Helix Energy Solutions Group, Inc. v. Hewitt

Issues

Must an employee making over $200,000 each year satisfy the “extras regulation” requirements in 29 C.F.R. § 541.604 to be a “highly compensated employee” exempt from overtime pay under the FLSA?

Oral argument:

October 12, 2022

Court below:

United States Court of Appeals for the Fifth Circuit

This case asks the Supreme Court to clarify whether highly compensated white-collar employees must meet the requirements of 29 C.F.R. § 541.604 to be exempt from overtime pay. To be exempt from overtime pay, 29 C.F.R. § 541.604 requires that employees receive certain minimum weekly guarantees and that a reasonable relationship exist between the guaranteed amount and amount actually earned. Helix argues that incorporating 29 C.F.R. § 541.604 into the Fair Labor Standards Act’s highly compensated employee exception goes against the text and regulatory history of the highly compensated employee exemption regulation and unnecessarily complicates the exemption process. Hewitt counters that 29 C.F.R § 541.604 has been embraced in the text and practice of highly compensated employee exemption regulation and that it encourages employers to improve welfare and increase job slots. The outcome of this case has significant implications for the oil, gas, and nursing industries, as well as their employees’ job markets.

Questions as Framed for the Court by the Parties

Whether a supervisor making over $200,000 each year is entitled to overtime pay because the standalone regulatory exemption set forth in 29 C.F.R. § 541.601 remains subject to the detailed requirements of 29 C.F.R. § 541.604 when determining whether highly compensated supervisors are exempt from the Fair Labor Standards Act’s overtime-pay requirements.

Facts

Petitioners Helix Energy Solutions Group, Inc. and Helix Well Ops, Inc. (collectively “Helix”) provide offshore oil and gas well intervention services. Hewitt v. Helix Energy Sols. Grp., Inc. at 1. Helix employed Respondent Michael Hewitt for two years as a Toolpusher. Id. at 2. Hewitt, like most Toolpushers, typically worked and lived on an offshore oil rig for twenty-eight-day periods during offshore trips for Helix. Id. at 2. A Toolpusher’s primary responsibility is to supervise the drill and crane crew of twelve to thirteen employees. Id. at 2. Hewitt would work twelve-hour shifts when on the rig and would generally work six twenty-eight-day periods a year. Id. Hewitt was compensated at a daily rate of $1,341 and required to work over forty hours per week. Hewitt v. Helix Energy Sols. Grp., Inc. at 6. For any week that Hewitt worked, Hewitt was paid at least $455. Hewitt v. Helix Energy Sols. Grp. at 2. Throughout his employment, Hewitt was paid over $200,000 per year. Id.

Hewitt filed a putative class action suit against Helix, alleging that the company violated the Fair Labor Standards Act (“FLSA”) by denying him overtime pay. Id. at 1–2. Helix responded that Hewitt was properly excluded from receiving overtime pay because Hewitt was a highly compensated employee (“HCE”) paid on a salary basis and a bona fide executive. Id. at 3; see also Hewitt v. Helix Energy Sols. Grp. at 6–7. The United States District Court for the Southern District of Texas granted summary judgment in favor of Helix, finding that Hewitt was both an executive and an HCE paid on a salary basis and thus not eligible for overtime pay. Hewitt v. Helix Energy Sols. Grp. at 1, 6–8.

Hewitt appealed the decision to the United States Court of Appeals for the Fifth Circuit. The Fifth Circuit reversed the district court’s judgment, holding that Hewitt should have received overtime pay because Hewitt was not paid on a salary basis. Hewitt v. Helix Energy Sols. Grp. at 3. Instead, the court found Hewitt was paid on a daily rate and, therefore, could only be exempt if Helix also satisfied 29 C.F.R. § 541.604(b), which requires that employees receive certain minimum weekly guarantees paid on a salary basis and that the guaranteed amount be reasonably related to the amount actually earned to be exempt from overtime pay. Id. at 5–7. The court held that Helix did not satisfy 29 C.F.R. § 541.604(b). Id. at 7.

Helix successfully petitioned for an en banc rehearing. Hewitt v. Helix Energy Sols. Grp. at 2. The Fifth Circuit vacated its previous opinion, but once again ruled in favor of Hewitt in a 12-6 ruling. Hewitt v. Helix Energy Sols. Grp. at 5. The Fifth Circuit reaffirmed that Hewitt was not paid on a salary basis because Helix did not satisfy 29 C.F.R. § 541.604(b)’s requirements. Id. at 3–4. Following the Sixth and Eighth Circuits, the Fifth Circuit held that Helix must still comply with 29 C.F.R. § 541.604(b) even if it seeks an exemption under the HCE exemption to the FLSA, 29 C.F.R. § 541.601, and pays Hewitt on a salary basis as defined under 29 C.F.R. § 541.602. Id. at 13. The Fifth Circuit also denied Helix’s argument that its ruling is contrary to the purpose of the FLSA. Id. at 15. The Fifth Circuit reversed the district court’s ruling and remanded the case to the lower court for further proceedings. Id. at 5.

On January 7, 2022, Helix filed a petition for a writ of certiorari. Petition for a Writ of Certiorari at 37. The United States Supreme Court granted certiorari on May 2, 2022.

Analysis

INTERPRETING REGULATORY TEXT AND HISTORY

Petitioner Helix contends that 29 C.F.R. § 541.601’s highly compensated employee exemption to the FLSA (the “HCE regulation”) does not require compliance with 29 C.F.R. § 541.604 (the “extras regulation”). Brief for Petitioners, Helix Energy Solutions Group, Inc. and Helix Well Ops, Inc. (“Helix”) at 29–30. Under the extras regulation, Helix notes, employers may provide exempt employees with “extra” compensation on top of the employees’ salaries while still maintaining their FLSA exemptions, provided that the employer guarantees the employee “at least the minimum weekly-required amount paid on a salary basis” and that a reasonable relationship exists between the guaranteed amount and amount actually earned. Id. at 9–11. Because the HCE regulation lists criteria for employees to be “deemed exempt,” Helix interprets the HCE regulation to have exhaustively listed all the necessary criteria for the exemption. Id. Helix argues that provisions not cross-referenced or expressly incorporated into the HCE regulation are not required for the exemption. Id. Otherwise, Helix contends, subsection (d) of the HCE regulation, which restricts the HCE regulation’s scope to non-manual workers, would be superfluous because this subsection is nearly identical to 29 C.F.R § 541.3(a), which restricts the scope of FLSA overtime pay exemptions to non-manual workers. Id. at 31.

Helix claims that the extras regulation is never cross-referenced or expressly incorporated into the HCE regulation’s text. Id. at 29–30. Helix refers to § 541's regulatory history to argue that the extras regulation was intentionally excluded from the HCE regulation. Id. at 32. Helix emphasizes that the extras regulation and 29 C.F.R. § 541.602 (the “salary basis regulation”), which bars employers from lowering exempt employees’ salaries due to “variations in the quality or quantity of the work performed,” were originally subparts of the same section but were separated when the HCE regulation was introduced. Id. at 10. Helix posits that the salary basis and extras regulations were separated to allow the newly introduced HCE regulation to intentionally exclude the extras regulation and selectively incorporate the salary basis regulation. Id.

Helix contends that the extras regulation cannot apply to the HCE regulation because the HCE regulation irreconcilably conflicts with the extras regulation. Id. at 33. Helix states that the extras regulation allows an employee to maintain exempt status only if extra compensation not originally guaranteed in a salary (the “extras”) does not exceed one-third of the employee’s total compensation, whereas the HCE regulation would exempt employees even if extras constitute three-quarters of their total compensation. Id. at 33–34. Additionally, Helix asserts that subsection(b)(2) of the HCE regulation, which allows employers to pay year-end extras of any amount solely to meet the HCE regulation’s total compensation threshold, would violate the extras regulation’s reasonable relationship test, which restricts extras to one-third of the guaranteed weekly pay amount. Id. at 35. Helix emphasizes that under the reasonable relationship test, to be an HCE, an employee would need a weekly guarantee of at least $1,282.05; however, subsection (b)(1) of the HCE regulation expressly provides for a minimum $455 weekly guarantee. Id. at 36.

Respondent Hewitt counters that the HCE regulation is subject to provisions not cross-referenced in the HCE regulation. Brief for Respondent, Michael J. Hewitt at 34. For example, Hewitt asserts that the HCE regulation is subject to 29 C.F.R. § 541.603, a non-referenced section governing improper salary deductions. Id. Hewitt argues that applying outside provisions does not make subsection (d) of the HCE regulation superfluous to 29 C.F.R § 541.3(a) because each provision defines the scope of a different method of exemption, namely under the HCE regulation and FLSA general exemptions. Id. at 37. Even if subsection (d) were superfluous, Helix maintains that that is irrelevant to whether the extras regulation applies to the HCE regulation. Id. Hewitt remarks that if the Department of Labor (“DOL”) intended to exempt the HCE regulation from the extras regulation, it would have expressly done so. Id. at 35.

Hewitt argues that the HCE regulation is subject to the extras regulation because the HCE regulation incorporates the salary basis test, which the extras regulation defines when an employee’s pay is calculated on a less-than-weekly basis. Id. at 29–30. Hewitt emphasizes that the extras regulation makes no exception for HCEs. Id. at 30. Furthermore, Hewitt disagrees with Helix that the DOL intentionally excluded the extras regulation from the HCE regulation by separating it from the salary basis regulation. Id. at 38. Hewitt maintains that the extras and salary basis regulations were simply separated during a regulation reorganization. Id.

Hewitt denies Helix’s claims that the HCE regulation and the extras regulation are incompatible. Id. at 39. Hewitt claims that the two regulations have no conflict over a minimum weekly guarantee or year-end extras because the extras regulation only applies to employees whose compensation is calculated by hours, days, or shifts. Id. at 40. Hewitt claims that Helix mistakenly argues that the HCE regulation conflicts with the extras regulation on extras because the latter imposes no restriction on extras. Id. Hewitt also notes that the HCE regulation does not conflict with the extras regulation’s reasonable relationship test because the 2004 Regulations preamble states that the extras regulation’s reasonable relationship test is part of determining whether a worker is paid on a salary basis. Id. at 25–26.

ALIGNING WITH REGULATORY PURPOSE

Helix contends that incorporating the extras regulation into the HCE regulation frustrates the HCE regulation’s goals. Brief for Petitioners at 38. Helix asserts that the HCE regulation was meant to simplify pre-existing exemption rules, whereas the extras regulation’s reasonable relationship test is unclear and fact-intensive standard. Id. Helix concludes that applying the extras regulation to the HCE regulation would increase employer confusion and uncertainty, contravening the HCE regulation’s objectives. Id. at 10, 40.

Hewitt contends that the HCE regulation’s purpose was to ease the duties standard for executive, administrative, and professional employees by requiring a higher salary threshold. Brief for Respondent at 43–44. Hewitt rebuts the notion that the HCE regulation was introduced for the purpose of simplification, citing sources that characterize the extras regulation as easy to apply. Id. Hewitt argues that maintaining the extras regulation as a criterion for the HCE regulation is necessary to prevent employers from too easily receiving HCE exemptions without giving employees benefits commensurate to those of HCEs or executives. Id. at 41.

HARMONIZING WITH FLSA OBJECTIVES

Helix argues that HCE and extras regulations are both based on the FLSA’s exemption for employees working in “bona fide executive, administrative, or professional capacit[ies].” Brief for Petitioners at 41–42. Helix posits that the HCE regulation enables employers to satisfy the “bona fide” requirement solely based on their employees’ compensation, instead of a detailed list of job responsibilities. Id. at 42–43. Helix argues that the extras regulation presents a barrier to exemption without serving any statutory purpose because it neither elucidates the bona fide requirement nor furthers FLSA objectives such as protecting low-income workers. Id. at 43–44.

Hewitt responds that Helix waived this argument by failing to raise it in the Fifth Circuit. Brief for Respondent at 44. Addressing the merits of Helix’s argument, Hewitt emphasizes that the executive branch has broad authority to define and enforce exemptions. Id. at 45. Hewitt argues that incorporating the extras regulation into the HCE regulation is within executive authority and entitled to Chevron deference, under which the judiciary should defer to administrative agencies interpretations of regulations provided the interpretations are not unreasonable. Id. Moreover, Hewitt contends that the extras regulation aligns with the FLSA’s purpose because it furthers the FLSA’s objectives of encouraging employers to provide higher compensation and hire more employees. Id. at 46.

MEETING THE SALARY BASIS TEST

Helix contends Hewitt was paid on a salary basis under 29 C.F.R. § 561.602, which requires exempt employees to “regularly receive[] each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation.” Brief for Petitioners at 26. Helix explains that it paid Hewitt at least $455 a week as a guarantee not subject to reduction based on Hewitt’s work, and Helix dispersed Hewitt’s pay bi-weekly. Id. Helix rejects the Fifth Circuit’s argument that employees who earn daily wages are not paid on a salary basis under § 561.602. Id. at 27. Helix posits that payment based on a daily rate can still satisfy the salary basis standard if it meets the minimum guarantee. Id.

Hewitt maintains that Helix did not meet the salary basis test because Hewitt’s pay depended on the number of days Hewitt worked, meaning that Hewitt’s pay was not guaranteed or predetermined, but subject to fluctuations. Brief for Respondent at 19. Hewitt claims that Helix is mistaken in understanding “weekly, or less frequent basis” to refer to the frequency of pay. Id. at 21. Hewitt explains that “weekly, or less frequent basis” instead refers to the basis of setting compensation. Id. at 21. Hewitt maintains that daily wages facially fail the salary basis test. Id. at 22.

Discussion

EFFECTS ON THE INDUSTRY AND THE JOB MARKET

The Texas Oil and Gas Association and the American Petroleum Institute (collectively “Texas Oil”), in support of Helix, argue that the oil and gas industry has used the day-rate method of compensation for decades. Brief of Amici Curiae Texas Oil and Gas Association, Inc. and American Petroleum Institute ("Texas Oil"), in Support of Petitioners at 6. Texas Oil contends that the day-rate method reflects the unique work environment of the industry, where consultants work on a day-to-day basis and are paid daily guarantees, regardless of whether work continues or stops. Id. at 28–29. According to Texas Oil, these “highly-skilled consultants” can negotiate their compensation with more flexibility because the contracts are based on the daily rate. Id. at 7. Thus, Texas Oil argues that requiring employers to pay these consultants overtime pay will increase labor costs, which will lead to higher oil and gas production costs and adversely affect consultant jobs in the long run. Id. at 29–30. The U.S. Chamber of Commerce (“Chamber”), in support of Helix, also notes that affected employees are white-collar workers, not the blue-collar workers whom the FLSA was designed to protect. Brief of Amicus Curiae Chamber of Commerce of the United States of America ("Chamber"), in Support of Petitioners at 5. The Chamber posits that the flexible day-rate method is more suitable for paying white-collar workers. Id. at 16.

The American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”), in support of Hewitt, argues that the day-rate method is not a long-standing practice in the industry. Brief of Amicus Curiae American Federation of Labor and Congress of Industrial Organizations ("AFL-CIO"), in Support of Respondent at 26. In particular, the AFL-CLO points out that the HCE exemption that Helix relies on was only enacted in 2004. Id. The Massachusetts Nurses Association (“Massachusetts Nurses”), in support of Hewitt, asserts that reversing the Fifth Circuit decision would have ripple effects beyond the oil industry and cut off nurses’ overtime payments, which will lead to a higher attrition rate and decreased patient care quality. Brief of Amicus Curiae Massachusetts Nurses Association, in Support of Respondent at 15, 17. Further, Massachusetts Nurses points out that one of the FLSA’s purposes was to disincentivize overtime work by increasing the financial burdens for employers. Id. at 9. In addition, National Nurses United, in support of Hewitt, contends that requiring employees to satisfy the extras regulation would predominantly affect highly experienced nurses, resulting in further worsened attrition rates and, consequently, junior nurses losing opportunities to learn from experienced nurses who leave the industry. Brief of Amicus Curiae National Nurses United, in Support of Respondent at 14.

DOL’S POLICY AND COST OF COMPLIANCE

The Independent Petroleum Association of America (“Independent Petroleum”), in support of Helix, notes that requiring employees to satisfy the extras regulation to be eligible for the HCE regulation’s overtime pay exemption ignores the DOL’s purpose of providing a “short-cut test” for HCEs who are more likely to satisfy the exemption requirements. Brief of Amicus Curiae Independent Petroleum Association of America, in Support of Petitioners, at 17-18. Texas Oil, in support of Helix, adds that the DOL intends for the HCE regulation to provide a litmus test for the purpose of reducing employers’ burdens. Brief of Texas Oil at 24. Thus, Texas Oil argues that requiring employees to satisfy the extras regulation will create a burdensome framework that is “illogical” and “disjointed” for employers to apply. Id. at 25. In addition, the Chamber, in support of Helix, highlights how confirming the Fifth Circuit decision will lead to uncertainty and unnecessary litigations against employers. Brief of Chamber at 15.

In support of Hewitt, the United States argues that the Court should defer to the DOL’s longstanding interpretation of its own regulation, requiring employees eligible for overtime pay exemption under the HCE regulation to satisfy the extras regulation. Brief of Amicus Curiae United States, in Support of Respondent at 22–23. The United States insists that employers have other alternatives that both suit their operational issues and comply with the regulations, including paying an hourly rate. Id. at 33–34. In addition, the AFL-CIO, in support of Hewitt, asserts that the industry could comply with the Fifth Circuit decision without significant difficulties by paying a predetermined compensation based on average working hours. Brief of AFL-CIO at 27. Further, the AFL-CLO posits that the industry should seek “industry-specific treatment” from the DOL, rather than a court decision. Id. at 28.