by Michael P. Maslanka

The Fair Labor Standards Act (FLSA) was passed in 1938. For the past 86 years, employers have tried to circumvent its requirements, and for the past 86 years, they’ve failed. A very recent attempt was here in Texas.

Facts Matter, Conclusions Don’t

Hamilton-Ryker IT Solutions is a Dallas-based company. It promulgated a pay plan for its systems engineers through which it treated them as exempt employees (either “highly compensated employees” or “learned professionals”) not entitled to overtime. Two of its IT engineers sued. On appeal, the U.S. 5th Circuit Court of Appeals (which covers employers in Louisiana, Mississippi, and Texas) summed up the plan this way:

[Employees] were paid on a two-tiered system. First, a “Guaranteed Weekly Salary” equal to eight hours of pay. The weekly salary only compensated [the employees] for, at most, one eight-hour workday. Then for any time worked beyond their eight hours, [they] were paid at their hourly rate, including any time worked over 40.

See the problem? To be treated as exempt employees, they needed to be paid a guaranteed weekly salary of at least $455 a week, even if they worked only a partial week. Here, they weren’t. Rather, as the court observed, their “paychecks were a function of the hours worked. Phrased differently, their pay could be calculated only by counting those hours worked once the week is over—not (as the law requires) by ignoring that number and paying a predetermined amount [as a salary].”

The court in quick succession shot down the company’s two key arguments:

• It’s irrelevant that the “guaranteed” sum satisfied the necessary salary level ($455) if that payment wasn’t on a salaried basis. It doesn’t matter what you call your plan. All that matters is whether it conforms to the law. This plan didn’t!
• Yes, they were paid for every seven consecutive, 24-hour periods in which they worked. The paycheck frequency doesn’t make the plan FLSA-compliant. A weekly paycheck isn’t the same as a weekly salary.

There’s More!

Yes, an exempt employee may be paid hourly and still be paid on a “salary basis”—but only if there’s a reasonable relationship between the guaranteed amount and the amount actually earned. A 1.5-to-1 ratio of actual earnings to a guaranteed weekly salary satisfies this test. Guess what? Here, it wasn’t even close, with one employee coming in at 5.42 to 1 and the other at 5.19 to 1.

The company now needs to open its checkbook to pay for overtime that should have been paid but wasn’t. Gentry et al v. Hamilton-Ryker IT Solutions, L.L.C. (5th Cir., May 24, 2024).

Bottom Line

I know some employers say, “But Company ABC and Company XYZ use these types of plans and have for years. Why can’t we?” Because they haven’t been sued yet. Just because it went undetected doesn’t mean the plan is legal.

Michael P. Maslanka is an assistant professor at the UNT-Dallas College of Law. He practiced law from 1981 until he joined the faculty in July 2015. He was Chair of the Labor and Employment section of a large Dallas firm and was the managing partner of the Dallas office of two national law firms prior to July 2015. You can reach him at michael.maslanka@untdallas.edu.