As we reported back in October 2015 a car dealership, Encino Motorcars,petitioned the Supreme Court to “restore uniformity” to the enforcement of legal precedent and hold that service advisors are exempt from the FLSA’s overtime requirements.  On Friday, the Supreme Court agreed to hear the case and hopefully resolve the issue once and for all as to whether service advisors are entitled to overtime pay.

The Salesman Exemption

To recap, the Fair Labor Standards Act (FLSA) explicitly exempts “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” from the Act’s overtime pay requirement.  Service Advisors primarily sell vehicle servicing work to customers, and often times they are paid on commission.  This has led many dealerships to treat these employees as exempt “salesman.”  The Department of Labor (DOL) and the courts are in conflict on this issue.   Legal precedent supports the dealers, with the Fourth and Fifth Circuits previously holding that service advisors are salespeople, and thus exempt from the overtime provisions of the FLSA.  However, in 2011, the DOL changed its (previously) long-standing enforcement position and stated that it would no longer consider service advisors exempt from overtime under the “salesman” exemption, concluding that the exemption was limited “to salesmen who sell vehicles and partsmen and mechanics who service vehicles.”

The Ninth Circuit Rules Service Advisors Are Non-Exempt

In September 2012, service advisors sued the dealership for unpaid overtime, claiming that they were not exempt because they did not sell cars or perform repairs. The lawsuit was initially dismissed by the District Court but was given new life by the Ninth Circuit on appeal.  In March 2015, in Navarro et al. v. Encino Motorcars, LLC, the Ninth Circuit held that the dealership’s service advisors were non-exempt employees under the FLSA.  The Court, relying on the DOL’s guidance, held that because the service advisors neither sold nor personally serviced vehicles, they were not exempt from the overtime provisions of the FLSA.  This decision was in direct conflict with the prior decisions out of the Fourth and Fifth Circuits, which declined to adopt the DOL’s position. Encino Motorcars then appealed the case to the Supreme Court to address this split and make a final determination as to whether service advisors are exempt from the FLSA overtime requirements.

The Dealership Petitions the Supreme Court

In its petition to the Supreme Court, the dealership argued that the service advisors are “salesmen primarily engaged in servicing automobiles.” Additionally, the dealership argued, among other things, that the DOL’s interpretation is unreasonable, and undeserving of deference, because it “injects a glaring textual anomaly over the status of ‘partsmen,’ who the statute treats as exempt even though they are not personally involved in either selling or servicing automobiles.”  The dealership cautioned that the Ninth Circuit’s erroneous decision has far-reaching implications and further injects uncertainty over prior legal precedent.

The service advisors countered, urging the Supreme Court to pass on the case. The service advisors claimed that this was not an issue of national concern and any ruling would be limited, citing to what they characterized as a “skeletal record” on appeal that would not adequately address the exemption of service advisors generally.

Although the Supreme Court agreed to hear the case, it gave no insight or explanation as to its reasons for doing so.  While we are hopeful that the Court will finally address this issue for dealers stuck in limbo, we will have to wait and see the ruling. 

We will continue to follow this case and keep you up-to-date on the Supreme Court’s decision.  In the meantime, please contact us if you have any questions about how to classify your service advisors pending the Court’s decision.