Reversing a district court decision, and declining to follow decisions from a number of other courts, including the Fourth and Fifth Circuits, the Ninth Circuit has deferred to the Department of Labor's (DOL) "flip-flopped" view of whether the FLSA's exemption for "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles," applies to auto dealer service advisors/service writers.

The decision comes on the heels of the Supreme Court's decision in Perez v. Mortgage Bankers Association acknowledging that a federal agency can indeed "flip flop" its interpretations of laws with each new administration without first going through the more laborious process of promulgating new regulations. In April 2011, the DOL did just that, disavowing its 24-year-old opinion that Fair Labor Standards Act's Section 13(b)(10)(A) overtime exemption applies to auto dealership employees working as service advisors, writers, etc. The DOL's new interpretation contended that a "service advisor" was not included in Section 13(b)(10)(A)’s list of "salesman, partsman, or mechanic," which meant that service advisors/writers would no longer be considered exempt from the FLSA's overtime requirements. The DOL's reversal came despite at least five federal courts since the 1970s finding that service advisors/writers were exempt under the same language.

Examining this new interpretation for the first time in Navarro v. Encino Motorcars, LLC, the Ninth Circuit held that the DOL’s opinion was entitled to deference because the underlying FLSA language was ambiguous. "[W]here there are two reasonable ways to read the statutory text, and the agency has chosen one interpretation, we must defer to that choice," the court wrote, reversing a district court's dismissal of a service advisor's FLSA and state wage and hour law claims.

Like many dealers, Encino Motorcars employed service advisors whose jobs required them to greet customers, evaluate their service needs, and make recommendations about repairs. The advisors also solicited customers for additional repairs or maintenance, and prepared service estimates. The dealership paid its service advisors on a commission-only basis. The district court dismissed the service advisors' overtime claims, concluding that the employees fell within the auto sales, parts, and mechanics exemption under the Section 13(b)(1)(A). The Ninth Circuit reversed under a Chevrondeference analysis, observing that FLSA exemptions must be narrowly construed in favor of employees. The court acknowledged that a service advisor could be a "salesman" under the FLSA, but that the law could be read equally "in a more cabined way: a salesman is an employee who sells cars; a partsman is an employee who requisitions, stocks, and dispenses parts; and a mechanic is an employee who performs mechanical work on cars." Finding that the legislative history was of no more help, and since service advisors did none of the three things under the court’s “cabined” view, the Court reasoned that it was up to the DOL to fill the gap in the statute.

Here, the Ninth Circuit declined to find that the DOL had acted inconsistently or unreasonably. "The Department of Labor's regulations consistently—for 45 years—have interpreted the statutory exemption to apply narrowly. The agency reaffirmed that interpretation most recently in 2011, after thorough consideration of opposing views and after a formal notice-and-comment process. Under these circumstances, Chevron provides the appropriate legal standard." Nonetheless, said the court, underPerez, if the 2011 final rule did amount to a change of position on the reach of the exemption, the DOL was still entitled to deference.

Employer Insights

The decision to find service advisors non-exempt in the Ninth Circuit conflicts with the Fourth and Fifth Circuits on this issue, as well as the Supreme Court of Montana and several federal district courts. Nonetheless, that's the law for now in Alaska, California, Hawaii, Idaho, Montana, Nevada, Oregon, and the State of Washington (as well as the CNMI and Guam). As we noted in the aftermath of Perez, though, three justices (Alito, Scalia, and Thomas) have explicitly raised broad questions about agency deference in situations like this. Even the Perez majority opinion raised questions about the long term vitality of judicial deference to interpretations like the DOL's. Perhaps this circuit split will be the vehicle that the Supreme Court uses to reconsider its longstanding agency deference doctrine.

All is not lost for auto dealers, though. Service advisors often qualify for the alternative exemption available under FLSA Section 7(i) for commissioned sales employees.  To meet the 7(i) exemption service advisors must meet all of the following criteria:

  1. The service advisor must be employed by a retail or service establishment (an auto dealership qualifies); and
  2. The service advisor's regular rate of pay must exceed 1.5 times the applicable minimum wage for every hour worked in a workweek; and
  3. More than half of the employee's total earnings in a representative period must consist of commissions on goods or services.

This exemption has some quirks, too, which we’ll examine in an upcoming Wage and Hour Basics post on the commissioned sales employees.