Case: 22-30227 Document: 132-1 Page: 1 Date Filed: 09/04/2024
United States Court of Appeals
for the Fifth Circuit
____________
United States Court of Appeals
Fifth Circuit
No. 22-30227
FILED
____________
September 4, 2024
Jack Venton Venable; Brent K. Kemp, Lyle W. Cayce
Clerk
Plaintiffs—Appellants,
versus
Smith International, Incorporated,
Defendant—Appellee,
______________________________
William Aguirre,
Plaintiff—Appellant,
versus
Smith International, Incorporated,
Defendant—Appellee,
______________________________
Karl Drobish,
Plaintiff—Appellant,
versus
Case: 22-30227 Document: 132-1 Page: 2 Date Filed: 09/04/2024
Smith International, Incorporated,
Defendant—Appellee,
______________________________
Charles Walter Myers,
Plaintiff—Appellant,
versus
Smith International, Incorporated,
Defendant—Appellee,
______________________________
Joel Brent Story,
Plaintiff—Appellant,
versus
Smith International, Incorporated,
Defendant—Appellee.
______________________________
Appeal from the United States District Court
for the Western District of Louisiana
USDC Nos. 6:16-CV-241, 6:17-CV-860,
6:19-CV-238, 6:19-CV-239, 6:19-CV-240
______________________________
Before Barksdale, Southwick, and Graves, Circuit Judges.
James E. Graves Jr., Circuit Judge:
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Employees of Smith International, Inc., filed a claim for unpaid
overtime wages under the Fair Labor Standards Act (“FLSA”). The district
court granted Smith’s motion for summary judgment and denied the
employees’ motion for partial summary judgment. Because each employee is
a “bona fide executive,” each employee is exempt from the FLSA’s overtime
pay guarantee. We AFFIRM.
BACKGROUND
Smith International, Inc., is a corporation that provides a range of
services to oil and gas exploration companies in Louisiana, Texas, and the
Gulf of Mexico. DTR Field Specialists, also referred to as “reamers,” play a
critical role in Smith’s business operations by supervising exploration
companies’ use of Smith’s underreaming tool on offshore drilling rigs.
Reamers’ job responsibilities include: supervising the rig crew as they attach
and remove the reamer tool to/from the drill string, monitoring and
overseeing the reaming operation, providing advice and suggestions to the
driller on how to operate and use the underreaming tool, and ensuring that
the driller does not operate the underreaming tool in a manner that will
damage the well or the tool. Drillers operated the underreaming tool; reamers
supervised drillers.
Smith’s compensation scheme for reamers was bifurcated—an annual
salary and daily-rate job bonuses. Reamers’ annual salary was paid bi-weekly
and was not subject to reduction based on the quality or quantity of work
performed. In addition to their salary, reamers could receive job bonuses if
they provided services to Smith’s customers on their drilling rigs. Each
Reamer’s total annual compensation exceeded $100,000. 1
_____________________
1
The latest published version of the regulation increased the highly compensated
employee total annual compensation threshold to $132,964 beginning on July 1, 2024. See
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On February 22, 2016, the Appellants, a group of reamers, filed a
collective action complaint claiming that Smith misclassified reamers as
exempt from overtime requirements. The reamers sought to recover for
unpaid overtime wages, liquidated damages, and attorney fees and costs
under the FLSA.
On July 3, 2017, the district court conditionally certified the action as
a collective action under 29 U.S.C. § 216(b). William Aguirre, Karl Drobish,
Charles Myers, and Joel Story’s claims were severed from the collective
action proceeding into separate individual actions. Venable and Brent Kemp
continued to pursue a collective action. On August 24, 2021, the district
court consolidated the five proceedings for all purposes except for trial.
After discovery, the parties filed cross motions. Smith filed a motion
for summary judgment based on the FLSA’s bona fide executive exemption
for highly compensated employees (“HCEs”), and the Appellants sought
partial summary judgment arguing that the HCE exemption did not apply.
On March 25, 2022, the district court granted Smith’s motion for
summary judgment and denied Appellants’ motion for partial summary
judgment. The district court found that the bona fide executive exemption
did apply. Appellants filed an appeal.
On May 2, 2022, the Appellants filed a motion to stay the appeal in
light of the Supreme Court granting certiorari in Helix Energy Solutions
Group, Inc. v. Hewitt, 15 F. 4th 289 (5th Cir. 2022), cert. granted,
589 U.S. 39
(2023). Appellants argued that their motions relied heavily on the Fifth
Circuit’s ruling in Hewitt. This Court granted their motion to stay the appeal.
_____________________
29 C.F.R. § 541.601(a)(1). At the time Plaintiffs-Appellants filed their complaint, the
relevant threshold was $100,000. See
29 C.F.R. § 541.601 (2004).
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On February 22, 2023, the Supreme Court issued its Hewitt decision and this
court removed the appeal from abeyance.
STANDARD OF REVIEW
We review a district court grant of summary judgment de novo. Union
Pac. R.R. Co. v. City of Palestine, 41 F.4th 696, 703 (5th Cir. 2022).
DISCUSSION
The FLSA provides that employees shall not work more than forty
hours per work week unless they are compensated at one and a half-time their
regular rate of employment. 29 U.S.C. § 207(a)(1). The FLSA also exempts
workers from its overtime-pay guarantee protection, such as employees that
are employed “in a bona fide executive, administrative, or professional
capacity.”
29 U.S.C. § 213(a)(1). If an employee is a “bona fide executive,”
then she is not entitled to overtime wages. See Helix Energy Sols. Grp., Inc. v.
Hewitt,
598 U.S. 39, 43 (2023).
Generally, an employee is a “bona fide executive” if the employee
meets three criteria. First, the salary basis test requires that an employee
“receives a ‘predetermined and fixed salary’—one that does not vary with
the precise amount of time he works.” Id. at 45 (citing
84 Fed. Reg. 51230
(2019)). Second, the salary level test requires that an employee’s “preset
salary exceeds a specified amount.”
Id. Third, the job duties test assesses the
employee’s job responsibilities.
Id.
The bona fide executive standard is different for lower-income
employees versus higher-income employees. Id. A low-income employee is a
bona fide executive if she is “[c]ompensated on a salary basis (salary-basis
test); at a rate of not less than $455 per week (salary-level test); and carr[ies]
out three listed responsibilities—managing the enterprise, directing other
employees, and exercising power to hire and fire (duties test).”
Id. (cleaned
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up). An HCE—an employee that makes at least $100,000—is a bona fide
executive if he meets the aforementioned salary basis and the salary level
tests. Id. See
29 C.F.R. § 541.601(a) (Beginning on July 1, 2024, a highly
compensated employee makes at least $132,964 per year). The duties test for
higher-income employees, or HCEs, however, is more relaxed. Hewitt,
598
U.S. at 45. Under the duties test, the HCE “regularly performs” one, not all,
of the following responsibilities: “managing the enterprise, directing other
employees, and exercising power to hire and fire.”
Id.
Each Plaintiff-Appellant is a bona fide executive and therefore exempt
from FLSA’s overtime pay guarantee.
1. Each employee meets the salary basis test under § 602(a),
and the “reasonable relationship” requirement does not apply.
The Appellants argue that although they satisfied the salary level test,
they do not satisfy the salary basis test because they do not meet the
“reasonable relationship” requirement. Smith contends that the
“reasonable relationship” requirement does not apply. The district court
agreed with Smith. So do we.
In Hewitt, the Supreme Court held that “a worker may be paid on a
salary basis under § 602(a) or § 604(b).” Id. at 49. Section 602(a) permits
the salary basis to be met with weekly payments or on a less frequent basis,
and § 604(b) permits the salary basis to be met on “an hourly, a daily or a
shift basis.” Id. at 55. Appellants argue that because they were paid in part on
a weekly salary basis and in part on a daily basis, the salary basis did not meet
§ 604(b). Appellants are misreading the statutory requirements.
As noted by the district court, the Appellants are paid under a hybrid
compensation structure. Plaintiffs are not paid on an hourly, a daily, or a shift
basis, and therefore § 604(b) does not apply. Plaintiffs are paid an annual
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salary “which is not subject to reduction regardless of the numbers of hours
or days worked and that salary more than satisfies the requisite guaranteed
minimum weekly salary requirement.” The Appellants misinterpret the
weekly salary basis to be a payment in part. This is not the case, however. The
pay is a guaranteed annual salary. In addition to their annual salary, the
Appellants are given the opportunity to make additional compensation. For
example, if an employee is present on a customer’s rig, he is provided
additional compensation at a day rate, which is accounted for in his total
compensation. This additional day rate pay does not defeat the bona fide
executive exemption, as the FLSA provides:
An employer may provide an exempt employee with additional
compensation without losing the exemption or violating the
salary basis requirement, if the employment arrangement also
includes a guarantee of at least the minimum weekly-required
amount paid on a salary basis.
§ 604(a). The employees are salaried employees of Smith, and the additional
compensation at the daily rate does not defeat their qualification for the bona
fide executive exemption.
Moreover, the reasonable relationship test only applies in § 604(b)
compensation schemes, not § 604(a) compensation schemes. See Hebert v.
FMC Techs., Inc., No. 22-20562, 2023 WL 4105427 (5th Cir. Jun. 21, 2023)
(holding that if an employee is paid a salary plus additional compensation, the
reasonable relationship test does not apply); see, e.g., Gentry v. Hamilton-Ryker IT Sols., L.L.C.,
102 F.4th 712, 723 (5th Cir. 2024) (explaining that
employees who are paid an hourly rate meet the salary basis test if the
employer guarantees “at least the minimum weekly-required amount paid on
a salary basis”). “[T]here are two essential differences” between § 604(a)
and § 604(b). Id. “First, § 604(a) expressly contemplates hourly
compensation for work beyond the normal work week, while § 604(b)
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concerns hourly compensation within the employee’s normal scheduled
workweek. Second, paragraph (b) requires there be a reasonable relationship
between the guaranteed amount and the employee’s usual weekly earnings;
paragraph (a) contains no such requirement.” Id.
2. Each employee meets the salary level test.
To meet the salary level test, an HCE must be paid “at a rate of not
less than $455 per week.” Hewitt, 598 U.S. at 57. Each Plaintiff-employee
exceeded this amount. While employed at Smith:
• Venable was paid between $1,164.42 and $1,909.38 per week.
Venable’s total annual compensation was between $168,787.67
and $300,060.64.
• Kemp was paid $1,051.92 per week. Kemp’s total annual
compensation was between $143,600 and $214,044.61.
• Aguirre was paid between $2,176.92 and $2,309.62 per week.
Aguirre’s total annual compensation was between $253,599.60
and $279,323.54.
• Drobish was paid $1,320.19 per week. Drobish’s total annual
compensation was between $142,644 and $164,880.31.
• Myers was paid $1,007.69 per week. Myers’ total annual
compensation was between $145,526.84 and $282,457.88.
• Story was paid $1,011.54 per week. Story’s total annual
compensation was between $144,349 and $348,427.95.
3. Each employee meets the job duties requirement.
The Appellants’ brief does not take issue with the district court’s
conclusion that the HCEs meet the job duties requirement. The district court
is correct.
Section 601(a) provides that an HCE needs to make an annual salary
of $100,000 or more, customarily perform a duty or responsibility of an
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executive, administrator, or professional, and perform office or non-manual
work. Relevant here, the Appellants perform duties or responsibilities of
administrators, which has a more relaxed standard than the executive exempt
duties standard. “[A]n employee [can] be an administrative HCE if the
employee customarily and regularly perform[s] office or non-manual work
directly related to the management or general business operations of the
employer, § 541.200(a)(2), even if the employee’s duties [do] not include the
exercise of discretion and independent judgment with respect to matters of
significance, § 541.200(a)(3).” Smith v. Ochsner Health Sys., 956 F.3d 681,
685 (5th Cir. 2020) (cleaned up). Moreover, “employees acting as advisers
or consultants to their employer’s clients or customers” qualify for the
administrative exempt standard. § 541.201.
Smith’s HCEs qualify for the administrative exempt standard. As
noted by the district court, the “Plaintiffs’ work directly relates to the general
business operations of Smith’s customer[s].” As reamers, the Appellants
“supervised Smith’s customers’ running of drilling tools offshore” to ensure
that drillers were operating Smith’s underreaming tool correctly. The
reamers essentially served as liaisons between the drillers and Smith by
assisting and advising Smith’s clients on the appropriate method of
conducting drilling operations. The reamers, therefore, acted as “advisers”
to the drillers. § 541.201. The reamers performed these duties regularly and
customarily. The reamers’ primary job was supervising the use of drilling
tools, and this was performed normally and routinely every work week.
The Appellants met the three criteria exempting them from the
FLSA’s overtime pay guarantee—(1) the salary basis test, (2) the salary level
test, and (3) the job duties test. Smith, therefore, was not in violation of the
FLSA by failing to compensate them in overtime pay for working in excess of
forty hours. Because there is no genuine dispute of material fact, the district
court appropriately granted Smith’s motion for summary judgment and
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denied the Appellants’ motion for partial summary judgment. We
AFFIRM.
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