The Sixth Circuit held that day rate workers were not “highly compensated” employees and were thus owed overtime, as the workers were not paid on a salary basis. Former welding inspectors of Gulf Interstate Field Services, Inc., a pipeline and construction project, filed a lawsuit on behalf of themselves and others similarly situated under the Fair Labor Standards Act (“FLSA”) and Ohio Minimum Fair Wage Standards Act (“OMFWSA”) alleging unpaid overtime violations. Hughes v. Gulf Interstate Field Services, Inc., No. 17-3112 (6th Cir. 2017). On summary judgment, the district court said that the plaintiffs were exempt from the overtime requirements because they qualified as highly compensated employees. The overarching issue the plaintiffs argued on appeal was whether their salaries were guaranteed and whether a rational trier of fact could have concluded that there was no such guarantee.
Under the FLSA, employers are required to pay their nonexempt workers time and a half the workers regular rate of pay for all hours worked over forty, unless the worker falls under an exemption. One of the exemptions is the highly compensated exemption, where an employee qualifies as exempt if three tests are met: “(1) a duties test; (2) a salary-level test; and (3) a salary-basis test.” Orton, 668 F.3d at 846. Here, salary basis test is the sole issue. An employee meets the salary-basis test:
“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.” 29 C.F.R. § 541.602(a).
Here, the Sixth Circuit examined another Sixth Circuit case for its analysis. In Orton, a restaurant vice present, who had an annual base salary of $125,000 sued his employer for damages stemming from a period he claimed he worked but was not paid. The Sixth Circuit ultimately rejected the restaurant’s argument that the plaintiff was exempt based on the salary that he was owed under his employment agreement rather than what he actually received. Thus, the relevant starting point for whether the plaintiff was paid on a salary basis was “not what Orton was owed under his employment agreement,” but “rather … what compensation Orton actually received.” Orton, 668 F.3d at 848. The reason that the “regularly receives” language was decisive was because Orton so clearly met the other textual requirements of § 541.602(a): he had an “annual base salary … set at $125,000.” Orton, 668 F.3d at 845. The plaintiff was paid on a weekly or less frequent basis and its compensation was not reduced for variations in the quality or quantity of the work performed, thus it was guaranteed.
However, for the Hughes case, those pretextual prerequisites were not met. Hughes v. Gulf Interstate Field Services, Inc., No. 17-3112 (6th Cir. 2017). There, the plaintiffs presented evidence that they were paid a day rate and that their salary was calculated at a rate a rate of $337/day. Accordingly, their pay was calculated more frequently than weekly and the Sixth Circuit said there was a discrepancy as to what they received weekly was in fact guaranteed. The court looked at more precise language in § 541.604(b), which states:
“An exempt employee’s earnings may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned.”
The plaintiffs said that this section requires a “guarantee of at least the minimum weekly required amount paid on a salary basis.” The defendant argued that the Sixth Circuit should pay no attention to § 541.604(b) and rather look to other circuits for guidance. However, the Sixth Circuit said that the defendant’s argument was misstated as those other circuits whose authorities ignore § 541.604(b) are situations in which the textual requirements of 29 C.F.R. §§ 541.601, 541.602(a) are already clearly met. The cases cited by the defendant involved plaintiffs who, like Orton, and unlike Hughes, were guaranteed a weekly base salary above the qualifying level. The Sixith Circuit reasoned and said “although § 541.604(b) provides textual evidence of the importance of a guarantee, we need not decide today whether it is the controlling source of evidence supporting our reading.” Hughes v. Gulf Interstate Field Services, Inc., No. 17-3112 (6th Cir. 2017). The section defining the salary-basis test, § 541.602(a), itself indicates the importance of a guarantee: it provides that what “the employee regularly receives each pay period” must not be “subject to reduction because of variations in the quality or quantity of the work performed.” 29 C.F.R. § 541.602(a); Id. Thus, whether one looks to the phrase “includes a guarantee,” 29 U.S.C. § 541.604(b), or to the phrase “which amount is not subject to reduction,” 29 C.F.R. § 541.602(a), it is legally significant whether the plaintiffs weekly salary was a matter of right or a matter of grace.” Hughes v. Gulf Interstate Field Services, Inc., No. 17-3112 (6th Cir. 2017).
The Sixth Circuit said that this understanding is also consistent with the Department of Labor’s guidance, which states that
“If a pay system compensates employees who are claimed to be exempt on the basis of hourly wage rates computed from their actual hours worked each week, it is necessary to determine whether a salary guarantee is in effect and operational. Payment on an hourly basis without an operative salary guarantee does not qualify as a `salary basis’ of payment within the meaning of the regulations.”
The plaintiffs in Hughes introduced evidence suggesting that their pay was not calculated hourly, but daily. If they were to be exempt under § 541.601, it matters whether their minimum weekly salary was in fact guaranteed, or whether it was simply something that the defendant had not availed itself to is right to reduce.
The last issue the Sixth Circuit addressed was whether the plaintiffs were guaranteed a qualifying minimum weekly salary. While the defendant established that the plaintiffs were paid during the time that each was employed on the Ohio pipeline project in a way that was consistent with a weekly guarantee, it has not proven unreasonable the conclusion that these payments were matters of grace rather than right. Here, the record indicated that the plaintiffs worked as welding inspectors on the pipeline project for approximately fifteen and eight months, respectively. That the defendant paid them in a way that is consistent with a guarantee during this relatively short period of time does not establish, in the face of the contradictory evidence and for purposes of summary judgment, that the defendant gave them the protection of a guarantee.
Alternatively, that it did provide the plaintiffs with a guarantee, Gulf Interstate read the Sixth Circuit language in Douglas v. Argo-Tech Corp., 113 F.3d 67 (6th Cir. 1997) to mean that “this Court equated the ‘predetermined amount’ of the salary basis test with a ‘guarantee.’” The defendant further cited the Sixth Circuit’s statement that “[a]n employee is salaried even if his compensation consists of a guaranteed predetermined amount plus additional compensation.” Id. (quoting Douglas, 113 F.3d at 71). But that sentence does not mean that a “guarantee” is the same thing as a “predetermined amount” under circuit precedent. First of all, Gulf Interstate’s theory runs counter to foundational rules of interpretation: if “guaranteed predetermined amount” means the same thing as “predetermined amount,” then the word “guaranteed” is surplusage. Cf. Corley v. United States, 556 U.S. 303, 314, 129 S.Ct. 1558, 173 L.Ed.2d 443 (2009). The idea behind a guarantee is in this context that the employer is contractually obligated not to change its mind and reduce whatever amount it previously determined to provide. Hughes v. Gulf Interstate Field Services, Inc., No. 17-3112 (6th Cir. 2017). Because a reasonable trier of fact could conclude that the plaintiffs received no such guarantee from the defendant cannot prevail on summary judgment. Id. Because it mattered whether the plaintiffs were guaranteed a qualifying weekly salary, and because a trier of fact could find that there was no guarantee, the Sixth Circuit reversed the district court’s grant of summary judgment and remanded the case for further proceedings. The important point here is simply that if an employer wishes to pay its employees on a daily, hourly, or shift basis, then those employees will not be exempt under § 541.601 unless they are nevertheless guaranteed a qualifying minimum weekly salary. Id.
If you are an oilfield worker and have questions whether you are being paid properly and if you are exempt form the FLSA protections, call an attorney today. Josh Borsellino is a Texas FLSA attorney that understands the FLSA’s rules and exemptions. He works on a contingency fee basis meaning that you owe him nothing unless there is a recovery. Call him today at 817.908.9861 or 432.242.7118.