In a 2014 opinion in Sandifer v. U.S. Steel Corp., U.S. Supreme Court Justice Antonin Scalia wrote that the Fair Labor Standards Act "is all about trifles."[1]

This observation was certainly on display when the Supreme Court heard oral argument on Oct. 12 in Helix Energy Solutions Group Inc. v. Hewitt, a case that threatens to upset well-entrenched compensation practices in the energy sector and that is very likely to reverberate with a spate of new challenges to previously unquestioned regulations.

In Helix Energy, the court will determine whether the company paid Michael Hewitt on a salary basis such that he could qualify for the FLSA's highly compensated employee, or HCE, overtime exemption.

The justices and the advocates spent nearly 90 minutes debating the meaning of the phrase "paid on a salary basis" in painstaking detail. After oral argument, while one is loath to guess a given justice's ruling based on the questions asked at an oral argument, it seems that the case will come down to the votes of Justice Amy Coney Barrett and Chief Justice John Roberts.

However, the most interesting issue raised during oral argument was a question that is not even before the court — whether key aspects of the FLSA's so-called white collar overtime exemption regulations, which include the HCE exemption, conflict with the text of the FLSA.

Background

Helix Energy employed Hewitt as a toolpusher on an oil rig. Despite its name, a toolpusher is not a manual worker. Rather, the toolpusher is second in command of the vessel and is required to perform largely managerial and administrative tasks.

As is common in the energy industry, Hewitt worked 28-day hitches, where for 28 straight days, he would work and live on the oil rig, taking daily shifts of up to 12 hours. On any given day in which he worked at least one minute, Helix Energy paid Hewitt a daily rate that ranged from $963 to $1,341 over the course of his employment.

Hewitt worked for Helix Energy from 2015 to 2017 and earned more than $200,000 each year. In 2017, Helix Energy terminated Hewitt's employment for performance-related reasons.

After his employment ended, Hewitt filed suit claiming that he was entitled to overtime under the FLSA. Helix Energy defended the claim, arguing that Hewitt was exempt from overtime as a bona fide executive employee.

Under the FLSA, bona fide executive, administrative and professional employees are exempt from overtime. These exemptions are known as the white collar exemptions.

The U.S. Department of Labor has promulgated regulations to define and delimit when an employee qualifies for these overtime exemptions. In order to meet this exemption, the employer must satisfy a salary test and a duties test. Under the salary test, the employee must:

• Be paid on a salary basis; and
• Earn at least $684 per week.[2]

In addition, there is the HCE overtime exemption — a streamlined test for well-paid employees.

Under the HCE exemption, which is set forth in Title 29 of the Code of Federal Regulations, Section 541.601, if an employer pays an employee at least $107,432[3] in total annual compensation, the employee will be deemed exempt if the employee customarily and regularly satisfies the duties test for an executive employee — or the duties test set forth under the administrative or professional exemptions. The term "total annual compensation" must include at least $684[4] per week paid on a salary or fee basis.

In Helix Energy, the parties agreed that Hewitt would satisfy the HCE exemption if he were paid on a salary basis. Accordingly, the issue for the courts was whether Hewitt's daily payment of at least $984 was a payment on a salary basis.

Every week in which he worked at least one minute, he was guaranteed to earn at least $984. However, he received a daily rate, not a weekly, predetermined amount as is typical of a salaried employee.

The U.S. District Court for the Southern District of Texas held that Hewitt satisfied the HCE exemption. The U.S. Court of Appeals for the Fifth Circuit disagreed, holding that a daily payment, even if more than the minimum weekly salary requirement, did not satisfy the requirement under the HCE exemption that Hewitt be paid on a salary basis.

Helix Energy appealed to the Supreme Court, which granted certiorari.

Key DOL Regulations to Helix Energy

"Salary basis" is a term of art under the FLSA. Set forth in Section 541.602, the DOL's regulations define "salary basis" as a "predetermined amount" that the employee "regularly receives each pay period on a weekly, or less frequent basis ... [that] is not subject to reduction because of variations in the quality or quantity of the work perform."

Thus, an employee who receives a set amount each pay period — as long as the pay period is one week or longer — the employee would be deemed to be paid on a salary basis.

However, a special rule set forth in Section 541.604(b) states:
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.

For example, under this special rule, an employer could pay an employee a daily rate of $500 but guarantee that each week the employee will be paid at least $2,500, regardless of how many days the employee works each week.

The parties agreed that Hewitt satisfied the duties test for the executive exemption. They also agreed that Hewitt did not satisfy the salary test for the executive employee exemption because of the aforementioned special rule. The daily wage rate that Hewitt actually received was not reasonably related to the guarantee, which was one day of pay of $984 or more depending on the year.

Where the parties disagreed was on the issue of whether the HCE exemption was satisfied. Hewitt argued that he did not trigger the HCE exemption because he was not paid on a salary basis as the term "salary basis" set forth in Section 601 was subject to the special rule set forth in Section 604(b). Helix Energy argued that Section 601 is a stand-alone regulation and the term "salary basis" set forth in that regulation is not subject to the detailed requirements of Section 604(b).

Oral Argument

At oral argument, Helix Energy focused on three issues.

First, counsel emphasized that Hewitt received more than $200,000 each year and that every week in which Hewitt worked he received at least $984. Helix Energy contended that it was "common sense" that an individual earning in excess of $200,000 is not entitled to overtime.

Indeed, the company stressed language in Section 601 that "a high level of compensation is a strong indicator of an employee's exempt status." This argument seemed to play well with Justices Clarence Thomas, Neil Gorsuch and Brett Kavanaugh. Justices Ketanji Brown Jackson and Elena Kagan were not convinced noting that simply being well paid is not dispositive of exempt status.

Second, the company noted that Section 601 states that, in defining "total annual compensation," the regulation specifically references Section 602, but not Section 604(b). According to the company, this supports its contention that Section 604(b) does not apply to the HCE exemption.

Finally, Helix Energy noted that the employer can do a true up payment to satisfy the threshold under the HCE exemption. At the time of Hewitt's employment, the HCE exemption explicitly permitted an employer to pay an employee as little as $455 per week (now $684) for 52 weeks, which is the equivalent of approximately $24,000.

The employer could then satisfy the HCE exemption if it paid that employee a bonus of $76,000 at year-end — and the duties requirements were otherwise satisfied. Thus, according to Helix Energy, the HCE exemption "authorizes total compensation to dwarf the minimum guarantee in terms that Section 604(b) would deem unreasonable." As such, Section 604(b) cannot apply to the HCE exemption.

Justice Jackson pushed back considerably on this argument, contending that Section 602 and 604(b) work hand in hand to ensure that exempt employees receive a steady, predictable income each pay period.

Hewitt's legal team as well as the U.S. Department of Justice, which participated by invitation of the court, stuck closely to the text of the regulations. They argued that payment on a salary basis requires that the employee know beforehand the amount that the employee will receive if the employee works during a particular week.

As Justice Jackson repeatedly emphasized in her questions, the employee needs to know how much they will earn each week so that they can pay the mortgage and be "able to do other things in their lives."

Hewitt's team and the DOJ also noted that the salary must be paid on "a weekly or less frequent basis," which they argued supports their contention that a daily rate, no matter the level, is not a "salary paid on a weekly or less frequent basis." Justices Kagan and Sonia Sotomayor appeared to strongly support this rationale in their questioning of the advocates.

Further, Hewitt and the DOJ contended that the term "salary basis" has the same meaning throughout the regulations, noting that Section 604(b) supplements the general rule of Section 602 and that they need to be read in tandem with one another when interpreting the phrase "paid on a salary basis." Justice Jackson repeatedly emphasized this argument in her questions.

Despite the well-articulated arguments of both sides on what it means to be paid on a salary basis, the most interesting remarks in the oral argument came from Justice Kavanaugh. Throughout the argument, Justice Kavanaugh noted that the regulations are inconsistent with the text of the FLSA.

Specifically, the text of the FLSA's executive, administrative and professional exemption states that the duties of such employees render them exempt from the overtime provisions of the law; the text is silent about the compensation earned by such employees. Accordingly, Justice Kavanaugh opined that Hewitt Energy "obviously ha[s] a strong argument that the regs are inconsistent with the statute."

Justice Gorsuch followed up on this line of inquiry, asking counsel whether Helix Energy waived its argument that the regulations requiring an employee to be paid on salary basis in order to satisfy the white collar exemption are invalid because they conflict with the text of the statute. While Helix Energy did not concede waiver, counsel admitted that the question presented in the case concerned the language of the white collar regulations, not whether these regulations may be invalid.

After oral argument, it appears that Justices Thomas, Gorsuch and Kavanaugh would take the "commonsense" approach and rule in favor of Helix Energy. Justice Samuel Alito also appeared to be leaning in favor of Helix Energy. Justices Jackson, Kagan and Sotomayor were firmly in Hewitt's camp. That leaves Justices Barrett and Roberts, whose questions did not indicate which side they were likely to favor.

If the court rules in favor of Hewitt, it will significantly upset a well-entrenched practice in the energy industry. Toolpushers and other employees in the industry who perform exempt duties but are paid a day rate will need to have their compensation restructured to ensure they are exempt from overtime.

The energy industry will also be subject to numerous lawsuits from current and former employees seeking overtime wages that were not paid due to an incorrect understanding that these employees were overtime exempt.

However, if the court rules in favor of Helix Energy, it is unlikely to have any seismic impact on the economy, as very few industries pay employees day rates in an amount that exceeds the minimum salary threshold for exempt status. Nevertheless, a ruling in Hewitt's favor would be more consistent with the understanding among wage and hour practitioners on what it means to be paid on a salary basis.

With no clear majority in favor of either side at oral argument, it is unclear how the court will rule. What is virtually certain, however, is that Justice Kavanaugh's statements will spark new cases contesting the validity of salary basis requirement in the DOL's regulations for the white collar exemptions on the grounds that they are inconsistent with the text of the FLSA.

[1] Sandifer v. U.S. Steel Corp. , 571 U.S. 220, 234 (2014).

[2] When Hewitt worked for Helix Energy, the salary amount was $455 per week.

[3] Previously $100,000.

[4] Previously $455.

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