No showing that day-rate workers received guaranteed weekly salary to qualify as highly compensated employees
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Thursday, December 21, 2017

No showing that day-rate workers received guaranteed weekly salary to qualify as highly compensated employees

By Ronald Miller, J.D.

Finding there was a genuine issue of material fact as to whether welding inspectors were guaranteed a qualifying minimum weekly salary, the Sixth Circuit reversed a district court’s grant of summary judgment finding that the employees were exempt from overtime under the FLSA and state law because they fell under the highly compensated employee exemption. While the employer established that the employees were paid in a way consistent with a weekly guarantee, it had not proven that these payments were a matter of right rather than a matter of grace. Accordingly, the employees did not lose their overtime claim as a matter of law (Hughes v. Gulf Interstate Field Services, Inc., December 19, 2017, Moore, K.).

Pay practices. Welding inspectors on a pipeline construction project brought suit against their employer asserting that they were entitled to overtime for weeks in which they worked more than 40 hours. Prior to beginning work, they received an offer letter stating that they were entitled to a weekly per diem and computer stipend as well as a salary of “337.00/Day Worked.” The inspectors worked six days per week for 10 hours a day. Over the course of their employment, they earned an annualized rate of more than $100,000 per year. During the months they worked for the employer, there did not appear to have been a single week during which they did not receive pay consistent with a guarantee of a weekly salary equivalent to six days of work at 10 hours per day.

The employees brought suit under the FLSA and the Ohio Minimum Fair Wage Standards Act (OMFWSA) and moved to certify an FLSA collective action and an OMFWSA class action. The district court held that employees such as the inspectors were exempt from overtime because they qualified as highly compensated employees under governing regulations. According to the lower court, “actual payment practice”—regardless of the existence of a guarantee of payment—controlled the question, and “there was no dispute that Plaintiffs were actually paid the requisite amount.”

Guaranteed salary. On appeal, the employees conceded that they were paid in a manner and at a rate consistent with the highly compensated employee exemption. However, they argued that it mattered whether their salaries were guaranteed and, in turn, whether a rational trier of fact could have concluded there was a genuine issue of material fact as to whether such a guarantee existed. The case turned on two issues: (1) whether it matters, for purposes of the salary basis requirement, whether at least arguably day-rate workers were guaranteed the requisite minimum weekly salary; and (2) if so, whether there was in fact such a guarantee. The Sixth Circuit concluded that it does matter, and there was a genuine issue as to whether such a guarantee existed.

Weekly minimum guarantee. Under the governing regulations, 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.” For the employer and the district court, one key phrase—”if the employee regularly receives”—resolved the case. However, the employees presented evidence that they were paid on a day rate, and that their salary was calculated at a rate of “337.00/Day Worked.” Thus, there was reason to conclude that their pay was calculated more frequently than weekly. Moreover, it was very much disputed whether what they received on a weekly basis was in fact guaranteed.

The text of 29 C.F.R. § 541.602(a), which defines the salary basis test, does not explain what to do when an employee’s salary is not clearly calculated “on a weekly, or less frequent basis.” However, § 541.604(b) specifically requires a guarantee of at least the minimum weekly required amount paid on a salary basis. Thus, the employees argued the court must look for a guarantee.

The appeals court held that § 541.602(a) indicated 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.” Thus, it was legally significant whether the employees’ weekly salary was a matter of right or a matter of grace.

Was there a guarantee? On the record before it, the Sixth Circuit concluded there was a genuine issue of material fact as to whether the employees were guaranteed a qualifying minimum weekly salary so as to warrant summary judgment in the employer’s favor on the question whether the highly compensated employee exemption applied here. While the employer established that the employees were paid in a way consistent with a weekly guarantee, it had not proven that these payments were a matter of right rather than a matter of grace. Verbal guarantees that the employees received at the outset of their employment did not change that result. Sections 541.602(a) and 541.604(b) made clear that it matters whether the employees were guaranteed a qualifying weekly salary. Accordingly, the district court’s grant of summary judgment for the employer was reversed.

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