On April 2, 2018, the U.S. Supreme Court issued its long awaited decision in Encino Motorcars, LLC v. Hector Navarro, finding that Service Advisors at auto dealerships are exempt from the Fair Labor Standards Act’s (“FLSA”) overtime pay requirement. That means that, under the FLSA, automotive dealerships need not pay their Service Advisors time-and-one-half for hours worked beyond forty hours in a workweek. In its 5-4 decision, the Supreme Court overturned a prior Ninth Circuit ruling that allowed Service Advisors to assert their overtime wage and hour claims against employers. The majority of the Supreme Court refused to construe FLSA exemptions narrowly and concluded that service advisers are exempt from the overtime-pay requirement of the FLSA because they are “salesm[e]n . . . primarily engaged in . . . servicing automobiles." This ruling clears the way for auto dealerships to pay Service Advisors on a commission basis. However, the Opinion may not affect state and local statutes and Wage Orders, including those concerning overtime, commission-pay exemptions and payment for all hours worked.

The dissenting opinion by Justice Ruth Bader Ginsburg emphasizes what she claims are the FLSA’s legal protections for low performing commissioned employees. Justice Ginsburg focuses on Congress’s commission-pay exemption from overtime under the FLSA, which mandates that any employee of a “retail or service establishment” who receives more than half of his or her pay on a commission is exempt from overtime, so long as the employee’s “regular rate of pay” is more than 1.5 times the minimum wage. See 29 U.S.C. § 207(i). This exemption, which many states have adopted through their own Wage Orders, was meant to strike a balance between exempting higher paid commissioned employees from overtime laws and protecting lower paid employees. In other words, if a lower performing commissioned employee does not meet the threshold of 1.5 times the minimum wage, they are still entitled to overtime pay. Of note, Justice Ginsburg agrees with the majority that “[b]oth salesmen and mechanics work irregular hours, including nights and weekends, not uncommonly offsite, rendering time worked not easily tracked…In addition to practical difficulties in calculating hours, a core purpose of overtime may not be served when employees hours regularly fluctuate…”

The Navarro Decision is a win for auto dealers in that the FLSA can no longer be interpreted to provide overtime pay to Service Advisors. The Supremes did not address interpretation of state law overtime rules generally, however. Therefore, the Automotive Industry should continue to take care in drafting and revising pay plans.