Fifth Circuit Allows Employer’s Hybrid Pay Plan for Exempt Oilfield Workers

Takeaways

• The Fifth Circuit ruled that a guaranteed weekly or biweekly salary can satisfy the FLSA salary basis test even where substantial additional pay is calculated by the day. The decision reinforces that the salary basis analysis turns on the guaranteed salary component — not the amount or structure of additional day-rate, hourly rate, bonuses or other variable compensation.
• The decision is the latest in a growing body of cases evaluating how the FLSA’s “salary basis” regulations for exempt employees apply to hybrid pay structures.
• The decision is particularly helpful for employers that use hybrid pay plans for highly compensated employees, field employees and others who receive a guaranteed salary plus day rates, hourly pay, shift premiums, commissions, bonuses, or incentive compensation.

Related link

• Guilbeau v. Schlumberger Tech. Corp.

Article
 

In this interlocutory appeal limited to the salary basis component of the highly compensated employee exemption from overtime under the Fair Labor Standards Act (FLSA), the U.S. Court of Appeals for the Fifth Circuit held an oilfield drilling employee paid under a hybrid compensation arrangement comprised of a fixed biweekly salary plus additional “day-rate” and bonus components, was paid on a salary basis. Guilbeau v. Schlumberger Tech. Corp., 2026 U.S. App. LEXIS 17179 (5th Cir. June 12, 2026).

The appeals court reversed a district court’s denial of summary judgment to an employer as to the overtime claims of one named plaintiff in a proposed collective action.

The Fifth Circuit’s decision is the latest in a growing body of cases examining whether oilfield workers’ novel compensation plans satisfy the salary basis requirement for FLSA exemption. On June 30, the plaintiffs filed a motion for panel rehearing or rehearing by the full Fifth Circuit.

Hybrid Compensation Plan

The oilfield employees’ compensation plan included both fixed and variable components. One of the named plaintiffs, a directional driller, received a fixed biweekly salary of $1,826 that did not vary based on the hours or days he worked. He also received substantial additional compensation, including a rig day rate for days he worked on a rig, a standby day rate for days spent waiting on-site, and various bonuses. Another named plaintiff, a Measuring While Drilling employee, was paid $2,538.46 biweekly, which did not vary based on days or hours worked, and a day rate for days working on the rig. For both workers, variable pay comprised a significant amount of their total compensation. Often, the variable pay made up a majority of their compensation (one of the plaintiffs had a 5.9-to-1 ratio of total pay compared to guaranteed salary).

The plaintiffs argued that the day-rate component of their pay made the compensation plan inconsistent with the FLSA’s salary basis requirement. A federal district court in Texas agreed and denied the employer’s motion for summary judgment. On interlocutory review, the Fifth Circuit reversed.

Regulations Provide Two Salary Basis Paths

The appeals court explained that Department of Labor regulations provide two paths for satisfying the salary basis requirement:

• Section 541.602(a) applies when an employee regularly receives a predetermined amount on a weekly or less frequent basis that is not subject to reduction based on the quality or quantity of work performed. Section 604(a), the court explained, “adds nuance” allowing an employer to pay an exempt employee additional compensation without violating the salary basis requirement “if the employment arrangement” also include a guaranteed weekly minimum amount “paid on salary basis.” 
   
• Section 541.604(b) applies when compensation is computed on an hourly, daily, or shift basis and requires both a guaranteed minimum amount and a “reasonable relationship” between the guarantee and actual earnings.

In this case, the compensation arrangement likely would not constitute salary basis pay if analyzed under the Section 541.604(b) criteria because the employee’s total compensation substantially exceeded his guaranteed salary at a ratio of 5.9-to-1. The DOL has opined that a ratio of nearly 1.8-to-1 will not satisfy the “reasonable relationship” test of 541.604(b).

However, Section 541.602(a) controlled and required only that the predetermined amount constitutes all or part of the employee’s compensation. Here, the employees received a true predetermined salary, paid biweekly, that exceeded the applicable minimum salary threshold and was not reduced based on quantity or quality of work. The “reasonable relationship” test of 541.604(b) was inapplicable.

Guarantee Salary Component Controls

The Fifth Circuit panel rejected the plaintiffs’ argument that the day-rate portion of the compensation should control the salary basis analysis because it represented pay for work during the workweek. In the appeals court’s view, the relevant question is the nature of the guaranteed salary component, not the character of the additional compensation. Section 541.604(a) expressly permits employers to provide additional compensation to exempt employees without losing the exemption, so long as the arrangement includes a guaranteed amount paid on a salary basis that meets the regulatory minimum.

Indeed, under the 541.604(a), the court explained, additional compensation does not necessarily defeat exempt status. What matters, at least under 541.602(a), is whether the employer can show the employee regularly receives a predetermined salary, paid weekly or less frequently, that is not reduced because of variations in the quality or quantity of work performed.

Fact Questions Remain Regarding Other Opt-Ins

Fact questions remained regarding the other opt-in plaintiffs because, in part, the employer moved for summary judgment on the named plaintiff’s claims before notice was authorized. Consequently, the appeals court declined to enter judgment against all members of the collective action. The court noted that the record did not establish whether the remaining opt-in plaintiffs satisfied the other elements of the exemption, including job duties, compensation thresholds, and other individualized facts.

Insights for Employers

The decision is particularly helpful for employers that utilize hybrid pay plans for highly compensated employees, field employees, and other workers who receive a guaranteed salary plus day rates, hourly pay, shift premiums, commissions, bonuses, or incentive compensation.

Because the Fifth Circuit’s analysis turned heavily on the structure and calculation of the guaranteed salary component of the named plaintiff’s pay, employers should be cautious when designing pay guarantees that are tied to hourly, daily, or shift rates, as those arrangements may trigger the more demanding reasonable relationship test under Section 541.604(b).

Employers should review hybrid compensation arrangements to confirm that employees receive a guaranteed salary that meets the minimum salary threshold and is paid without improper deductions. At a minimum, offer letters and compensation plans should distinguish the guaranteed salary from additional variable pay and should avoid language suggesting the “salary” is merely a function of hours, days, or shifts worked.

Please contact your Jackson Lewis attorney if you have questions about the Fifth Circuit’s decision or other wage and hour issues.