U.S. Supreme Court Rules That in Certain Circumstances, the Fair Labor Standards Act Requires Overtime Pay Even for Employees Making Over $200,000 Annually
On February 22, 2023 the U.S. Supreme Court ruled that in some cases, even already highly compensated employees are required by law to receive overtime pay. The Court ruled that since an oil rigger was treated and paid as a daily employee, he was not a statutory “executive” exempt from overtime pay requirements.
This oil rigger was highly compensated (for each day that he worked), earning a total of over $200,000 annually. For one month, he worked long hours on an offshore oil rig (typically but not invariably 12 hours a day, seven days a week, so 84 hours a week). He then had one month off, back on shore, with no payment. The Court ruled that he was not exempt (and was therefore entitled to overtime), because he did not receive a predetermined, guaranteed salary. A salaried employee is typically paid in full a certain weekly amount, as long as they worked at least part of the week. Here, the employer only paid the oil rigger a daily rate for the days that he worked.
The employer paid him neither a salary nor overtime. The Court found that the employer could not have it both ways. The Court reasoned that an employee who is not compensated for time they are not needed is usually understood to be an hourly worker, not a salaried employee. The Court found that the salary-basis test did not hinge on how often paychecks were distributed, but on a guaranteed payment for an entire week. The Court was not persuaded by the employer argument that these high earners would receive a “windfall”, instead focusing on the legal requirements of the Act.
The Fair Labor Standard Act regulations provide good guidance on whether an employee best fits a salary or hourly wage compensation model. The lesson from this case for employers: do not create “clever” payment schemes to avoid paying overtime. You could end up paying a lot more later, in Court.