Publication Details

Special Alert: United States Supreme Court Rejects Principle That Overtime Exemptions Should Be Narrowly Construed, Finds Service Advisors To Be Exempt.

Apr 5, 2018 | Related Attorney Lois M. Kosch | Topic: Employment

In a highly anticipated opinion authored by Justice Thomas, the United States Supreme Court held that service advisors are exempt from the Fair Labor Standards Act’s (FLSA) overtime pay requirement.  (Encino Motorcars, LLC v. Navarro, April 2, 2018 (Encino II).)

The FLSA generally requires employers to pay overtime to covered employees who work more than 40 hours in a week (California law requires overtime for work in excess of eight hours in a day and over 40 hours in a week).  But the FLSA exempts many categories of employees from this requirement, including “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” at a covered dealership.  This exemption had long been understood to cover service advisors, but in 2011 the U.S. Department of Labor issued a rule interpreting “salesman” to exclude service advisors.  The new rule prompted a group of current and former service advisors to sue their employer, a Mercedes-Benz dealership, for backpay.

The district court granted the dealership’s motion to dismiss on the ground the service advisors were exempt from the FLSA, but the Ninth Circuit Court of Appeals deferred to the Department of Labor’s 2011 rule and reversed.  In Encino I, the United States Supreme Court held courts cannot defer to the Department of Labor’s 2011 rule because it is procedurally defective, but it did not decide—without administrative deference—whether the FLSA exemption covers service advisors.  On remand, the ninth circuit again held the exemption does not include service advisors.  That opinion was appealed and reversed by Encino II.

In Encino II, the Court framed the issue as whether service advisors are salesmen primarily engaged in servicing automobiles.  In answering that question in the affirmative, the Court first held that a service advisor is “obviously” a salesman because they “sell customers services for their vehicles.”  The Court then held that service advisors are primarily engaged in servicing automobiles because they are “integral to the servicing process” in that they “meet customers; listen to their concerns about their cars; suggest repair and maintenance services; sell new accessories or replacement parts; record service orders; follow up with customers as the services are performed (for instance, if new problems are discovered); and explain the repair and maintenance work when customers return for their vehicles.”  The Court held the exception is not co constrained as to require individuals physically repair automobiles themselves in order for it to apply.

The Court rejected the ninth circuit’s reasoning in three ways.  First, the Court held the ninth circuit improperly invoked the distributive cannon to match “salesman” with “selling” and “partsman and mechanic” with “servicing.”   Second, jettisoning decades of precedent, the Court held the ninth circuit improperly construed the FLSA exemption narrowly.  As the Court noted, the FLSA gives no “textual indication” that its exemptions should be construed narrowly.  As such, they should merely be given a “fair” (rather than a “narrow”) interpretation.  Third, the Court held the ninth circuit’s reliance on the Department of Labor’s 1966–1967 Occupational Outlook Handbook and the FLSA’s legislative history was misplaced.

Although the opinion is of most significance to car dealerships, the Court’s broader holding that FLSA exemptions should no longer be given a narrow interpretation may prove instrumental to any employer defending a misclassification claim. 

Wilson Turner Kosmo’s Special Employment Alerts are intended to update our valued clients on significant employment law developments as they occur. If you have questions about this alert or whether your employees are properly classified as either overtime eligible or overtime exempt please contact:

Lois M. Kosch: lkosch@wilsonturnerkosmo.com

Emily J. Fox: efox@wilsonturnerkosmo.com

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