Retainer/Day-Rate Guarantees Fail the FLSA “Weekly Rate” Salary-Basis Test; DOL/Counsel Reliance Defeats Willfulness and Liquidated Damages

Introduction

In Alvarez v. NES Global, L.L.C. (5th Cir. Feb. 18, 2026) (per curiam) (unpublished), Loyda Alvarez brought a class action against NES Global, L.L.C. (“NES”), a staffing company, alleging that NES’s post-audit compensation structure unlawfully avoided overtime obligations under the Fair Labor Standards Act (“FLSA”). The central dispute concerned whether NES’s “retainer” model—guaranteeing pay equivalent to one or two days (or a minimum number of hours/days) when any work was performed in a week, and then paying a day/hour rate for additional work—satisfied the FLSA’s regulatory “salary basis” requirement for the executive/administrative/professional exemption.

The district court granted summary judgment for the plaintiffs on liability (finding the scheme failed the salary-basis test), but granted summary judgment for NES on (i) willfulness (thereby keeping the two-year limitations period) and (ii) liquidated damages (finding NES acted in good faith with reasonable grounds). Both sides appealed.

Summary of the Opinion

The Fifth Circuit affirmed across the board. First, it held that NES’s retainer—like other “partial-week” guarantees—does not constitute payment on a “salary basis” because it does not provide a “weekly rate,” as required by Fifth Circuit precedent. Second, it upheld the district court’s no-willfulness ruling because the record showed NES attempted to comply—relying on counsel, documenting exemption analyses, and interacting with the Department of Labor (“DOL”)—rather than recklessly disregarding the FLSA. Third, it affirmed the denial of liquidated damages because NES demonstrated good faith and reasonable grounds, including reliance on counsel and DOL’s apparent acceptance of the revised practices.

Analysis

Precedents Cited

  • Gentry v. Hamilton-Ryker IT Sols., L.L.C., 102 F.4th 712 (5th Cir. 2024)

    Gentry is the controlling authority driving the liability result. The panel reiterated Gentry’s rule that payment on a “weekly basis” under the salary-basis regulations means the employee must receive a “weekly rate.” Gentry rejected a guaranteed “eight-hour payment” as an “illusory” salary because it did not guarantee a full week’s compensation. In Alvarez, the court treated NES’s one- or two-day retainer as materially indistinguishable from Gentry’s partial-week guarantee: neither provides a true weekly rate, so neither satisfies the salary-basis test.

    Notably, the opinion emphasizes that this precedent “forecloses” NES’s appeal and records that NES even sought en banc review because existing circuit law blocked its position—underscoring that the panel viewed the result as dictated by binding law.

  • Ikossi-Anastasiou v. Bd. of Supervisors of La. State Union, 579 F.3d 546 (5th Cir. 2009)

    This case supplies the Fifth Circuit’s willfulness standard under the FLSA: a violation is willful if the employer “knew or showed reckless disregard” for whether its conduct was prohibited. Alvarez applies that test by focusing on whether NES recklessly disregarded the FLSA—not merely whether the pay plan ultimately proved unlawful under later-applied precedent.

  • Dacar v. Saybolt, L.P., 914 F.3d 917 (5th Cir. 2018) (per curiam)

    Dacar is cited for the “reckless disregard” formulation and frames the evidentiary burden Alvarez needed to meet to defeat summary judgment on willfulness. The court used this standard to test whether the record created a genuine dispute of material fact on recklessness; it found it did not.

  • Ransom v. M. Patel Enters., Inc., 734 F.3d 377 (5th Cir. 2013)

    Ransom is cited for the allocation of proof under 29 U.S.C. § 260: the employer bears the burden to establish good faith and reasonable grounds to avoid liquidated damages. Alvarez then assesses whether NES carried that burden, concluding it did.

  • Lee v. Coahoma County, 937 F.2d 220 (5th Cir. 1991) and Hoenninger v. Leasing Enters., Ltd., 803 F. App'x 756 (5th Cir. 2020) (per curiam)

    These cases are invoked as examples where reliance on counsel and related compliance efforts can support a finding of good faith and reasonable grounds under § 260. Alvarez treats NES’s reliance on counsel—together with DOL interactions and documentation—as sufficient to justify denying liquidated damages even though NES ultimately lost on liability.

Legal Reasoning

1) Salary-basis liability: a “weekly basis” requires a true “weekly rate”

The Fifth Circuit’s liability analysis is tightly constructed around the regulatory text and Gentry’s interpretation of it. The opinion begins by locating the governing framework in the FLSA’s overtime rule (29 U.S.C. § 207(a)) and the exemption for employees working in a “bona fide executive, administrative, or professional” capacity (29 U.S.C. § 213(a)(1)), which Congress authorized the Secretary of Labor to “define and delimit” by regulation.

Under the regulations, the “salary basis” requirement in 29 C.F.R. § 541.602 (“§ 602”) requires a guaranteed “predetermined amount” received “on a weekly” “basis.” The opinion then relies on circuit precedent interpreting 29 C.F.R. § 541.604 (“§ 604”) to mean that “weekly basis” demands a “weekly rate.” Once Gentry is applied, the result is essentially syllogistic:

  1. To be salaried under the exemption, pay must be on a “weekly basis” (a “weekly rate”).
  2. A guarantee pegged to less than a week’s pay (e.g., eight hours; one day; two days) is not a weekly rate.
  3. NES’s retainer is such a partial-week guarantee.
  4. Therefore, NES failed the salary-basis test and the exemption does not apply.

The opinion also notes (in a footnote) that NES did not argue on appeal that its scheme satisfied § 541.604(b)’s “reasonable relationship” requirement (a separate prong under that regulation), thereby narrowing the appellate inquiry and preventing NES from recasting its theory as a reasonableness-of-relationship defense.

2) No willfulness: compliance efforts and DOL interactions negate “reckless disregard”

On willfulness, the court distinguishes between being wrong and being reckless. Even though NES’s scheme violates the FLSA as interpreted in Gentry, the question for the limitations period is whether NES “knew” it was violating the statute or showed “reckless disregard” for legality. The court found no evidence of knowledge, so it focused on recklessness.

The panel credited documentary indicators of compliance:

  • NES adopted the scheme based on advice of counsel.
  • NES used an FLSA questionnaire evaluating duties and exempt status.
  • NES provided explanatory materials to DOL after the audit to show forward-looking compliance.
  • DOL “found that there was no violation” and determined certain day-rate candidates were “properly classified as exempt.”

The court also rejected the plaintiffs’ procedural argument that willfulness is categorically unsuitable for summary judgment. It reasoned that credibility disputes were not outcome-determinative because the willfulness dispute turned on documents (including DOL correspondence), not testimonial demeanor.

Finally, it addressed a factual blemish: instances where NES did not pay the full retainer. The court treated these as isolated payroll errors (18 out of 3,753 workweeks, i.e., 0.48%), not evidence of bad faith—especially because NES corrected the issue once identified.

3) No liquidated damages: § 260 good-faith/reasonable-grounds defense

Although 29 U.S.C. § 216(b) generally makes liquidated damages mandatory for prevailing FLSA plaintiffs, 29 U.S.C. § 260 permits a court, in its discretion, to deny or reduce liquidated damages if the employer proves both subjective good faith and objectively reasonable grounds for believing it complied.

Applying Ransom v. M. Patel Enters., Inc. (employer bears the burden), the panel held NES met that burden because:

  • NES relied on advice of counsel in crafting the pay plan; and
  • NES relied on DOL’s determination/feedback that its updated approach did not violate the FLSA under the law as understood at the time.

Citing Lee v. Coahoma County and Hoenninger v. Leasing Enters., Ltd., the court treated counsel reliance and compliance-oriented conduct as sufficient to support the district court’s exercise of discretion to deny liquidated damages.

Impact

Even as an unpublished opinion, Alvarez clarifies how the Fifth Circuit is applying Gentry to staffing and contractor-heavy compensation structures: a “retainer” guaranteeing only one or two days (or another partial-week minimum) will not satisfy the salary-basis test because it is not a guaranteed weekly rate. Employers attempting to preserve exempt status while retaining day-rate/hour-rate mechanics face heightened risk unless they guarantee a true weekly salary consistent with circuit law and—where relevant—can satisfy other regulatory requirements (such as § 541.604(b)’s reasonable-relationship concept).

On remedies, the decision signals that an employer can lose on classification yet still avoid the harsher remedial consequences if it can document bona fide compliance efforts—particularly counsel advice, structured internal exemption review tools, transparent engagement with DOL, and prompt correction of payroll errors. In practice, Alvarez incentivizes robust compliance documentation and proactive regulator engagement to mitigate willfulness and liquidated-damages exposure.

Complex Concepts Simplified

  • “Salary basis” / “weekly rate”: To treat an employee as exempt, the employer generally must guarantee a set amount of pay that covers the entire week, not merely a minimum number of hours or a day or two. A partial-week guarantee can be viewed as not a real “salary.”
  • “Exempt” vs. “non-exempt”: Exempt employees are not entitled to overtime under the FLSA; non-exempt employees are. Exempt status depends on multiple requirements (salary basis, salary level, and duties).
  • Willfulness (limitations period): If an employer willfully violates the FLSA, the look-back period extends from two years to three. Willfulness requires knowledge or reckless disregard—not merely that the employer was wrong.
  • Liquidated damages: Often described as “double damages” in FLSA cases, they are normally awarded automatically, but can be denied if the employer proves good faith and reasonable grounds for believing it complied.
  • Summary judgment: A case can be decided without trial if there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law; state-of-mind issues can still be resolved at this stage when the evidence is documentary and one-sided.

Conclusion

Alvarez v. NES Global, L.L.C. applies—and reinforces—the Fifth Circuit’s “weekly rate” understanding of the salary-basis test: a retainer guaranteeing only one or two days’ pay is not a true weekly salary and therefore cannot support the white-collar exemption. At the same time, the decision separates liability from enhanced remedies: documented reliance on counsel and DOL engagement can defeat both willfulness (limiting the limitations period) and liquidated damages (through § 260’s good-faith defense), even where the pay plan is ultimately held unlawful under controlling precedent.