Even Highly Paid Employees May Be Entitled To Overtime, Supreme Court Rules

Even Highly Paid Employees May Be Entitled To Overtime, Supreme Court Rules

April 21, 2023

The federal Fair Labor Standards Act guarantees overtime pay to covered employees who work more than 40 hours in a given workweek. Employees working in executive, professional and administrative roles are often exempt from this overtime requirement, but only if they satisfy certain conditions.

The Supreme Court has ruled that a highly paid employee is entitled to overtime because his job doesn't satisfy the salary basis test (Helix Energy Solutions Group, Inc. v. Hewitt, U.S. Supreme Court No. 21-984, Feb. 22, 2023). 

Facts of the case

Michael Hewitt worked on an offshore oil rig for Helix Energy Solutions. While he was on the vessel, he typically worked 84 hours per week. Hewitt was paid on a day-rate basis and did not receive overtime pay. He earned in excess of $200,000 a year.

Helix argued that Hewitt was a "bona fide executive" who was exempt from overtime pay, while Hewitt said he was not paid on a salaried basis. His pay was directly tied to the number of days he worked each pay period.

Supreme Court's decision and reasoning

In a 6-3 decision, the court agreed with Hewitt. The executive exemption from overtime requires that three tests be met:

  1. Salary-basis test: The employee must receive a predetermined and fixed salary that does not vary with the amount of time worked.
  2. Salary-level test: The employee's salary must be at least $455 per week.
  3. Duties test: The employee must regularly perform work that involves:
    1. Managing the enterprise
    2. Directing other employees
    3. Exercising power to hire and fire

The duties test is less strict for highly compensated employees earning at least $100,000 per year; the employee must regularly perform just one (not all) of the three listed responsibilities. 

The Supreme Court noted that a day-rate employee can satisfy the salary-basis test only if both of the following conditions are met: 

  • They are guaranteed at least $455 per week. 
  • The promised amount bears a "reasonable relationship" to the "amount actually earned" in a typical week.

This did not apply to Hewitt, whose pay equaled his daily rate times the number of days he had worked in the pay period. When he worked just one day in a two-week period, his pay was $963; when he worked all 14 days, his pay was $13,482.

Helix argued that a different exception to the salary-basis test applied to Hewitt, but the court said this exception excludes day-rate workers. It affirmed a lower court's opinion concluding that Hewitt was entitled to overtime.

Key takeaways

While the facts of this case are somewhat unusual, the case highlights the importance of proper employee classification. Even highly paid employees may be entitled to overtime. And back pay and penalties can add up quickly, especially if multiple employees are misclassified.

If you have questions about employee classifications or overtime pay, consult with experienced local counsel.