The Fifth Circuit Rules that Well-Compensated Day Rate Workers Must be Paid for Overtime

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The Fifth Circuit Rules that Well-Compensated Day Rate Workers Must be Paid for Overtime

The Fifth Circuit Court has ruled that day rate employees earning well in excess of the salary requirement are still entitled to overtime under the Fair Labor Standards Act (FLSA). This decision could have a significant impact on many fields, including consulting, particularly for those in the oil and gas industry upon which this case was focused.

In this case, the Fifth Circuit was asked to consider the decision in a case regarding whether tool pushers earning a day rate of $963 were exempt from the overtime requirements of the Fair Labor Standards Act under the Highly Compensated Employee (HCE) exemption for overtime pay.  The employer defending, in this case, argued that the HCE exemption should override all other requirements set by the Department of Labor for determining whether an employee is entitled to overtime pay or not.

The court, in its analysis, began with identifying the statutes providing for salary basis exemptions. The general rule for a salary basis employee essentially states an employee must receive a guaranteed minimum weekly amount equal to or in excess of the salary basis requirement regardless of the hours or days worked in a week. Further, there must be a reasonable relationship between the weekly salary and the amount actually earned by the employee. The Department of Labor has provided that this requirement is met so long as the amount in addition to the weekly salary is no more than 50% of the guaranteed weekly amount.

The statute at the heart of this debate, the HCE exemption, states that employees earning an annual compensation in excess of $100,000 (this amount has been raised as of Jan. 1st, 2020) and performing certain exempt duties are exempt from overtime requirements. This regulation requires a weekly minimum salary as well; however, the annual compensation requirement may include bonuses and commissions.

They did not find that this exemption may be applied separately from other requirements, such as the reasonable relationship requirement. Thus, the court held that this exemption does not apply to a day rate employee regardless of the amount by which an employee exceeds the salary threshold while performing exempt duties. As such, day rate employees would still be entitled to overtime pay as required under the FLSA.

This ruling is likely to have a significant impact on FLSA litigation and could hold a significant impact on certain independent contractor classifications. Often these are paid on a daily rate without a reasonably related weekly rate.