The highly compensated employee (HCE) exemption under the Fair Labor Standards Act (FLSA) is one of the most complex exemptions in employment law. In the recent case of Gilchrist, et. al. v. Schlumberger Technology Corp.(5th Cir. July 14, 2025), the 5th Circuit clarifies how to analyze the HCE exemption.
Defining a Highly Compensated Employee
To qualify for the HCE exemption, an employee must earn an annual salary of at least $100,000. However, the entire test does not hinge on salary alone. In addition to the minimum salary, the employee must customarily and regularly perform the duties of one or more of three typical white collar exemptions (executive, administrative, or professional), and also has primary duties that entail performing office or non-manual work. The key here is that if the employee does not customarily and perform the duties of one of the white collar exemptions, an employer merely has a very highly paid non-exempt employee.
Facts of the Case
Schlumberger provides oilfield services to clients engaged in the exploration and development of oil and natural gas. The plaintiffs worked for Schlumberger as Measurement-While-Drilling Field Specialists (MWDs). MWDs are responsible for providing Schlumberger’s clients “’downhole’ information such as drilling trajectory, pressure, and temperature,” which the clients in turn use “to determine how to continue drilling and how to best produce hydrocarbons.”
MWDs’ data ensures that the directional driller steers the well on the correct path. The MWDs essentially provide the client and the directional driller with real-time information without a second layer of review “[m]ost of the time” and are “responsible for making real-time decisions that are critical to the drilling operations.”
The plaintiffs took between fifteen and fifty surveys per hour for each of their twelve-hour shifts, and would continuously monitor gamma logs and other rig data during that time. One plaintiff testified that he performed quality control of the surveys “by double-checking the information from the tools against the well plan and expected inclination and azimuth of the client… as the client was drilling.” The quality control entailed double-checking that the data “makes the qualifiers, make sure it turns green” and that the drill string remains “still.”
The plaintiffs made well over $200,000 per year. The district court, however, found that the plaintiffs were not exempt under the FLSA and were entitled to overtime compensation. On appeal, the 5th Circuit reversed.
The Standard
In analyzing any exemption under the FLSA, the Supreme Court has stated that a court is to construe the exemption by giving a “fair reading” as opposed to the exacting standard that had previously been followed by the circuit courts. If a court is construing the standalone white collar exemptions, the employee’s primary duty must entitle the duties outlined in the regulation. Under the HCE, however, these employees are required to “regularly perform[]” only one of the responsibilities to qualify. The HCE exemption merely requires that the employee performs a task “customarily and regularly” if the frequency of that performance is “greater than occasional.” The HCE exemption does not require a detailed analysis of the employee’s job duties since the employee’s pay itself is “a strong indicator of an employee’s exempt status.”
Administrative Exemption
Schlumberger argued that the MWDs performed administrative work in addition to their non-manual tasks. The district disagreed, and the 5th Circuit reversed. It is important to address both the district court’s reasoning and the reasons why the 5th Circuit disagreed.
District Court’s Decision
The district court acknowledged that performing quality control work and advising and consulting with clients are administrative tasks. The district court, however, found that the MWDs did not meet the standard.
The district court found that the plaintiffs’ “duties of reviewing surveys and monitoring logs are “functional, not conceptual’ because they largely relate to whether the directional driller can safely continue drilling along the path.” The district court likened the plaintiffs’ work to another case in which the court found that employees who dropped a coin in a bottle to test water quality did not constitute quality control. In essence, the district court found the MWDs’ “quality control” work “rudimentary fluid-quality assessments” that constituted “functional, not conceptual, work, and the quality concerns [their work] addresse[d] relate[d] more closely to production of images rather than to business administration.”
The court found that the plaintiffs “monitored a continuous information log that displayed downhole data on pressure, temperature, vibrations, radioactive activity, and other parameters,” and that at the end of a job, they “gathered” the information, “sent various reports to the Operations Support Center for final review, and then compiled the information for a final end-of-well information packet for Schlumberger’s client.”
The district court further found that Schlumberger did not establish that the MWDs advised and consulted with clients. In making this finding, the district court found that the advising and consulting must relate to the employer’s business operations and policy determinations for how the business should be run. In the district court’s opinion, the MWDs “duty to monitor surveys and logs related to the drilling process, which in turn related to the client’s success in extracting hydrocarbons … did not directly relate to the client’s management policies, general business operations, or policy determinations.”
5th Circuit’s Decision
The 5th Circuit found that the district court oversimplified the MWDs’ quality control work. The court found that the MWDs’ job responsibilities went well “beyond merely noting the color of the data and the movement of the drill string.”
Before sending final surveys to the client, the MWDs and the directional driller were responsible for performing a quality check where the MWD would “run [their data] through an Excel file” and make sure that the numbers matched “for various data points.” The MWDs would also collect gamma ray data and generate logs of those data with every survey that they would send out. The MWDs were responsible for ensuring that the data was accurate before transmitting the report.
Importantly, the 5th Circuit found that the district court failed to recognize that the standalone administrative exemption sets a “higher bar” than the HCE exemption. The standalone exemption requires that the employee’s job responsibilities be the primary duty, as opposed to the HCE exemption which merely required that the employee perform the duties “customarily and regularly.”
The 5th Circuit also disagreed that the MWDs duties did not entail advising and consulting with clients. The court found that the MWDs’ data was crucial in informing the client’s precise drilling of the well. “Their data ensured that the directional driller kept the well on its predetermined path, as mistakes by the MWD could lead to loss of productive time, drilling outside the lease, or even a well collision and potentially a catastrophic explosion.”
Takeaways
It is extremely important to note that an employee’s salary over the $100,000 annual threshold alone does not constitute an HCE exemption. With that said, however, the test for determining whether an employee’s duties meet the HCE is lower than the test for a standalone white collar exemption. While the standalone exemption requires the employee’s duties to be their primary duties, the HCE merely requires that the employee “customarily and regularly” perform the duties in question. Finally, the determination of any exemption can be very fact specific.
