Not a Bad Place to Be: Fifth Circuit Addresses the “Highly Compensated” Exemption Under the FLSASometimes employment laws can make the common person’s head spin. That certainly could be the case for a recent Fifth Circuit opinion examining the “highly compensated” regulatory exemption from the overtime requirements of the FLSA.

A Thousand Dollars a Day – Is It Fair Compensation?

Jeff Faludi used to practice law but began working as a consultant for U.S. Shale Solutions, an oil and gas company. He had an independent contractor agreement, under which he was paid $1,000 per day for every day he worked in Houston and $1,350 per day for every day he worked outside of Houston. Those rates applied regardless of how many hours he worked, and the proof showed many days where he charged that rate even though he did not work a full day and other days for which he charged a half-day rate. His annual compensation was about $260,000. After about 16 months, the company reorganized, and Mr. Faludi left. He subsequently filed an FLSA suit against the company, claiming he should have been paid overtime.

U.S. Shale filed for summary judgment claiming that Mr. Faludi was an independent contractor. In the alternative, it said that even if Mr. Faludi was an employee, he was exempt under the “practice of law” or “highly compensated employee” exemptions. Mr. Faludi also filed for partial summary judgment on the grounds he was an employee (not an independent contractor) and was not exempt. The lower court granted summary judgment in favor of the employer on the “highly compensated” exemption. Mr. Faludi appealed.

What It Means to Be Highly Compensated

The FLSA includes several types of employment that are exempted from the payment of overtime: executive, administrative, professional, computer or outside sales. In examining the exemptions, the Fifth Circuit looked to the Department of Labor’s regulations — especially those on “highly compensated employees.” An employee is exempt from the overtime requirements as a “highly compensated employee” if he or she:

  • Receives total annual compensation of at least $100,000, and
  • Customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee.

Mr. Faludi argued that he did not fit the exemption: His salary wasn’t paid in a regular manner, it was subject to a reduction due to the amount of work performed, and there was no connection between his pay and what he actually did. The Fifth Circuit did not give credence to any of those arguments. Instead, the Fifth Circuit focused on the fact that his $1,000 per day rate guaranteed him at least $455 per week and he regularly received that amount on a weekly or less frequent basis. Therefore, he was a highly compensated employee under the regulations and was exempt from overtime.

Does This Matter Even If I Don’t Employ Highly Compensated People?

The highly compensated exemption is likely a narrow one, and not one that would usually generate much litigation. However, this case does point out that employers should look to the DOL’s regulations for guidance on the nuances of the FLSA. Courts are using the regulations to enforce the overtime requirements, and it is worth looking at them. Also, don’t forget that there has been much talk about revising these exemptions, which will likely result in an increase of the $100,000 salary threshold.