In a highly anticipated case that has major implications for the oil and gas industry, the United States Supreme Court held that an oilfield worker paid a day rate was entitled to overtime pay under federal law. It is common in the oil and gas industry for oilfield workers to be classified as independent contractors and paid a day rate. Hundreds of lawsuits have been filed by these workers against oil and gas production and service companies, alleging that this pay practice violates the federal overtime statute, known as the Fair Labor Standards Act (“FLSA”). These cases typically involve two primary issues: (1) Whether the worker was truly an independent contractor or, instead, was an employee of the company; and (2) If the worker was an employee, whether he was ineligible for overtime pay under any of the FLSA’s exemptions. The FLSA has a “highly compensated employee” exemption, which covers most salaried workers making more than $100,000 in a year.
Under the FLSA, employers must pay overtime to employees who work more than 40 hours in a work week, unless the worker falls within one of the exemptions under the statute, including the “white collar” exemptions for executive, administrative and professional employees, as well as for highly compensated employees making at least $107,432 per year who perform executive, administrative or professional duties. None of the white collar exemptions apply, however, unless the employee is paid on a “salary basis.”
For years, oil and gas companies involved in overtime lawsuits have argued that several FLSA exemptions, most notably the highly compensated employee exemption, apply to oilfield workers paid on a day rate basis, because a day rate qualifies as a salary. If a day rate did qualify as a salary, almost all oilfield workers paid a day rate would be exempt under the FLSA’s highly compensated employee exemption, and thus would not be entitled to overtime pay under federal law. The immense implications of this case on the oil and gas industry are illustrated by the fact that the Independent Petroleum Association of America, as well as the Texas Oil & Gas Association and the American Petroleum Institute, filed amicus briefs with the Supreme Court arguing in favor of Helix’s position.
In this case, from 2014 to 2017, Michael Hewitt worked for Helix Energy Solutions Group as tool pusher on an offshore oil rig. Reporting to the captain, Hewitt oversaw various aspects of the rig’s operations and supervised 12 to 14 workers. He typically worked 12 hours a day, seven days a week – 84 hours a week – during a 28-day hitch. He then had 28 days off before reporting back to the vessel. 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.
Hewitt filed an action against his former employer Helix, seeking overtime pay. According to Hewitt, because he was paid a flat daily rate, he was not paid one-and-a-half times his regular rate as required by federal overtime laws. The district court granted summary judgment in favor of Helix, finding that Hewitt was exempt because his day rate qualified as a salary, and that he satisfied the “highly compensated employee” exemption, and thus was not entitled to overtime pay. The Fifth Circuit Court of Appeals reversed, finding that day rate workers are not paid on a salary basis. The Supreme Court agreed to hear the case and to decide whether highly compensated supervisors, who are compensated on a daily basis that exceeds the FLSA’s highly compensated threshold, and who are paid more than the weekly salary basis amount are exempt from overtime compensation under the FLSA.
The Supreme Court rejected the oil company’s argument that a day rate constitutes a salary. The Court reached this conclusion because a salary requires being paid a guaranteed weekly amount, while day rate workers are only paid for each day they work, and are not paid in weeks that they do not work. According to the Court, “The word “salary” connotes a steady and predictable stream of pay…The whole point of the salary-basis test is to preclude employers from paying workers neither a true salary nor overtime.”
This decision will require employers – particularly those in the oil and gas industry – to re-examine their payment practices. The decision also means that workers who have been paid day rates within the past three years may have a claim for unpaid overtime.
Josh Borsellino is an attorney based in Texas. He primarily handles wage and hour disputes, and has represented hundreds of workers on claims for unpaid overtime. He clerked for a federal judge and worked for one of the largest law firms in Texas for many years before starting his own firm more than a decade ago. Additional information is available on his website. Borsellino can be reached at (817) 908-9861 or josh@dfwcounsel.com.
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