Great Lakes Wire

The Sixth Circuit Court of Appeals has issued a decision that continues to narrow the interpretation of the salary basis exemption test under the Fair Labor Standards Act (FLSA). This case involved a pipe inspector who was classified as exempt by his employer, based on a "guaranteed weekly" salary of $800. This salary was divided into an hourly rate of $100 for an eight-hour workday, with additional pay for hours worked beyond that.

The Plaintiff challenged this classification, arguing that it did not meet the FLSA requirement of a guaranteed "predetermined amount" on a weekly or less frequent basis. The lower federal court had ruled in favor of the employer, stating that the fixed $800 weekly salary satisfied the salary basis test.

However, the Sixth Circuit Court reversed this decision, stating that it is insufficient for an employer to guarantee just any fixed weekly amount. Instead, the employer must guarantee a "weekly rate" for services rendered. The court asserted that the weekly payment must be the fundamental unit of compensation. The $800 did not sufficiently compensate the Plaintiff for his average 52-hour workweek, impacting the exempt classification.

This ruling references the 2023 case of Helix Energy Solutions v. Hewitt, where a highly compensated employee was paid on a daily basis, not meeting the FLSA’s requirements despite earning substantial annual income. The decision emphasizes that meeting both the text and spirit of the FLSA is crucial for employers, and being well compensated does not exempt them from legal wage payment obligations.

This case serves as a warning to employers about adhering to the exemption tests under FLSA. They are reminded that compensation practices must align with FLSA regulations to avoid legal issues.

"Employers are advised that their compensation practices must meet both the text and the spirit of the FLSA," as reported by Michael Burns of SBAM-approved partner, ASE.

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