Happy to be back with another Fifth Circuit Review—Reviewed!

Courts are often asked to decide whether an agency regulation is based on a permissible construction of the statute the agency administers. In those cases, the court must, of course, interpret the statute to decide whether the regulation exceeds the agency’s authority.

Other times, though, courts are asked only to interpret—not invalidate—the regulation. Consider, for example, a case where no party challenges the regulation’s validity and the parties clash instead over what the regulation means. When that happens, should the court look only to the regulation? Or should it construe the regulation in light of the statute?

The Fifth Circuit confronted that question in the main case I discuss below. The result was a sharply divided en banc opinion and a circuit split on an important question regarding the scope of the Fair Labor Standards Act’s executive, administrative, and professional exemption.

FLSA Update

The Fifth Circuit has been on an FLSA tear recently. In March, the court held that the FLSA preempts redundant state law claims for nonpayment of minimum wages and overtime. See Aldridge v. Mississippi Department of Corrections, 990 F.3d 868 (5th Cir. 2021) (conflict preemption). And late last month, it refused to rehear a recent ruling that crane operations aboard “liftboats” commonly used in offshore oil and gas operations didn’t serve the vessels’ operation as a means of transportation for purposes of Department of Labor regulations implementing the “seaman” exemption from the FLSA’s minimum wage requirements. See Adams v. All Coast LLC, No. 19-30907 (5th Cir. 2021).

The most significant of the court’s recent FLSA decisions, however, is its en banc opinion in Hewitt v. Helix Energy Solutions, LLC, No. 19-20023 (5th Cir. 2021). Among other things, the court’s decision creates a circuit split with the First and Second Circuits on an important question regarding the application of the Department of Labor’s “salary-basis test” in the context of regulations exempting “highly-compensated employees.”

Hewitt v. Helix Energy Solutions, LLC

Helix paid Hewitt over $200,000 annually for supervising twelve to fourteen offshore oil and gas workers. He received his compensation on a biweekly basis, but Helix calculated his pay using a “daily rate.” When Hewitt sued Helix for unpaid overtime, the company argued Hewitt was employed in an executive, administrative, or professional capacity and therefore exempt under the FLSA. See 29 U.S.C. § 213(a)(1). The parties’ arguments focused exclusively on the Department of Labor’s regulations implementing the exemption. Helix argued Hewitt’s high daily rate amounted to a salary sufficient to exempt him from overtime under the agency’s “highly-compensated employee” regulation. Hewitt countered that his daily rate, while high, was not a “salary” for exemption purposes.

That question divided the en banc court 12-6 with the majority concluding that Hewitt was entitled to overtime. There were two dissents—one from Judge Jones and another from Judge Wiener. In addition to writing for the en banc majority, Judge Ho wrote a separate solo concurrence responding in detail to nearly every objection to the majority’s position raised by the dissents and various amici. All told, the competing opinions clocked in at a cool 63 pages.

While the en banc court couldn’t agree on the best interpretation of the regulations, there was apparently unanimous agreement about how the case would have been decided under the text of the FLSA itself. Bizarrely, it appears that every member of the en banc court agreed that the FLSA’s text forecloses the result embraced by the en banc majority. See Faludi v. U.S. Shale Sols., 936 F.3d 215 (5th Cir. 2019) (Ho., J., dissenting) (addressing same issue later decided authoritatively in Hewitt and acknowledging that “[i]f we were looking only at statutes enacted by Congress, I would join my colleagues … because it seems obvious that [the putative employee] was ‘employed in a bona fide … professional capacity’ and therefore exempt from the overtime requirements of the [FLSA].”), opinion withdrawn, 950 F.3d 269 (5th Cir. 2020) (reaching same result based on conclusion that Faludi was an independent contractor and expressly reserving the Hewitt issue for a future panel); Hewitt Op. 46 n.18 (Jones, J., dissenting) (“No one seriously disagrees that, based on the language in the statute itself, Hewitt is precisely the kind of highly paid, supervisory employee the [executive, administrative, professional] exemption was meant to exclude from overtime.”).

It is easy to see why. The FLSA’s exemption for employees “employed in a bona fide executive, administrative, or professional capacity” focuses on the employee’s duties. And all agree that Hewitt performed such duties. Yet the majority held that he was entitled to overtime anyway because of how Helix calculated his pay (based on a “daily rate”). If you’re wondering why twelve members of the en banc court adopted a position that all agreed was incompatible with the statute, the answer is simple: Because neither party questioned the regulation’s validity.

Judge Jones’s dissent objected that “[t]he regulations, if possible, should be read in harmony with th[e FLSA’s] text.” Five states submitted an amicus brief making the same point. According to Judge Jones, such a reading was possible—a point she attempted to prove with her own exhaustive textual analysis of the regulations.

In his separate concurrence, Judge Ho acknowledged that courts should, as a general matter, “construe … regulatory text to avoid a conflict with the statutory text.” He just didn’t think it was possible to do so here. To illustrate his point, he compared Hewitt with National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012):

There the Supreme Court construed the Affordable Care Act to avoid invalidity—just as the five states invite us to do here. But it’s one thing to construe a mandate as a “tax.” Id. at 574. It’s quite another thing to construe a mandate as nothing at all. Yet that is precisely what the five states ask us to do here …. That is not interpreting the text—that is invalidating it.

Hewitt Op. at 19 (Ho, J., concurring).

In other words, unlike NFIB, where a saving construction of the ACA was possible, harmonizing the Department of Labor’s regulations with the FLSA’s text was, in Judge Ho’s view at least, impossible. Of course, had that been true in NFIB, the Court would have had no choice but to invalidate ACA. Here, Judge Ho explained, the court had no authority to invalidate the regulations at issue because neither party asked it to.

The Scope of Encino Motorcars’ “Fair Reading” Rule

There may be more to this disagreement between Judge Ho and Judge Jones than meets the eye. Their skirmish over whether it is possible to construe the regulations at issue in Hewitt to harmonize with the FLSA’s text may reflect a deeper disagreement over the reach of the Supreme Court’s holding in Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1142 (2018), that courts give the FLSA’s exemptions a fair—not narrow—reading.

In her Hewitt dissent and in a dissent from denial of rehearing en banc in Adams, Judge Jones criticized the court’s “narrow ‘textual’ reading of the[ Department of Labor’s] regulations,” claiming it had led the court to “flout[] Encino Motorcars” twice “in two months.”

Judge Jones doesn’t spell out her Encino Motorcars point. Nor is it obvious (to me at least) how the “fair reading” rule, which the Court announced in the context of a case that dealt exclusively with statutory interpretation, ought to apply in a case like Hewitt or Adams that deals exclusively with the text of the Department of Labor’s regulations. Perhaps Judge Jones’s point is that courts must have Encino Motorcars’ fair-reading rule squarely in mind when assessing agency regulations implementing the FLSA’s exemptions. Otherwise, the argument might go, the agency’s narrow interpretation will trump the court’s fair reading in cases like Hewitt where the parties take the validity of the relevant agency regulations as a given.

I’ll be posting another Fifth Circuit Review–Reviewed covering some recent non-FLSA cases soon. And by “soon,” I mean probably next week but definitely before Helix gets its petition for certiorari filed.