Hewitt v. Helix Energy Solutions Group, Inc. (Hewitt II), No. 19-20023 (5th Cir. Dec. 21, 2020) (Higginson, Ho) (Wiener, dissenting). In a ruling that will trouble many employers in the Fifth Circuit, particularly those in the oil industry, the Court in Hewitt II held that an employee paid a  "day rate" doesn't satisfy the Department of Labor's "salary basis" test for overtime exemptions under the Fair Labor Standards Act unless the employee's pay arrangement also includes (1) a guaranteed weekly minimum amount of compensation that (2) bears a reasonable relationship to total weekly compensation. Judge Wiener wrote a dissent, which prompted Judge Ho, who also wrote the majority opinion, to respond with a separate concurrence of his own.

To give you an idea of how deeply divided the Court is on this issue, I thought it would make sense to preview where Judges Ho and Wiener have left their grudge match for now (remember, Helix's petition for rehearing en banc remains pending). Judge Wiener concluded his dissenting opinion with this reference to Judge Ho's separate concurrence: "Finally, with utmost respect for my friend and colleague who authored the special concurrence, my only response is to quote Macbeth: 'full of sound and fury, signifying nothing.'" (quoting Shakespeare, Macbeth act 5, sc. 5, lines 15-17). In a footnote, he added that "the harshness of the full quotation is unwarranted, and, thus, I only quote what is appropriate."

Judge Ho could have left it there. After all, he had already dedicated an entire concurring opinion to his criticisms of Judge Wiener's dissent. If this little episode involved any other federal appellate judge, you could probably expect them to just let it slide. Judge Ho, though? He operates off a different judicial playbook, and "let it slide" isn't in there. So, naturally, he went full-blown Talladega Nights:

Now that you know where this story ends (at least until the Court rules on Helix's petition for rehearing en banc, that is), let's go back to the beginning

Day Rate Drama

Employers in the oil industry have long relied on day rates to satisfy the "salary basis" requirement necessary to exempt employees in certain key roles from overtime under the FLSA. Recently, however, this practice has come under fire from employees who insist that treating "day rates" like "salaries" defies common sense.  

But because these employees often receive day rates in excess of $1,000 per day, the employers insist common sense is squarely with them in this debate. After all, the single-day earnings of the employees in question often exceed the weekly minimum required for an FLSA exemption.

In Hewitt II, the Fifth Circuit held that the employees have the better of the argument. Whether that will remain the law of the Circuit, however, remains to be seen as three members of the Court have expressed disagreement with the panel majority's approach, and the employer's petition for rehearing en banc remains pending.

The Court Initially Sides With the Employer

In 2019, a different panel initially found an oil company worker with a similar pay arrangement was not entitled to overtime. See Faludi v. U.S. Shale Sols. (Faludi I), 936 F.3d 215 (5th Cir. 2019) (Higginbotham, Elrod) (Ho, dissenting), opinion withdrawn, 950 F.3d 269 (5th Cir. 2020). Judge Ho dissented, however, arguing that a "day rate" couldn't be a salary, even if it was so high that the employee's  single-day earnings exceeded the weekly regulatory minimum. Ultimately, the panel withdrew its original opinion in Faludi I, replacing it with a new one that avoided the day-rate issue altogether by holding that the employee's independent-contractor status rendered him exempt from the FLSA's overtime protections anyway. See Faludi v. U.S. Shale Solutions, LLC (Faludi II), 950 F.3d 269 (5th Cir. 2020).

Judge Ho concurred in the judgment and wrote separately to reiterate that "[u]nder a proper reading of the relevant regulations, Jeff Faludi is not exempt from the overtime requirements of the [FLSA]." He also emphasized that "the majority expressly leaves it to a future panel to decide whether an employee like Faludi does or does not qualify as a highly compensated employee under the relevant regulations." Soon thereafter, the question was presented to a different panel, and guess who was on it?

The Tide Turns

In Hewitt I, Judge Ho found himself on another panel facing the same question left open in Faludi II. This time, however, the other members of the panel–Judges Higginson and Wiener–agreed with the view he had urged in his Faludi I dissent. Accordingly, the Hewitt I panel, in an opinion by Judge Ho, adopted that approach. Judge Ho summed up the Court's holding thusly:

The salary basis test requires that an employee know the amount of his compensation for each weekly (or less frequent) pay period during which he works, before he works." (emphasis in original). While Hewitt "was paid biweekly," the Court explained, "he did not receive a constant fraction of his annual compensation for each biweekly pay period." To calculate his earnings, Hewitt "had to take the number of days he worked (past tense) and multiply by the operative daily rate." And because "Hewitt knew his pay only after he worked through the pay period," he was not paid on a salary basis as that term is defined in § 541.602(a).

The panel also explained that another regulation supported its interpretation. In particular, 29 C.F.R. § 541.602(a)(1), provides that "an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked." According to the Court, because Hewitt's day rate was, by definition, "paid 'with' (not 'without') 'regard to the number of days or hours worked,'" it couldn't "be squared with this provision."

In a footnote, the Court explained that "the alternative requirements of 29 C.F.R. § 541.604(b)," didn't help Helix since that provision "expressly requires" payment on a "salary basis." Furthermore, "§ 541.604(b) [also] requires that there be 'a reasonable relationship between the guaranteed amount and the amount actually earned'"--a standard Helix didn't "even attempt to claim that it meets."

Hewitt II

Helix petitioned for rehearing en banc supported by an army of oil industry amici. After oral argument, the panel withdrew its prior opinion and substituted a new one in its place. Holding the pen once again for the panel majority was Judge Ho. This time, however, Judge Wiener dissented, prompting a response from Judge Ho in a separate concurrence. I discuss the separate opinions in turn below.

The Majority Opinion

The panel majority concluded once again that Helix owed Hewitt overtime under the FLSA. Yet, its rationale had shifted nearly 180 degrees since Hewitt I. As explained further below, where Hewitt I had focused almost entirely on 29 C.F.R. § 541.602(a) and treated § 541.604(b) as largely irrelevant to Hewitt's case, Hewitt II held that the same conclusion was, in fact, compelled by the plain language of § 541.604(b) after concluding § 541.602(a) didn't answer the question

Section 541.602, the Court explained, is just a "general rule." "To properly understand and apply the salary basis test," courts must also consider a host of other regulations containing "exceptions or provisos" to that general rule to determine which, if any, "bear upon a particular fact pattern." Hewitt's daily rate, for instance, was a "particular fact" implicating one such proviso: § 541.604(b).

In the Court's view, 541.602(a)'s general rule didn't address Hewitt's situation:

The emphasis on being paid "on a weekly, or less frequent basis"— and "without regard to the number of days or hours worked,"--begs the question: What if an employee’s compensation is computed on a daily basis—rather than on a weekly, monthly, or annual basis? In other words, what if the employee is not paid “on a weekly, or less frequent basis,” but instead with “regard to the number of days or hours worked”? In sum: Can a daily rate employee ever be regarded as being paid on a “salary basis” and therefore exempt from overtime pay under the FLSA?

Unable to resolve Hewitt's case based on 541.602(a) alone, the Court moved "beyond the '[g]eneral rule'” to 541.604(b), and the answer became clear: "yes--a daily rate employee can qualify under the salary basis test—but only 'if' certain other conditions are met":

  1. the employment arrangement must "also include[] a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of ... days ... worked" and
  2. there must be "a reasonable relationship ... between the guaranteed amount and the amount actually earned."

Helix could satisfy neither requirement with respect to Hewitt. It didn't guarantee Hewitt a weekly minimum amount paid on a salary basis. Instead, it based his compensation solely on the daily rate. Nor could Hewitt's daily rate itself constitute the minimum weekly guarantee, as Helix had argued, since a daily rate is, by definition, paid with regard "to the number of days worked."

As for the second prong of § 541.604(b), Helix didn't even attempt to argue that a reasonable relationship existed between Hewitt's daily rate and "the amount [he] actually earned," given that Hewitt's actual earnings each week dwarfed his daily rate.

Helix also argued that because Hewitt qualified as a highly compensated employee under § 541.601, § 541.604(b) didn't apply. According to the Court, however, "[t]he text of § 541.601" itself foreclosed that argument:

It makes clear that it’s not enough that the employee receives a “total annual compensation of at least $107,432.” Id. § 541.601(a)(1). It also requires that that “‘[t]otal annual compensation’ must include at least $684 per week paid on a salary . . . basis.” Id. § 541.601(b)(1) (emphases added). So Hewitt cannot be a “highly compensated employee” under § 541.601 unless his total annual compensation satisfies the salary basis test. And as we’ve already explained, the only way for an employee paid on a daily rate to satisfy the salary basis test is to comply with the two conditions of § 541.604(b).

According to the panel majority, this approach was consistent with decisions from the Sixth and Eighth Circuits. Hughes v. Gulf Interstate Field Servs. Inc., 878 F.3d 183, 189 (6th Cir. 2017) (turning to the "helpful" "neighboring provision," 541.604(8), because “[t]he text of § 541.602(a) does not tell us what to do when an employee’s salary is not clearly calculated ‘on a weekly, or less frequent basis’”); Coates v. Dassault Falcon Jet Corp., 961 F.3d 1039, 1042 (8th Cir. 2020) (describing the “general definition” of salary basis in § 541.602(a) as “subject to numerous interpretive rules," including § 541.604(b)).  

The First and Second Circuits had admittedly taken positions that "appear[ed] to be in tension with [its] approach." (citing Litz v. Saint Consulting Group, Inc., 772 F.3d 1 (1st Cir. 2014); Anani v. CVS RX Services, Inc., 730 F.3d 146 (2nd Cir. 2013) (“We perceive no cogent reason why the requirements of C.F.R. § 541.604 must be met by an employee meeting the requirements of C.F.R. § 541.601.")). In the majority's view, however, those cases were distinguishable since the employees involved weren't paid day rates like Hewitt's. (quoting Hughes, 878 F.3d at 189-90 (“Anani and Litz involved plaintiffs who ... were undisputedly guaranteed weekly base salaries above the qualifying level.”)).

Judge Wiener's Dissent

Judge Wiener  argued that § 541.604(b)'s requirements didn't apply to Hewitt because he qualified as an exempt "highly compensated employee" under § 541.601. There was no dispute that Hewitt met § 541.601's total annual compensation and duty requirements. As a result, Judge Winer emphasized, he was "deemed exempt" under § 541.601 as long his "total annual compensation indlude[d] at least $684 per week paid on a salary or fee basis as set forth in § 541.602." And in Judge Wiener's view, it "clearly and indisputably did" since

  1. He received his paycheck every two weeks.
  2. His pay—$963 per day—was predetermined because "prior to performing any work, he knew the amount he would be paid for each day, regardless of how few or how many hours he worked."
  3. that amount "was not subject to reduction 'because of variations in the quality or quantity of the work performed.'"
  4. And Hewitt received the "full" $963 weekly minimum "any week in which [he] perform[ed] any work without regard to the number of days or hours worked.”

The panel majority's "conclu[sion] that Hewitt was paid with regard to the number of days worked" was, according to Judge Wiener, "a flawed reading of the regulation." Hewitt was entitled to "his full daily rate" the moment he "performed any work," Judge Wiener explained. Thus, regardless of the number of days or hours worked in a given week, his day rate guaranteed that by working at all, he would earn "at least $963. in Judge Wiener's view, this "clearly met the requirements of 29 C.F.R. § 541.602(a)."

Judge Wiener also insisted that the First and Second Circuits agreed with him. (citing Anani v. CVS RX Servs., Inc., 730 F.3d 146, 149 (2d Cir. 2013) (“We perceive no cogent reason why the requirements of 29 C.F.R. § 541.604 must be met by an employee meeting the requirements of C.F.R. § 541.601.”); Litz v. Saint Consulting Grp., Inc., 772 F.3d 1, 2 (1st Cir. 2014) (holding that the reasonable relationship test does not apply to highly compensated employees and citing Anani)). The majority's attempt to dismiss Litz and Anani as "weekly rate" cases failed, he explained, because Hewitt's pay "was computed on a 'weekly, or less frequent basis,'" too.  "[A]lthough his salary was based on a daily rate," Judge Wiener argued,  "it was computed and paid based on the total number of days he worked" each pay period.

Judge Wiener also distinguished two cases the majority relied on–Coates v. Dassault Falcon Jet Corp., 961 F.3d 1039, 1044 n.5 (8th Cir. 2020) and Hughes v. Gulf Interstate Field Services, Inc., 878 F.3d 183, 185-86 (2017)–explaining that unlike here, the employees' day rates in those cases "was below the regulatory minimum." As a result, "§ 541.604(b) clearly applied."

At bottom, Judge Wiener dissent reflects a very practical concern. No matter how you slice it, whether in terms of total annual compensation or the amount guaranteed to be in any of the paychecks he received twice per month, Hewitt's compensation far exceeded the regulatory thresholds for a "highly compensated employee." Thus, as Judge Wiener saw it, "common sense dictate[d]" that the FLSA's overtime protections didn't apply to him.

Judge Ho's Response to Judge Wiener

Judge Ho's primary beef with Judge Wiener's view of regulations was textual: "[I]f there is a reasonable textual basis for refusing to apply 29 C.F.R. § 541.604(b) in cases governed by § 541.601 involving highly compensated employees," he explained, "I cannot find one in the dissent." The fact that § 541.601 references § 541.602 and not § 541.604(b) didn't persuade Judge Ho that § 541.604(b) didn't apply in § 541.601 cases. After all, he reasoned

if the dissent is right that we shouldn't apply § 541.604(b) to any provision that does not explicitly mention it, then we should also refuse to apply § 541.604(b) to any executive, administrative, or professional employee—regardless of how much or little he is compensated. After all, the regulations governing executive, administrative, and professional employees are all indistinguishable from § 541.601: All of them cite § 541.602—and none of them cite § 541.604(b). See 29 C.F.R. §§ 541.100, .200, .300. Indeed, under the dissent's reading, we would never apply § 541.604(b)—because §§ 541.602 and 541.604(b) do not expressly cross-reference each other. The dissent's theory would thus render § 541.604(b) a dead letter—contrary to the canon against surplusage.

The "better reading of the text," he insisted, was that "[n]one of these provisions needs to cite § 541.604(b), because § 541.604(b) itself makes clear that it is modifying the 'salary basis' test of § 541.602." (quoting § 541.604(b) (laying out the circumstances in which an 'exempt employee's earnings may be computed on an hourly, daily, or a shift basis[ ] without ... violating the salary basis requirement') (emphasis added by Judge Ho)).

Stay tuned ...

Macbeth v. Ricky Bobby: A Fifth Circuit FLSA Showdown
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