The Fifth Circuit has potentially opened the door for the misclassification of many common highly paid employees currently paid day-rate wages in the oil and gas industry. In Hewitt v. Helix Energy Solutions. Group., Inc., No. 19-20023, 2021 WL 4099598 (5th Cir. Sept. 9, 2021), the majority of the en banc Fifth Circuit held that a toolpusher, paid a day rate, is not exempt from overtime under the Fair Labor Standards Act (“FLSA”). The holding “has implications beyond the toolpushers at issue in this case, potentially questioning the exempt statuses of other executive, administrative, and professional day rate employees commonly found in industries like oil and gas.” Indeed, a number of states, including Louisiana, and a number of energy companies and industry groups filed amici briefs, arguing on the side of exempt status. Rejecting the pleas of Helix and amici, Judge Ho stated: “We will not alter the text [of FLSA] in order to satisfy the policy preferences’ of any person or industry... These are battles that should be fought among the political branches and the industry.’”
Who is Entitled to Overtime Pay?
The FLSA establishes overtime exemptions for “bona fide executive, administrative, [and] professional” employees from overtime. To qualify for an exemption, the employee must be paid on a “salary basis” and satisfy certain duties tests. Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis, and the predetermined amount cannot be reduced because of variations in the quality or quantity of the employee's work.
Hewitt worked as a toolpusher for Helix earning over $200,000 per year managing other employees while on a “hitch”—that is, while working offshore on an oil rig. Each hitch lasted about a month. Helix paid Hewitt based solely on a daily rate and required him to work well over forty hours per week. Helix claimed Hewitt was a highly compensated executive employee and, therefore, he was exempt from overtime.
Ho says Hewitt is
To fall within the overtime exemption, the Court set the following test: “First, the employee must meet certain criteria concerning the performance of executive, administrative, and professional duties. Second, the employee must meet certain minimum income thresholds. Finally, the employee must be paid on a ‘salary basis.’ And although the duties criteria and income thresholds vary from exemption to exemption, the regulations apply the same salary-basis requirement to all four exemptions.”
The parties agreed Hewitt meets both the duties requirements and income thresholds for purposes of being exempt from overtime. The decision turned, however, on whether Hewitt’s day rate could be regarded as a “salary” under the FLSA, under which a daily-rate worker can still be exempt from overtime—but only “if” the employment arrangement also includes a guaranteed weekly amount of pay regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned.
Ultimately the Court found that the overtime exemption requirements for the day-rate worker were not satisfied because Helix paid Hewitt a daily rate without guaranteeing a weekly minimum. The majority (as if to ease the impact of its decision) rationalized, “federal district courts across the country have repeatedly warned the energy industry that their daily-rate workers are subject to § 541.604(b)—regardless of how well they are compensated.”
The majority claims to fall in line with the Sixth and Eights Circuits, as well as the Department of Labor. However, six judges dissented, with Judge Jones and Judge Wiener writing separately. Judge Jones provided an alternate textual analysis and espoused the positions taken by the First and Second Circuits.
Judge Wiener penned a separate dissent to “emphasize how common sense and a reasonable reading of the law combine to demand a result opposite the one reached originally by the panel majority and today by the en banc majority.” (Wiener, Owens, Jones, Dennis, and Elrod, JJ., dissenting). According to J. Wiener, “Ever since 1944, when the FLSA… exempted highly compensated, executive employees from overtime, neither the Supreme Court nor any federal Court of Appeals has ever held that a supervisor like Hewitt—who, as stated above, made more than twice the regulatory cap of entitlement to overtime by working for Helix no more than half the days in a year—was anything but not entitled to overtime.”
The majority’s split from the First and Second Circuits and Judge Wiener’s observation that Hewitt is indisputably the type of supervisory or executive employee that has always been excluded from overtime might get the attention of the U.S. Supreme Court.
In the meantime, employers of offshore personnel should revisit their pay structure for toolpushers and other “executive, administrative, [and] professional” employees who are currently paid on a day rate—but without a guaranteed minimum amount of weekly compensation—as those workers are now entitled to overtime pay under the ruling in Hewitt. In addition to reviewing classifications of current and future employees, an internal audit of potentially now-owed overtime pay would be a wise undertaking. Considering the labor shortages plaguing all industries as a result of the COVID-19 pandemic, the impacts of these changes to the workforce for the oil and gas industry could be significant.