Hewitt, there was no dispute that the employee performed the requisite job duties or earned sufficient annual compensation to qualify for the HCE exemption. The only dispute was whether Hewitt’s compensation — which consisted of $963 for each day he worked — met the requirement that his total annual compensation include at least $684 per week paid on a salary basis.In an opinion authored by Judge James C. Ho (who also authored the original panel decision), the majority of the en banc 5th Circuit held that a daily-rate worker can be exempt from overtime only if the employer meets two conditions found in DOL regulation 29 C.F.R. § 541.604(b): (1) the employee receives “a guarantee of at least [$684] paid on a salary basis regardless of the number of hours, days or shifts worked;” and (2) “a reasonable relationship exists between the guaranteed amount and the amount actually earned.”The court found that Hewitt’s pay did not comply with either condition.

In Helix Energy Solutions Group, Inc. v. Hewitt, the Supreme Court considered whether a day-rate employee earning at least $963 per day and over $200,000 annually was paid on a “salary basis” under the highly-compensated employee (“HCE”) exemption to the overtime requirements of the Fair Labor Standards Act (“FLSA”). In a 6-3 opinion, the Court held that he was not.The HCE rule in effect at the time of the plaintiff’s employment required employees to receive at least $455 per week on a salary basis and at least $100,000 in total annual compensation. (Currently, those figures are $684 and $107,432, respectively.) Two regulations were at issue: 29 C.F.R. §§ 541.602(a) and 541.604(b).Section 541.602(a) states that “[a]n employee will be considered to be paid on a ‘salary basis’ . . . if the 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.”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.Notably, the HCE does not expressly incorporate Section 541.604(b). And as we discussed here, courts have held that this omission was intentional:

Following the plain text of § 541.602(a), the district court ruled that the plaintiff had received at least $455 per week paid on a salary basis.On appeal, however, a three-judge panel of the Fifth Circuit held otherwise. Citing to 29 C.F.R. § 541.604(b), the Fifth Circuit found that there was no “reasonable relationship” between the plaintiff’s day-rate of $963 and his total weekly compensation, which could be thousands of dollars, and ruled as a result that he was not paid on a salary basis. The Fifth Circuit agreed to the hear the case en banc and, in a 12-6 split, affirmed.Yet, the HCE regulation makes no mention of § 541.604(b).

e decision of the Fifth Circuit, holding that a day-rate employee does not fall within the salary-basis provision.As the basis for its decision, the Court relied on 29 C.F.R. section 541.602(a), which sets out the salary basis test.Section 541.602(a) states “salary basis” means an employee “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount… which amount is not subject to reduction because of variations in the quality or quantity of the work performed.”The Court held that under a day-rate compensation structure, an employee is not receiving a “predetermined amount” on a weekly or less frequent basis. Additionally, given an employee on a day-rate is not compensated for days they do not perform work, their pay necessarily varies with the quantity of work performed. With no “steady and predictable stream of pay,” the Court determined a day-rate employee is not paid on a salary basis and is thus entitled to overtime.The Court also clarified that 29 C.F.R. section 541.604(b), which allows an exempt employee’s compensation to be “computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement,” was inapplicable to employees paid on a day-rate. Section 541.604(b) still requires a guarantee that the employee receives a minimum weekly amount bearing a “reasonable relationship” to the employee’s usual weekly earnings.Since a day-rate structure provides no weekly guarantee related to typical weekly earnings, Section 541.604(b) could not apply.Solutions Proposed by the Supreme CourtThe Court did provide two possible solutions for employers who want to pay on a day-rate compensation structure.One solution would be adding onto a daily-rate a weekly guarantee that did not take into account the number of days actually worked.A second solution proposed by the Court is simply converting Hewitt’s pay into a straight weekly salary for the time Hewitt worked.InsightEmployers who rely on the “bona fide executive” exe

The reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek.29 C.F.R. § 541.604(b) (emphasis added).The LawsuitIn Hewitt, the plaintiff worked on an offshore oil rig for periods of about a month at a time, known as “hitches.”

However, like many energy workers, the employee’s compensation was computed on a daily basis rather than a weekly, monthly, or annual basis. The court observed that while employees whose compensation is calculated as a function of a daily rate may still be regarded as being paid on a “salary basis” for overtime exemption purposes, there are special conditions that must be met. Specifically, 29 C.F.R. § 541.604(b) requires that: (1) the employee be guaranteed at least the minimum weekly required amount to be paid on a salary basis ($455 at the time, $684 under current regulations) regardless of the number of hours, days, or shifts worked (the “minimum weekly guarantee” condition), and (2) a reasonable relationship must exist between the guaranteed amount and the amount actually earned (the “reasonable relationship” condition).Citing precedent from the First and Second U.S. Courts of Appeals, the employer reasoned that since the employee in question was paid a minimum of his daily rate (i.e. $963) for any week where he performed any — even a single second — of work he was “guaranteed” the requisite minimal compensation regardless of the number of hours, days, or shifts worked.

or any workweek in which they perform no work.” Id. § 602(a)(1).The LawsuitBetween 2014 and 2017, the plaintiff worked month-long periods or “hitches” as a supervisor on an oil rig and was paid $963 for every day that he worked. After his employment ended, he filed a lawsuit against the company, alleging that he was improperly classified as an exempt employee and therefore, was entitled to overtime pay. The parties conceded that, because the plaintiff was guaranteed a minimum of $963 per day for any week in which he worked (and, in fact, earned over $200,000 per year), he easily satisfied the salary level requirement of the EAP exemptions. Moreover, because he regularly supervised 10-12 employees, he satisfied the duties requirement of the executive exemption. Thus, the only dispute was whether the plaintiff’s daily-rate pay met the “salary basis” requirement of the exemption.The FLSA regulations provide circumstances under which an exempt employee may receive additional pay for work (29 C.F.R. § 541.604(a)) or pay computed on a daily basis (29 C.F.R. § 541.604(b)) and still satisfy the salary-basis requirement. With respect to employees whose earnings are computed on a daily basis (at issue before the Court), the employee must be guaranteed a weekly minimum paid on a salary basis and the guaranteed weekly salary must bear a “reasonable relationship” to the total amount of pay received.In this case, it was disputed whether this alternative method of satisfying the salary basis test applies to employees, like the plaintiff, who are highly compensated. However, the company conceded that the reasonable-relationship test was not met under Section 604(b) and, therefore, that alternative method was not at issue. Instead, the only issue was whether an employee paid a sufficiently high daily rate — that itself ensures they earn more than the minimum required weekly salary amount — satisfies the “salary basis” requirement of Section 602(a). Reversing the trial court, the Fifth Circuit Court of Ap