KHVPF Insight

U.S. Supreme Court Takes Aim at the Department of Labor’s Oldest Regulations

U.S. Supreme Court Takes Aim at the Department of Labor’s Oldest Regulations

Since obtaining a six-to-three majority, the Supreme Court’s conservatives have started attacking the foundations of the administrative state. In National Federation of Independent Business v. OSHA, for instance, the Court overturned OSHA’s “vaccine or test” mandate, holding that while the statute apparently authorized OSHA’s rule, the mandate was “too major” of an issue and so it required a more specific statutory authorization from Congress. Then in West Virginia v. EPA, the Court again overturned a major regulation that limited the federal government’s ability to regulate carbon emissions from power plants —  not because the EPA exceeded its authority, but that the EPA rule was “too big,” and the Court would require Congress to make that delegation more clearly. The Court’s second-guessing of precedent has now reached the Fair Labor Standards Act, with Justices questioning the Department of Labor’s long-time requirement that exempt employees be paid on a “salary basis.”

Helix Energy Solutions Group, Inc. v. Hewitt started as an FLSA lawsuit by a highly compensated oil-rig worker who made over $200,000 per year. He worked well over 40 hours per week, but his employer did not pay him overtime, claiming he was an executive. There was no dispute that his duties made him an “executive” employee. But to be exempt from the overtime requirement, the FLSA requires that executives be paid a “salary.” The employer paid him a so-called “day rate,” which was a set daily payment for every day he worked, no matter how many hours. Hewitt claimed, however, that this did not meet the definition of a “salary,” and thus demanded overtime pay.

The Court, in a 6-3 technical ruling that analyzed several Department of Labor regulations, agreed with Hewitt — a “day rate” is not a “salary.” Hewitt was thus entitled to three years’ worth of unpaid overtime, liquidated damages equal to double the backpay, and his attorney fees. But the employer might have succeeded had it had the foresight to challenge the validity of the “salary” test in the first place, with several Justices suggesting in dicta that the

regulation was invalid. At oral argument, Justice Gorsuch asked questions hinting that the DOL went beyond its statutory authority when it, in the 1930s, required employers to pay a “salary.” And in their dissenting opinion, Justice Kavanaugh and Justice Alito specifically stated their belief that the entire salary basis test — promulgated by the DOL 90 years ago — violates the agency’s power. The employer, however, had not thought to challenge the salary basis test in the lower courts, so

the issue was not preserved for the U.S. Supreme Court to rule on.

There are two main takeaways from Helix Energy v. Hewitt. First, employers need to strictly adhere to existing DOL regulations. Even highly paid managers and similar employees might be paid overtime, regardless of duties, if they are not being paid as required by the DOL. Second, in all litigation involving administrative agency rules, defense counsel and employers should preserve adminisrative-law challenges to existing regulations, no matter how deeply entrenched. As the Helix Court suggested, even rules long thought sacrosanct may be subject to abrogation.