U.S. Supreme Court Holds FLSA Overtime Exemption Does Not Apply to Highly Compensated Employees Paid a Daily Rate

Recently, the U.S. Supreme Court held, 6 to 3, that an employee who is paid on a “days-worked” basis does not fall under the Fair Labor Standards Act’s (FLSA) highly compensated salary-based employee overtime exemption.  The employer had asserted that the employee, an oil rig worker, was exempt from the FLSA’s overtime requirements because he was paid $200,000 per year on a “days-worked” basis.

The Court held that this daily rate basis did not qualify as a “salary” under the FLSA, a condition necessary for the employer to apply the overtime exemption.  The Court explained that the definition of the term “salary” in section 602(a) of the Fair Labor Standards Act of 1938, describes a salary as a “predetermined” weekly, or less frequent, amount that’s paid “without regard to the number of days or hours worked.”  Although the employee was paid more annually than what the FLSA and the Department of Labor required to meet the overtime exemption, it did not make these payments on a “predetermined basis.”  In other words, the employee would earn less in a week if he worked fewer days.  Thus, as employer paid the employee on a daily rate basis, the FLSA’s plain text precluded the exemption’s application, and the employee was entitled to overtime compensation.