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The Supreme Court Rules in Hewitt v. Helix: What it Means for the Oil & Gas Industry

February 28, 2023
Washington, DC

By Olivia Howe, Chief Legal Officer, and Kim McCoy, Deputy General Counsel

Last week the U.S. Supreme Court issued a ruling in Hewitt v. Helix, a case involving an offshore worker who earned more than $200,000 a year, was paid on a day-rate model, and claimed he was entitled to overtime pay under the federal Fair Labor Standards Act. The question before the Court boiled down to whether a highly compensated employee paid on a day rate was exempt from FLSA overtime regulations.

In a 6-3 decision, the Court ruled that the employee, despite his supervisory role and substantial annual earnings, was entitled to overtime pay.

The Court’s much-anticipated ruling has major implications for employers — particularly those in the energy industry — who historically have paid workers on a day-rate basis. It also directly impacts employees, many of whom prefer the day-rate model.

At Workrise we were prepared for all possible outcomes, including this one. We are constantly evaluating the legal landscape and, seeing the avalanche of litigation in the energy industry over this issue in recent years, we were proactive in adjusting payment models in many jurisdictions before the Court’s decision.

As we help the companies and workers we do business with to move forward in the wake of the ruling, it’s useful to take a look at how this issue came to land in the hands of the country’s highest court.

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The Day-Rate Pay Model: An Industry Tradition

For more than a century, the energy industry has paid workers on the basis of a day rate. This pay practice developed in part as a response to the unpredictable nature and irregular hours required of the workers who are needed across a variety of upstream and midstream sectors to control the flow of oil and natural gas, maintain well integrity, and control pressure in wells and pipelines.

Until now, the day rate has been the widely accepted norm, without censure from the government or other regulatory authorities. Generally speaking, workers prefer to be paid on a day-rate model. It builds in compensation guarantees for a job that doesn’t take place on a linear, predictable schedule like office or retail work.

An FLSA Litigation Wave

The last few years saw a proliferation of lawsuits filed against energy companies by day-rate workers claiming they were entitled to overtime pay and therefore were owed back wages. The litigation largely was argued by plaintiff’s lawyers, working on contingency, who pushed for huge payouts from energy companies in lawsuits that had little downside for former workers to join.

The resulting trend among Oil & Gas companies was to shift toward compensating workers with hourly and overtime pay — not because the industry believed it had been paying incorrectly, but as a response to this wave of costly and time-consuming litigation.

One such case, Hewitt v. Helix, wound its way through the court system and ended up before the U.S. Supreme Court. Central to the case were rules that allow “executive, administrative, or professional” employees, who are highly compensated and supervise others, to be exempt from the FLSA’s overtime provision — if they are paid on a salary basis.

Despite the case’s complexities — it involved the interpretation of various provisions, and even single words, in FLSA law and Department of Labor regulations — it spoke to an important issue: whether the pay model under which the energy industry has powered our society for more than a century was going to have to change.

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The Road to the Supreme Court

Michael Hewitt worked for Helix Energy as a toolpusher on an oil rig from 2014 to 2017. A toolpusher has a significant role as second in command of the vessel, performing largely managerial and administrative duties.

As is common in the energy industry, Mr. Hewitt worked 28-day “hitches,” where for 28 consecutive days he would work and live on the oil rig, taking daily shifts of up to 12 hours. On any given day in which he worked at least one minute, Helix Energy paid him a daily rate that ranged from $963 to $1,341 over the course of his employment. This added up to over $200,000 a year before Helix Energy ended his employment for performance-related reasons.

Mr. Hewitt filed a lawsuit claiming that he was entitled to overtime under the FLSA. Helix Energy argued that he was exempt from overtime because — as a worker who supervised others and was highly compensated — he was a bona fide executive employee. What does this mean, and why was it significant?

The FLSA generally requires employers to pay “time and a half” to employees when they work more than 40 hours per week. But the law exempts from this requirement “bona fide executive, administrative, or professional” (EAP) employees. Under the EAP exemption, a worker qualifies as exempt only if their job duties meet certain criteria, and if they are paid above a minimum threshold – $455 per week when Mr. Hewitt worked for Helix Energy – on a salary basis.

There is also an exemption for “highly compensated employees” (HCEs) who earned $100,000 annually (now $107,432) when Mr. Hewitt’s suit was filed. Under this more relaxed set of requirements, highly compensated employees are “deemed exempt” from overtime pay as EAP employees if they performed at least one of the duties associated with their job category and their annual compensation included “at least $455 per week paid on a salary or fee basis.”

Both sides agreed that Mr. Hewitt was highly compensated, and that he performed at least one “executive” duty; they disagree about whether Hewitt was paid on a salary basis.

The Ruling

In October 2022, the Court heard oral arguments in Hewitt v. Helix. At the heart of the case was the question: Are supervisors who typically would be exempt from the FLSA’s overtime compensation provisions entitled to time-and-a-half pay for working over 40 hours in a workweek because they receive a day rate rather than a fixed salary?

The court’s majority opinion, written by Justice Elena Kagan, was yes: A worker who earns a day-rate — no matter what they earn annually — is not paid on a “salary basis” and therefore is entitled to overtime pay when they exceed a 40-hour work week.

Helping the Industry Adapt

Workrise supports systems that offer maximum flexibility and rewards to energy companies and their workers, most of whom have long preferred the day-rate pay model. But we are grateful to the Court for weighing in on whether paying a day rate can comply with the salary-basis test of the Fair Labor Standards Act, a question that has brought uncertainty and confusion to the industry for years.

Now that the panel has found that day rate pay does not meet FLSA’s requirements, we expect to see a widespread shift to an hourly pay plus overtime model.

Our legal team worked hard to stay ahead of the curve on this issue, and even before the Court’s decision had adapted our pay practices — and helped many other companies to do the same — to mitigate risk in the short term. Now we are doubling down on our commitment to helping our partners in the industry to process the full impact of the decision and make all necessary adjustments.

There are indications that this may not be the end of the debate over the FLSA and overtime pay. In one of two dissenting opinions in Hewitt v. Helix, Justice Brett Kavanaugh — joined by Justice Samuel Alito — wrote, “Although the Court holds that Hewitt is entitled to overtime pay under the regulations, the regulations themselves may be inconsistent with the Fair Labor Standards Act.”

We will, as always, continue to monitor the energy sector’s legal landscape. But for right now, we are here to help our clients and our workers navigate this new reality. Whatever the future holds, we are confident that the industry will successfully adapt. It always has.

The information provided in this article does not, and is not intended to, constitute legal advice.

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