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U.S. Supreme Court Rejects Narrow Construction of FLSA Exemptions, Exempts Auto Service Advisors from Federal Overtime Requirements

By David I. Weissman / May 03, 2018

The United States Supreme Court has recently ruled that service advisors at car dealerships are exempt from the overtime pay requirements of the federal Fair Labor Standards Act (FLSA), clarifying an issue that has gone back and forth for many years and potentially impacting thousands of car dealerships around the country.  In Encino Motorcars, LLC v. Navarro, the Supreme Court held that service advisors at car dealerships are “salesm[e]n . . . primarily engaged in . . . servicing automobiles” and therefore exempt employees under the FLSA, reversing the Ninth Circuit Court of Appeals’ position that such service advisors were non-exempt and thus eligible for overtime pay.  Perhaps equally significant was the Supreme Court’s express rejection of the position that FLSA exemptions should be read narrowly, opening the door to the possibility of additional classes of employees being exempt from federal overtime requirements in the future.

A Back and Forth Exemption for Service Advisors

Until the Supreme Court’s ruling this month, the question of whether service advisors are exempt from the FLSA’s overtime requirements was very much up for debate.  The issue goes back as far as 1961, when Congress amended the FLSA to exempt all car dealership employees from its protections.  However, in 1966 Congress narrowed the exemption by limiting it to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers[.]”  29 U.S.C. § 213(b)(10)(A).

The U.S. Department of Labor initially took the position that this language did not include service advisors.  Federal courts rejected that view, however, causing the Department to issue a formal opinion letter in 1978 stating that service advisors were exempt from the FLSA’s overtime requirements.  The Department maintained that position until 2011, when it changed course and issued a new regulation stating that service advisors were not exempt and thus entitled to receive overtime pay.

As a result of the Department’s 2011 regulation, in 2012 service advisors at Encino Motorcars filed suit against the dealership in California seeking unpaid overtime.  Although the dealership successfully argued to the trial court that the service advisors were exempt despite the regulation, on appeal the Ninth Circuit held that the Department’s regulation was valid and the service advisors were therefore not exempt from the FLSA’s overtime pay requirements.  The dealership appealed to the Supreme Court.

In 2016, the Supreme Court reversed the Ninth Circuit, ruling that the Department’s regulation was not entitled to deference and therefore invalid, and remanded the case back to the Ninth Circuit to interpret the exemption without considering the regulation.  On remand, though, the Ninth Circuit held firm in its position that exemption does not include service advisors, and the case went back to the Supreme Court.

The Supreme Court’s Definitive Answer

The Supreme Court’s 5-4 ruling earlier this month once again reversed the Ninth Circuit and definitively resolved the issue, holding that service advisors are indeed exempt employees under the FLSA.  The key issue for the Court was whether service advisors are “salesm[e]n . . . primarily engaged in . . . servicing automobiles” as set forth in the exemption.  It looked to the ordinary, dictionary definition of the words “salesman” and “servicing” and concluded that the activities of service advisors fall within both definitions: they sell vehicle services to dealership customers and are integral to the servicing process, despite not physically repairing automobiles.

The Court’s majority, in an opinion written by Justice Clarence Thomas, went on to reject the Ninth Circuit’s view that Congress intended only to match “salesman” with “selling” and “partsman” and “mechanic” with “servicing” when enacting the exemption.  It likewise rejected the Ninth Circuit’s reliance on a 1966-67 Department of Labor handbook and the FLSA’s legislative history to interpret the language of the exemption, finding these sources inconclusive and unnecessary in light of the express text of the statute.

A Potential Expansion of the Scope of FLSA Exemptions?

Finally – and most significant to employers everywhere – the Court rejected the longstanding principle invoked by the Ninth Circuit that exemptions to the FLSA should be construed narrowly, stating “[w]e reject this principle as a useful guidepost for interpreting the FLSA.”  The Court explained that nothing in the FLSA’s text indicates that its exemptions should be read narrowly, and therefore “there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.”  Accordingly, the Court stated that it had no license to give the exemption at issue anything but a “fair reading,” resulting in its conclusion that Congress intended for service advisors to be exempt from the FLSA’s overtime requirements.

Conclusion

The Supreme Court’s ruling in Encino Motorcars immediately impacts car dealerships across the country by conclusively establishing that service advisors are exempt from federal overtime requirements.  Moreover, it has broader implications for any employer seeking to persuade a court that a particular category of employees is exempt from federal overtime requirements by effectively setting aside the strong presumption of non-exempt status under the FLSA.           

If you have questions about this case or any other wage and hour compliance issues, please feel free to contact David I. Weissman at (480) 822-6753 or dweissman@clarkhill.com, or any other member of Clark Hill's Labor and Employment Practice Group.