Helix Energy v. Hewitt: Day Rates Do Not Meet the Salary-Basis Test Under the FLSA

In Helix Energy Sols. Grp., Inc. v. Hewitt, 143 S. Ct. 677 (2023), the Supreme Court held that the salary-basis test for certain exemptions to the Fair Labor Standards Act is not met when the employee at issue is paid a day rate, even when the day rate exceeds the required minimum weekly salary level. More specifically, the Department of Labor regulation setting out the salary-basis test requires predetermined weekly compensation for the FLSA’s overtime exemption for executive employees. The Court held that this rule applies only to employees paid by the week or longer, and therefore is not met when an employer pays an employee by the day. The case is important because, inter alia, it shows that even highly compensated employees can be entitled to overtime pay if they are not paid on a salary basis.

Statutory and Regulatory Background – FLSA Exemptions and the Salary Basis Test

Relevant to the decision in Helix, Section 213(a)(1) of the Fair Labor Standards Act provides an exemption from its minimum wage and overtime requirements for employees who qualify as bona fide executive, administrative, or professional employees:

Minimum wage and maximum hour requirements

The provisions of sections 206 … and 207 of this title shall not apply with respect to—

any employee employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools) …

29 U.S.C. § 213(a)(1).

The Court in Helix Energy further explained that under Department of Labor regulations, an employee is considered a bona fide “executive” under this exemption if the employee meets three tests:

(1) the “salary basis” test, which requires that an employee receive a predetermined and fixed salary that does not vary with the amount of time worked;

(2) the “salary level” test, which requires that preset salary to exceed a specified amount; and

(3) the job “duties” test.

Helix Energy, 143 S. Ct. 677, 678 (citing 84 Fed. Reg. 51230).

The Court further observed that the Department of Labor implemented the bona fide executive exemption through two different rules. One is the “general rule for executive employees,” which at the time of the facts in Helix applied to employees making less than $100,000 per year. 29 C.F.R. §§ 541.100; 541.601(a), (b)(1). A different rule sets out the exemption criteria for “highly compensated employees” (HCEs) who at the time of the facts in Helix were employees who made at least $100,000 per year. 541.601(a), (b)(1). (The HCE salary threshold was later increased to $ 107,432. Id.). Helix Energy, 143 S. Ct. 677, 678, 683-84.

The Court pointed out that the general rule considers employees to be FLSA-exempt executives when they meet the following criteria:

“Compensated on a salary basis” (called the “salary-basis” test); “at a rate of not less than $455 per week” (called the “salary-level” test) (after the facts in Helix Energy, that weekly amount was later increased to $684);

Whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;

Who customarily and regularly directs the work of two or more other employees; and

Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.

29 C.F.R. § 541.100(a); 143 S. Ct. 677, 678, 683-84. The duties-related requirements in parts 2, 3, and 4 of the general rule are referred to as the “duties test.” Id.

The Court noted that the HCE rule relaxes only the duties test, while keeping the same salary-basis and salary-level tests. “In the HCE rule, the duties test becomes easier to satisfy: an employee must “regularly perform[ ]” just one (not all) of the three responsibilities listed in the general rule.” 143 S. Ct. 677, 678, 683 (citing § 541.601(a); and 69 Fed. Reg. 22174 (2004) (explaining that the HCE rule uses a “more flexible duties standard” and thus leads to more exemptions)).

Facts

From 2014-2017, Hewitt worked for Helix Energy as a “toolpusher” on an offshore oil rig. Helix paid Hewitt on a daily-rate basis, with no overtime compensation. The daily rate ranged, over the course of his employment, from $963 to $1,341 per day. Under this compensation scheme, Helix paid Hewitt over $200,000 annually. 143 S. Ct. 677, 678, 684.

Hewitt filed suit against Helix for failure to pay him overtime compensation. Helix argued that he was an FLSA-exempt executive or highly compensated employee. 143 S. Ct. 677, 678, 684-85.

In Helix, the question for the Court whether the employee Hewitt was an FLSA-exempt executive not entitled to overtime pay. This question turned solely on whether Hewitt was paid on a salary basis. More specifically, the issue for the Court was whether the salary basis test is met when an employee is paid a day rate that exceeds the minimum weekly salary threshold. 143 S. Ct. 677, 678, 684-85.

The Court’s Decision; Salary Basis Regulations

The Court held that Hewitt was not paid on a salary basis, and therefore was not exempt from the FLSA’s overtime requirements.

Important to the Court’s decision in Helix, a pair of regulations describe the “salary basis” test in more detail.

The Court noted that the main salary basis provision, 29 C.F.R. § 541.602(a), states in relevant part:

“An employee will be considered to be paid on a ‘salary basis’ … if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to [certain exceptions], 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.”

143 S. Ct. 677, 678, 683 (quoting 29 C.F.R. § 541.602(a)).

The Court further observed that a separate provision, 29 C.F.R. § 541.604(b), focuses on workers whose compensation is “computed on an hourly, a daily or a shift basis,” rather than a weekly or less frequent one. The Court noted that under § 604(b) an employer may base an employee’s pay on an hourly, daily, or shift rate without “violating the salary basis requirement” or “losing the [bona fide executive] exemption” if two conditions are met:

The employer must “also” guarantee the employee at least $455 each week [the minimum salary level at the time] “regardless of the number of hours, days or shifts worked.”

That promised amount must bear a “reasonable relationship” to the “amount actually earned” in a typical week. This “reasonable relationship test” will be met if the weekly guarantee is “roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek.”

143 S. Ct. 677, 678, 684 (citing 29 C.F.R. § 541.604(b)).

The Court noted that the “critical question” was “whether Hewitt was paid on a salary basis under § 602(a) of the Secretary’s regulations. 143 S. Ct. 677, 685. This was because Helix acknowledged that Hewitt’s compensation did not satisfy § 604(b)’s conditions: Helix did not guarantee that Hewitt would receive each week an amount (above $455) bearing a “reasonable relationship” to the weekly amount he usually earned. Id. So, the Court observed, “everything turns on whether Helix paid Hewitt on a salary basis as described in § 602(a). If yes, Hewitt was exempt from the FLSA and not entitled to overtime pay; if no, he was covered under the statute and can claim that extra money.” 143 S. Ct. 677, 685.

Examining the text of § 602(a) and the overall regulatory structure, the Court concluded that the answer was “no.”

The Court first observed that the salary basis test of § 602(a) “applies solely to employees paid by the week (or longer); it is not met when an employer pays an employee by the day, as Helix paid Hewitt.” 143 S. Ct. 677, 685.

The Court then pointed out that Helix did not pay Hewitt on a salary basis under § 602(a) because he was paid by the day, rather than by the week or longer. “Daily-rate workers, of whatever income level, are paid on a salary basis only through the test set out in § 604(b) (which, again, Helix’s payment scheme did not satisfy).” Thus, the fact that Hewitt was paid on a daily basis meant that was not paid on a salary basis under § 602(a), since his compensation was based on the day, rather than by the week or longer. 143 S. Ct. 677, 685, 685-692.

The Court further explained that these conclusions “follow from both the text and the structure of the regulations.” 143 S. Ct. 677, 685, 686-692. It also addressed Helix’s policy-based objections to this conclusion, such as its operational and cost-based objections from having to pay overtime to highly-paid daily-rate workers, and found that those objections did not justify departing from the text of the rules. 143 S. Ct. 677, 690-692.

Therefore, the Court held that because Hewitt was paid on a daily basis, Hewitt did not meet the salary basis test. As the Court observed, “A daily-rate employee like Hewitt is not paid on a salary basis under § 602(a) of the Secretary’s regulations. He may qualify as paid on salary only under § 604(b). Because Hewitt’s compensation did not meet § 604(b)’s conditions, it could not count as a salary. So Hewitt was not exempt from the FLSA; instead, he was eligible under that statute for overtime pay.” 143 S. Ct. 677, 692.

Analysis

In sum, Helix held that the salary-basis test for certain FLSA exemptions is not met when the employee is paid a day rate. This is the case even when the day rate exceeds the minimum weekly salary requirement. The DOL regulation setting out the salary-basis test requires predetermined weekly compensation for the FLSA’s overtime exemption for executive and highly compensated employees. The Court held that this rule applies only to employees paid by the week or longer, and therefore the test is not met when an employer pays an employee by the day. The case is important because, inter alia, it shows that even highly compensated employees can be entitled to overtime pay if they are not paid on a salary basis.

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This blog was previously published on April 14, 2023 at timcoffieldattorney.com

Cruz v. Maypa: Equitable Tolling in FLSA Cases

In Cruz v. Maypa, 773 F.3d 138 (4th Cir. 2014), the Fourth Circuit held that the limitations period for claims under the Fair Labor Standards Act was equitably tolled because the employer failed to post the required notice explaining workers’ rights under the FLSA. The decision is important because it means an employer who fails to post the required notice may lose its ability to assert a statute of limitations defense in FLSA cases.

Statutory Background

Congress enacted the FLSA “to protect all covered workers from substandard wages and oppressive working hours.” Trejo v. Ryman Hosp. Props., Inc., 795 F.3d 442, 446 (4th Cir. 2015) (quotes omitted.) To accomplish these goals, the FLSA requires employers to pay their employees both a minimum wage and overtime pay. Hall v. DIRECTV, LLC, 846 F.3d 757, 761 (4th Cir. 2017).

Specifically, the FLSA requires employers to pay their employees at least the federal minimum wage. 29 U.S.C. § 206(a)(1). And it requires employers to pay not less than time and a half for each hour worked over forty hours during a workweek. Id. § 207(a)(1).

Relevant to the decision in Cruz, the FLSA also requires employers to “post and keep posted a notice explaining the [FLSA] … in conspicuous places”:

Every employer employing any employees subject to the Act’s minimum wage provisions shall post and keep posted a notice explaining the [FLSA], as prescribed by the Wage and Hour Division, in conspicuous places in every establishment where such employees are employed so as to permit them to observe readily a copy.…

29 C.F.R. § 516.4.

Claims for violations of the minimum wage or overtime provisions of the FLSA have a 2- or 3-year statute of limitations. 29 U.S.C. § 255(a).

Facts

This case involved a horrible story of forced labor and human trafficking. Cruz was a citizen of the Philippines. She spoke Tagalog and Kapampangan fluently, and spoke limited English. In 2001, a friend told Cruz about an opportunity to travel to the United States to work for Maypa, who at the time was employed by the World Bank. Cruz submitted her resume. Maypa later faxed Cruz an employment contract. The contract said Cruz would be employed as a domestic employee at Maypa’s house for two years where she would work 35-40 hours per week for $6.50 an hour. Cruz, 773 F.3d at 139-43

Cruz reviewed the contract with the help of friends who were more fluent in English. She was excited about the terms. But before Cruz could sign, Maypa told her over the phone that she would actually be paying Cruz only $250 a month rather than the $6.50 per hour. Cruz did not know that the FLSA required a much higher minimum wage. On January 17, 2002, she signed the contract. Shortly thereafter she left the Philippines for the first time and flew to the United States. Id.

Soon after Cruz arrived in Virginia, the Maypas began subjecting her to inhumane working and living conditions. Cruz was required to work seven days a week for 17 to 18 hours per day. She was expected to remain on call at night. In the six years she remained under the family’s control, Cruz was never allowed to take a day off, even when she was ill. She was expected to provide 24–hour care for all four of the family’s children. She was directed to maintain two separate family homes by mowing the lawns, trimming trees, shoveling snow, cleaning the pool, and performing other landscaping duties. For this labor, Cruz initially was initially paid just $250 per month, or approximately $8 per day. By the time of her escape six years later, Cruz was making $450 per month, which amounted to about $15 per day. Id.

Maypa used Cruz’s immigration status and vulnerable situation to keep her from leaving. Within hours of Cruz’s arrival at Maypa’s home, Maypa confiscated Cruz’s passport. The Maypas never permitted Cruz to return to the Philippines to visit her family, even when relatives died and when her daughter and father suffered life-threatening health events. The Maypas also prohibited Cruz from leaving their homes alone except to walk their dog. Cruz did not know anyone in Virginia besides the family, and they lived in rural areas with no sidewalks and no access to public transportation. She was “effectively trapped in their homes.” In 2008, with the help of a friend in another state,, she escaped. Cruz, 773 F.3d at 139-43.

At no point did the Maypas post the required notice of employees’ rights to minimum wages and overtime wages under the FLSA regulation cited above.

In 2013, more than 5 years after escaping, Cruz filed suit asserting various causes of action, including claims for violation of the FLSA. As noted above, FLSA claims have a 2- or 3-year statute of limitations. 29 U.S.C. § 255(a).

The district court declined to equitably toll Cruz’s claims and therefore dismissed Cruz’s FLSA claims as time-barred because she had not brought them within the FLSA’s maximum three-year limitations period for willful violations. Cruz, 773 F.3d at 142-43.

The Court’s Decision

The Fourth Circuit held that Cruz’s FLSA claims should be equitably tolled due to the defendants’ failure to post the required notice under the FLSA.

In reaching this conclusion, the Court first noted that equitable tolling is generally available when 1) “the plaintiffs were prevented from asserting their claims by some kind of wrongful conduct on the part of the defendant,” or 2) “extraordinary circumstances beyond plaintiffs’ control made it impossible to file the claims on time.” Cruz at 146 (quoting Harris v. Hutchinson, 209 F.3d 325, 330 (4th Cir. 2000) (internal quotation marks omitted)).

The Court evaluated this rule in light of its earlier decision in Vance v. Whirlpool Corp., 716 F.2d 1010 (4th Cir. 1983), which held that the 180–day filing requirement of the Age Discrimination in Employment Act (“ADEA”) was tolled because the plaintiff’s employer failed to post statutory notice of workers’ rights under the ADEA. Cruz at 146 (discussing Vance at 1013).

The Court noted that it made good sense to extend Vance’s reasoning to the FLSA. After all, the notice requirements in the ADEA and the FLSA are almost identical. The ADEA regulation, 29 C.F.R. § 1627.10, requires employers to “post and keep posted in conspicuous places … the notice pertaining to the applicability of the [ADEA]”). Similarly, the FLSA regulation, 29 C.F.R. § 516.4, requires employers to “post and keep posted a notice explaining the [FLSA] … in conspicuous places[.]” The Court pointed out that the purpose of these requirements is to ensure that those protected under the laws are aware of and able to assert their rights.

The Court further observed that neither the ADEA nor the FLSA imposed statutory penalties for failure to comply with the notice requirements. Cruz at 147 (citing Cortez v. Medina’s Landscaping, Inc., No. 00 C 6320, 2002 WL 31175471, at *5 (N.D.Ill. Sept. 30, 2002) (extending an actual notice tolling rule similar to Vance from the ADEA to the FLSA). “Therefore, absent a tolling rule, employers would have no incentive to post notice since they could hide the fact of their violations from employees until any relevant claims expired.” Cruz at 147.

The Court therefore held that its analysis in Vance applied with equal force to the notice requirement of the FLSA. Id.

The Court observed that under Vance, “tolling based on lack of notice continues until the claimant retains an attorney or obtains actual knowledge of her rights.” Cruz at 147 (citing 716 F.2d at 1013). The Fourth Circuit therefore instructed the district court to allow discovery on remand to determine whether Cruz’s FLSA claim was time-barred despite being equitably tolled. Id.

Analysis

In sum, Cruz held that that the limitations period for FLSA claims can be equitably tolled if the employer failed to post the required notice explaining workers’ rights under the FLSA. The decision is important because it means an employer who fails to post the required notice may lose its ability to assert a statute of limitations defense in FLSA cases.

Virginia Minimum Wage Act: Increased Minimum Wages for Virginia Workers

The Virginia Minimum Wage Act, VA Code § 40.1-28.8, et seq. (“VMWA”), sets minimum wage levels for certain categories of Virginia workers that are higher than the federal minimum wage.

Employer Defined

The VMWA defines the “employers” it covers broadly, as including:

any individual, partnership, association, corporation, or business trust or any person or group of persons acting directly or indirectly in the interest of an employer in relation to an employee.

Va. Code § 40.1-28.9(A). Under the VMWA, “employer” includes the Commonwealth, any of its agencies, institutions, or political subdivisions, and any public body. Id.

Employee Defined

Subject to the exceptions discussed below, VMWA also defines the “employees” it covers broadly, as including “any individual employed by an employer.” Va. Code § 40.1-28.9(A). “Employee” also specifically includes home care providers. Id.

Exceptions from the VMWA

The VMWA carves out many categories of workers that do not qualify as “employees,” and who therefore are not covered by the VMWA’s minimum wage provisions. Under the VMWA, “employees” do not include:

Any person employed as a farm laborer or farm employee;
Any person engaged in the activities of an educational, charitable, religious, or nonprofit organization where the relationship of employer-employee does not, in fact, exist or where the services rendered to such organization are on a voluntary basis;
Caddies on golf courses;
Traveling salesmen or outside salesmen working on a commission basis; taxicab drivers and operators;
Any person under the age of 18 working for his parent or legal guardian;
Any person confined in any penal or corrective institution of the Commonwealth or any of its political subdivisions or admitted to a state hospital or training center operated by the Department of Behavioral Health and Developmental Services;
Any person employed by a summer camp for boys, girls, or both boys and girls;
Any person under the age of 16, regardless of who they work for;
Any person who is paid pursuant to 29 U.S.C. § 214(c) of the Fair Labor Standards Act (special provisions for certain disabled workers);
Students participating in a bona fide educational program;
Any person younger than 18 years of age and who is currently enrolled on a full-time basis in any secondary school, institution of higher education, or trade school, provided that the person is not employed more than 20 hours per week;
Any person of any age who is currently enrolled on a full-time basis in any secondary school, institution of higher education, or trade school and is in a work-study program or its equivalent at the institution at which he is enrolled as a student;
Any person who works as a babysitter for fewer than 10 hours per week;
Any person participating as an au pair in the U.S. Department of State’s Exchange Visitor Program governed by 22 C.F.R. § 62.31;
Any individual employed as a temporary foreign worker as governed by 20 C.F.R. Part 655; and
Any person who is exempt from the federal minimum wage pursuant to 29 U.S.C. § 213(a)(3) (exempting employees of certain types of amusement or recreational establishments, organized camps, or religious or non-profit educational conference centers).

Va. Code § 40.1-28.9(A).

Wages Defined

The VMWA defines “wages” broadly, as

legal tender of the United States or checks or drafts on banks negotiable into cash on demand or upon acceptance at full value. “Wages” includes the reasonable cost to the employer of furnishing meals and lodging to an employee if such board or lodging is customarily furnished by the employer and used by the employee.

Va. Code § 40.1-28.9(A).

Tipped Employee Provision

Under the VMWA, a tipped employee is an employee who customarily and regularly receives tips totaling more than $30 each month from persons other than the employee’s employer. Va. Code § 40.1-28.9(A).

The VMWA has a special provision for calculating the wages of tipped employees. In determining the wages of a tipped employee,

the amount paid such employee by his employer shall be deemed to be increased on account of tips by an amount determined by the employer, except in the case of an employee who establishes by clear and convincing evidence that the actual amount of tips received by him was less than the amount determined by the employer. In such case, the amount paid such employee by his employer shall be deemed to have been increased by such lesser amount.

Va. Code § 40.1-28.9(B). In other words, the employer may take credit towards its minimum wage obligation for the amount of tips the tipped employee receives. However, the VMWA prohibits an employer from classifying an individual as a “tipped employee” if the individual is prohibited by applicable federal or state law or regulation from soliciting tips. Id.

Minimum Wages

The VMWA provides that “employers” must pay to each of their “employees” – as those terms are defined in the VMWA – certain minimum “wages” – as that term is defined. Beginning on May 1, 2021, the Virginia minimum wage exceeds the federal minimum wage. Under the VMWA, the Virginia minimum wage increases over time, as follows:

Time Period	Virginia Minimum Wage under VMWA
Prior to May 1, 2021	A rate not less than the federal minimum wage.
May 1, 2021, until January 1, 2022	A rate not less than the greater of (i) $9.50 per hour or (ii) the federal minimum wage.
January 1, 2022, until January 1, 2023	A rate not less than the greater of (i) $11.00 per hour or (ii) the federal minimum wage.
January 1, 2023, until January 1, 2025	A rate not less than the greater of (i) $12.00 per hour or (ii) the federal minimum wage.
January 1, 2025, until January 1, 2026	A rate not less than the greater of (i) $13.50 per hour or (ii) the federal minimum wage.* *Only if reenacted by July 1, 2024.
January 1, 2026, until January 1, 2027	A rate not less than the greater of (i) $15.00 per hour or (ii) the federal minimum wage.* *Only if reenacted by July 1, 2024.
From and after January 1, 2027	A rate not less than the greater of (i) the adjusted state hourly minimum wage or (ii) the federal minimum wage.

VA Code § 40.1-28.10(A)-(G). As noted above, the VMWA provisions for January 2025 (13.50 per hour) and 2026 ($15.00 per hour) – subsections E and F of VA Code § 40.1-28.10 – only become effective if they are reenacted by a regular or special session of the General Assembly prior to July 1, 2024. Id.

The VMWA further provides a process and formula for setting the “adjusted state hourly minimum wage” on an annual basis beginning in 2026:

By October 1, 2026, and annually thereafter, the Commissioner shall establish the adjusted state hourly minimum wage that shall be in effect during the 12-month period commencing on the following January 1.

VA Code § 40.1-28.10(H). The adjusted state hourly minimum wage is to be set at the sum of:

(i) the amount of the state hourly minimum wage rate that is in effect on the date such adjustment is made, and

(ii) a percentage of the amount described in clause (i) that is equal to the percentage by which the United States Average Consumer Price Index for all items, all urban consumers (CPI-U), as published by the Bureau of Labor Statistics of the U.S. Department of Labor, or a successor index as calculated by the U.S. Department of Labor, has increased during the most recent calendar year for which such information is available.

VA Code § 40.1-28.10(H). The amount of each annual adjustment may not be less than zero. Id.

The VMWA provides a lesser minimum wage rate for any person enrolled in an established employer on-the-job or other training program for a period not to exceed 90 days which meets standards set by regulations adopted by the Commissioner:

Beginning May 1, 2021, every employer shall pay to each of his employees at a rate not less than the federal minimum wage or 75 percent of the Virginia minimum wage … whichever is greater. For the purposes of this subdivision “employee” means any person or individual who is enrolled in an established employer on-the-job or other training program for a period not to exceed 90 days which meets standards set by regulations adopted by the Commissioner.

VA Code § 40.1-28.10(A)(2).

Civil Actions and Remedies for Employees

The VMWA contains a remedies provision. It provides that an employer who violates the law’s minimum wage requirements is liable to the affected employee or employees affected for:

the amount of the unpaid minimum wages, and
interest at eight percent per year on the unpaid wages, with the interest to be awarded from the date or dates the wages were due.

VA Code § 40.1-28.12. In addition to any judgment awarded to the employee or employees, the court may also require the employer to pay reasonable attorney’s fees incurred by the employee or employees. Id.