Supreme Court holds that Highly Compensated Employee exemption requires guaranteed salary irrespective of actual amount paid

Federal law (FLSA) contains an exemption from overtime requirements for Highly Compensated Employees. In its Fact Sheet 17H, DOL summarizes the Highly Compensated Employee exemption, as follows:

The regulations contain a special rule for “highly compensated” employees who are paid total annual compensation of $107,432 or more. A highly compensated employee is deemed exempt under Section 13(a)(1) if:

1. The employee earns total annual compensation of $107,432 or more, which includes at least $684* per week paid on a salary or fee basis;
2. The employee’s primary duty includes performing office or non-manual work; and
3. The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.

Thus, for example, an employee may qualify as an exempt highly compensated executive if the employee customarily and regularly directs the work of two or more other employees, even though the employee does not meet all of the other requirements in the standard test for exemption as an executive.

In Helix Energy Solutions Group, Inc. v. Hewitt, the Supreme Court wrestled with the first requirement: The payment of at least $684 per week, $107,432 on a salary or fee basis. The case involved a worker who was paid well in excess of that amount. He earned “over $200,000 annually.” But, he argued, he wasn’t paid that amount “on a salary or fee basis.” Rather, he was paid a daily rate for each day he worked every two weeks. He worked on an offshore oil rig and was typically active 84 hours per week. There was no argument that he was paid on a “fee basis,” instead his employer argued that he was paid the requisite amount because he was in fact paid so much more than the required minimum.

In fact the dissent noted that, although he hadn’t been guaranteed a minimum weekly amount, he was guaranteed a minimum daily amount because he was paid by a daily rate, and the dissent noted that his daily rate was $963, thus the dissent noted that if he worked any part of a week, he was guaranteed to receive at least $963, well in excess of the minimum $684 per week required by FLSA.

The majority of the Supreme Court disagreed. The Supreme Court held that the actual amounts paid were not the only issue. While this worker’s actual pay exceeded — by far — FLSA’s minimum threshold, it hadn’t been paid by way of a guaranteed minimum weekly salary. In short, he was paid by way of a daily rate, which, the majority held, is not the same a minimum guaranteed weekly salary.

Employers who hope to rely on an exemption under FLSA that requires payment of a minimum guaranteed weekly salary are cautioned that the Supreme Court’s decision may not be limited to the Highly Compensated Employee exemption. Employers hoping to rely on any exemption under FLSA should take care to consult with legal counsel about their compensation structures. Helix Energy is a cautious reminder that the amount paid alone is not sufficient to exempt a worker; the remainder of each exemption’s requirements must be met, including, where applicable, the minimum guaranteed weekly salary requirement.