The Sixth Circuit Court of Appeals recently issued an interesting Fair Labor Standards Act decision. The case focused on who is and is not exempt from overtime requirements. And the result – as the court noted – is likely to be counter-intuitive to many employers.
Case Background – FLSA and Highly Compensated Employees
The case, Hughes v Gulf Interstate Field Services, involved welding inspectors for Gulf Interstate Field Services. In 2014, they and others similarly situated plaintiffs sued under the Fair Labor Standards Act (FLSA) and the comparable Ohio wage statute. The claim asserted the plaintiffs were entitled to overtime pay for weeks in which they worked more than forty hours.
Gulf Interstate argued that the plaintiffs were exempt from the overtime requirements because they qualified as “highly compensated employees” under the FLSA regulations. The lead plaintiffs made approximately $83,000 and $109,000.00. The district court agreed with Gulf Interstate and granted summary judgment in favor of the employer.
On appeal, however, the Court reversed the federal district court but noted the unusual result:
It may seem strange, on its face, that employees who earned an annualized rate of more than $100,000 did not necessarily qualify as “highly compensated employees.” But regardless of whether good reasons exist, we must follow the legal meaning of the terms rather than our intuitive sense of the meaning of the words. Because [the regulations] make clear that it matters whether Hughes and McDonald were guaranteed a qualifying weekly salary and because a reasonable trier of fact could find that there was no guarantee we REVERSE the district court’s grant of summary judgment and REMAND for further proceedings.
Making Sense of the Result – Highly Compensated & Overtime Pay
For qualifying employees, the FLSA prohibits employment “for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.” 29 U.S.C. § 207(a)(1).
But not all employees are covered. For example, under 29 C.F.R. § 541.601, an employee qualifies as an exempt “[h]ighly compensated employee” if three tests are met: “(1) a duties test; (2) a salary-level test; and (3) a salary-basis test.”
In the Gulf Interstate case, only the ‘salary basis’ test” was in dispute. And in resolving that dispute, the Court determined that questions remained whether “their pay was calculated more frequently than weekly[,]” and “whether what they received weekly was in fact guaranteed.”
The FLSA and overtime is an area of employment law that frequently confuses employers. And as this case illustrates, determining FLSA overtime requirements is not straightforward or immediately apparent.
For more information about complying with federal or Michigan employment law, or to understand your rights under both, contact employment attorney Jason Shinn. He has represented employers and employees since 2001 in employment disputes, workplace investigations, and negotiating severance packages.