Federal Judge Rules Day Rate Can Be a Salary for FLSA Exemptions

In a significant and favorable ruling for employers, especially in the oil and gas industry, a federal judge in the U.S. District Court for the District of Colorado recently ruled that the plaintiff in Scott v. Antero Resources Corp., a highly compensated employee, was exempt from overtime because the salary basis requirement was met.¹

Understanding Day Rates

The historically common practice of paying workers in some industries (such as oil and gas services) a "day rate" for each day worked has been the subject of significant overtime litigation for several years now. This is because the most common exemptions to overtime under the Fair Labor Standards Act (FLSA) require that the employee be paid on a "salary basis" of at least a certain minimum amount. And, the argument goes, a "day rate" cannot be a "salary."

But numerous oilfield jobs – such as drill site manager/company man, directional driller and toolpusher – routinely pay "day rates" approaching or exceeding $1,000 per day, yielding hundreds of thousands of dollars annually. These workers can make twice as much in a single day as the weekly minimum required for an FLSA exemption. These highly compensated workers are effectively "guaranteed" a certain minimum amount every week because any time worked gets at least one day's rate, and the compensation only goes up from there.

The court in Scott v. Antero Resources Corp. applied a common sense approach and found that a sufficiently high day rate can satisfy the salary basis test. The decision in Scott signals that some courts will not apply the salary basis test in a blindly technical fashion to award windfalls of overtime.

Fifth Circuit to Make Final Ruling on Day Rates

This has been an important issue and the subject of much litigation, especially in the Fifth Circuit states of Texas, Louisiana and Mississippi, where courts have wrestled with how to treat overtime claims by "day rate" employees who nevertheless make hundreds of thousands of dollars annually. Indeed, as the district court in Scott pointed out, the U.S. Court of Appeals for the Fifth Circuit itself has issued decisions and reversed course several times, leaving the case law in disarray.

First, the Fifth Circuit in Faludi v. U.S. Shale Solutions, L.L.C., found that a sufficiently high day rate could be a "salary" under the FLSA's salary basis test. In Faludi, an employee who was paid a "day rate" of more than $1,000 per day (more than the FLSA-required weekly minimum) was not entitled to overtime.² However, the Fifth Circuit later withdrew its original opinion in Faludi, and held that the worker was an independent contractor who was not entitled to overtime, regardless of whether he was paid a day rate. Although the Fifth Circuit withdrew its original opinion in Faludi, the Court in Scott found the original Faludi opinion "highly persuasive and applicable to the facts of this case."³

Next, on April 20, 2020, the Fifth Circuit, in Hewitt v. Helix Energy Solutions Group, Inc., held that a "day rate" does not satisfy the salary basis test for overtime exemptions.⁴ However, on March 9, 2021, the Fifth Circuit granted the employer's petition for rehearing en banc, and vacated the April 20, 2020 ruling. The Fifth Circuit heard oral arguments on May 25, 2021, and the parties, the employment bar and employers are awaiting a final ruling from the Fifth Circuit.

The state of the law on this issue is uncertain. Two judges in the Faludi case held that a "day rate" could satisfy the salary basis test, and two judges in the Hewitt case held otherwise. Regardless of the outcome in the Fifth Circuit, however, it is still noteworthy that the District of Colorado found the original Faludi rationale was more persuasive.

Employer Considerations

Until this issue is finally resolved, any employer paying a "day rate" – especially to employees in Texas, Louisiana and Mississippi – should carefully examine their pay practices with counsel to determine whether they face any risk for unpaid overtime and take prompt steps to mitigate that risk. For more information or to examine the impact this decision may have on your pay practices, contact the authors or another member of Holland & Knight's Labor, Employment and Benefits Group.

Notes

¹ See Scott v. Antero Resources Corp., No. 17-CV-0693-WJM-SKC, 2021 WL 2012326, at *1 (D. Colo. May 20, 2021).

² See Faludi v. US Shale Solutions LLC, No. CV H-16-3467, 2017 WL 5969261, at *1 (S.D. Tex. Nov. 30, 2017), affirmed in part, vacated in part, remanded sub nom. Faludi v. U.S. Shale Solutions, L.L.C., 936 F.3d 215 (5th Cir. 2019), as revised (Aug. 22, 2019), opinion withdrawn and superseded, 950 F.3d 269 (5th Cir. 2020), and affirmed in part, vacated in part, remanded sub nom. Faludi v. U.S. Shale Solutions, L.L.C., 950 F.3d 269 (5th Cir. 2020).

³ See Scott v. Antero Resources Corp. at *6.

⁴ See Hewitt v. Helix Energy Solutions Group, Inc., 983 F.3d 789 (5th Cir. 2020).

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