Energy companies that compensate employees by the day – be it $200 or $1,000 – must still pay those people overtime because they are not considered exempted salaried personnel under the strict wording of the Fair Labor Standards Act, the U.S. Court of Appeals for the Fifth Circuit ruled late Thursday.
The federal appeals court ruling, which was 12 to 6, is a huge blow to energy companies who have relied for decades on the idea that they could escape paying overtime to certain experienced and higher-level workers by paying them an extra-high daily wage.
Six judges dissented, stating that the majority decision overturns decades of standard practices within the energy sector and will have a devastating impact on the oil and gas industry. President Franklin D. Roosevelt and other original supporters of the FLSA, the dissenters wrote, “are turning over in their respective graves in reaction to the en banc majority’s [decision].”
But Judge James Ho, who wrote the majority opinion, said none of that matters when it comes to deciding case law.
“Our job is to follow the text—not to bend the text to avoid perceived negative consequences for the business community,” Judge Ho wrote in his 17-page decision. “That is not because industry concerns are unimportant. It is because those concerns belong in the political branches, not the courts.”
Houston lawyer Ed Sullivan, who represents the plaintiff, Michael Hewitt, in the litigation, said Helix Energy needs to pay his client the overtime it owes him with interest.
“Despite what the energy industry argued, this is not a controversial issue to anyone who litigates FLSA cases,” Sullivan said. “Almost every disinterested labor and employment lawyer knows that an employee who is paid purely by the day is not paid a salary under the FLSA. Helix rolled the dice in hopes that the Fifth Circuit would substitute its subjective policy preferences in favor of settled law.
“For the third and final time, the Fifth Circuit reached the objectively correct legal result and placed every nail in the coffin that is Helix’s case,” he said. “Helix’s real problem is not with Mr. Hewitt or the Fifth Circuit. It’s with the law, and its remedy is to lobby Congress to reform the overtime laws.”
Sullivan said Helix owes his client “six figures” in OT and interest.
Norton Rose Fulbright partner Carter Crow, who represents Houston-based Helix, declined to comment on the decision Friday.
While legal experts say the decision itself is precedent-setting, they also note how the Fifth Circuit judges are increasingly split into three groups, especially on labor and employment-related matters.
The 12-judge majority, for example, included all six appointees of President Donald Trump who advocate for a strict reading of the text even when it doesn’t their normal political and policy viewpoints and four of the five Democratic-appointed judges. Two other conservative appellate jurists, Judge Catharina Haynes and Judge Jerry Smith, also joined the majority. Judge Haynes, who was appointed by President George W. Bush, is conservative but is widely viewed as significantly more independent in the mold of legendary conservative Fifth Circuit Judge Patrick Higginbotham.
Five dissenting judges are appointees of Presidents Ronald Reagan, George H.W. Bush and George W. Bush and are viewed as being in the pro-business camp of the Fifth Circuit. In an odd twist, Judge James Dennis, an appointee of President Bill Clinton, also joined one of the dissents.
David Coale, an appellate law partner at Lynn Pinker Hurst & Schwegmann, said it follows the old adage that “politics makes strange bedfellows.”
“Apparently ‘textualism’ does too,” Coale said. “This en banc majority opinion has all six of Donald Trump’s appointees joining with four of the court’s five Democratic appointees.”
In the current case, Hewitt v. Helix Energy Solutions Group, Helix tool pusher Hewitt sued his employer for overtime he worked offshore on an oil rig.
Helix Energy lawyers argued that Hewitt, who oversaw the drill and deck crews and the subsea department, was not an hourly laborer under FLSA because he was considered exempt by being “highly compensated.”
Helix paid Hewitt a day rate of at least $963 for every day that he worked, regardless of the number of hours worked in a given day. His salary totaled over $200,000.
The federal court in Houston rejected Hewitt’s lawsuit. Hewitt appealed to the Fifth Circuit.
A three-judge panel of the New Orleans-based appellate court, which included Judge Ho and Judge Jacques Wiener, reversed the lower court in December 2020. Judge Wiener wrote a biting dissent, and Judge Ho responded with an equally sharp opinion.
Helix, the Independent Petroleum Association of America and the Texas Oil and Gas Association screamed that a ruling against Helix could have a “devastating effect” on energy companies and asked the full Fifth Circuit to grant en banc review.
The Fifth Circuit agreed. Instead of getting relief, the oil and gas industry now faces a decision that has the effect of precedent set by the full Fifth Circuit.
Judge Ho wrote that the “parties agree that Hewitt meets both the duties requirements and income thresholds of both exemptions.” But he notes that the company admits Hewitt’s compensation is “computed on a daily basis, rather than on a weekly, monthly, or annual basis.”
“So a daily-rate worker can be exempt from overtime — but only ‘if’ two conditions are met: the minimum weekly guarantee condition and the reasonable relationship condition. Helix does not even purport to meet these conditions,” Judge Ho wrote. “Instead, Helix asks us to ignore them altogether. But respect for text forbids us from ignoring text.”
In its arguments, Helix contended that extending overtime to highly paid employees like Hewitt defies the purpose of the FLSA.
Hewitt’s compensation was “well over $200,000 each year,” which Helix lawyers said was “a far cry from the wage practices against which the FLSA was created to protect.”
“But it should go without saying that we are governed by the text of the FLSA and its implementing regulations, not some unenumerated purpose,” Judge Ho wrote. “And Congress has never amended the text of the FLSA to categorically exempt highly paid employees from overtime — to the contrary, as previously noted, it has repeatedly rejected efforts to do so.”
Judge Ho stated that Helix “could have easily complied” with the FLSA “by offering a minimum weekly guarantee of $4,000 based on Hewitt’s daily rate of $963.”
“It has not done so. Under the plain text of § 541.604(b), that is all that matters,” he wrote. “We reverse and remand for further proceedings
Judge Edith H. Jones, who authored the dissent for five circuit judges, points out that Hewitt was paid more than $200,000 annually and supervised more than dozen offshore workers. She noted that “fewer than 6% of all Americans are paid as much as Hewitt.”
“Downplaying or omitting these and related uncomfortable facts, the majority employs their ‘textualist’ reading of Fair Labor Standards Act regulations to provide Hewitt time-and-a-half on his hourly rate if he worked more than forty hours weekly during his offshore hitches,” Judge Jones wrote.
“For a statute designed to elevate the workingman, the majority’s result seems counterintuitive, and in fact it is incorrect,” she wrote.
Judge Jones wrote that the majority “dodge the clear fit between Hewitt’s total annual compensation and the exact requirements of § 541.601.”
“By artful use of italics, ellipses, and other misdirection, the majority describe § 541.602’s salary basis test as an incomplete ‘general’ rule to justify looking outside of § 541.602 to § 541.604 whenever an employee’s pay is calculated on a daily basis,” Judge Jones wrote. “That assessment is plainly wrong.”
In a separate dissent, Judge Wiener said he wanted “to emphasize how common sense and a reasonable reading of the law combine to demand a result opposite the one reached originally by the panel majority and today by the en banc majority.
“Frankly, I cannot fathom how a majority of the active judges of this court can vote to require Helix to pay overtime to Hewitt, the supervisor of 12 to 13 hourly, hands-on workers, when he was already paid more than twice the cap of $100,000 per annum for overtime eligibility,” Judge Wiener wrote. “And, if that is not incomprehensible enough, keep in mind that Hewitt worked for Helix no more than half of the days during the calendar years at issue!”
Judge Wiener wrote that Hewitt is a supervisor, who “from the outset have been excluded from overtime.” As a “tool pusher,” Hewitt actually pushed no tools.
“Hewitt never got his hands dirty — only the twelve or thirteen roughnecks whom he supervised dirtied theirs,” Judge Wiener wrote. “I imagine that the original proponents of the FLSA — including President Franklin D. Roosevelt, during whose term the FLSA and other ‘Great Depression’ measures were enacted — are turning over in their respective graves in reaction to the en banc majority’s interpretation of the regulatory text to undermine how the FLSA is supposed to operate.”
Coale, who also operates the federal circuit blog 600 Camp, said Judge Wiener’s dissent “focuses on what he saw as commonsense problems with the majority’s opinion.”
“It has echoes of Chief Justice Roberts’ recent dissent in McGirt v. Oklahoma, where Justice Gorsuch’s majority opinion concluded that roughly half the land in Oklahoma is effectively still in an Indian reservation,” Coale said. “Roberts’ focus on the practical problems of that majority opinion was not persuasive to the ‘textualists’ in the majority, just as Wiener’s was not here.”
In amicus briefs supporting Helix, the Independent Petroleum Association of America and the Texas Oil and Gas Association argued that these kind of overtime disputes should be rejected because they are “mathematically illogical.” The two energy industry trade groups propose a formula that should decide whether an employee meets certain income thresholds to be paid overtime.
Judge Ho clearly did not think much of the mathematical formula.
“I’ve heard of using dictionaries to discern the plain meaning of legal texts,” he wrote. “I’ve never heard of using a calculator. Tellingly, amici do not cite a single case doing so. Bottom line: If our goal is to follow the text, we should follow the text — not penumbras formed by emanations divined by a calculator.”