On April 2, 2018, the Supreme Court issued a ruling with narrow application, but it is significant because it likely signals a “new day” favorable to employers regarding how Fair Labor Standards Act (“FLSA”) is interpreted in the future. The FLSA, of course, is the law that requires the payment of overtime to “non-exempt” workers. The decision offers hope that future rulings addressing whether or not employees are properly classified as being “exempt” from the overtime requirement, will be more employer-friendly.
Case Background and Ruling
The case, Encino Motorcars, LLC v. Navarro, 2018 WL 15668025 (U.S. Apr. 2, 2018), involved the FLSA overtime exemption concerning car dealership workers. Historically, “all car dealership employees,” had been exempt from the FLSA’s overtime requirements under the prior language of the regulations. However, this language was later narrowed to exempt only “any salesman, parts man, or mechanic primarily engaged in selling or servicing automobiles.” As one’s imagination takes over, there are plenty of jobs at car dealerships other than “salesmen, parts men and mechanics.” This leaves room for interpretation, argument, legal costs and ultimately, potential liability where workers are misclassified and as a result, overtime is not properly paid.
Again, historically, the more narrow language has been interpreted to not exempt service advisors. That was until 2011 when the Department of Labor issued a new regulation reiterating its original view that the language did exempt service advisors. In Encino, the application of the exemption to sales advisors was litigated through the lower courts up to the Supreme Court, and the Supreme Court held that service providers are exempted.
So, enough focus on car dealership workers wage/hour law… let’s move on to the good stuff! While the decision resolves a narrow provision limited to the retail vehicle sales industry, its more far-reaching aspect is the Court’s abandonment of its long-held interpretative “canon” that FLSA exemptions are to be “narrowly construed,” in other words, in favor of “fair construction.” As the Court noted:
Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, “there is no reason to give [them] anything other than fair (rather than a ‘narrow interpretation’”. The narrow construction principle relies on the flawed premise that the FLSA ’pursues’ its remedial purpose at all costs “at all costs” … But the FLSA has over two dozen exemptions in § 213(b) alone, including the one at issue here. Those exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement…. We thus have no license to give the exemption anything but a fair reading.
Justice Ginsburg noted in the dissent that the Court, in a single paragraph, rejected the well-established principle “without even acknowledging that it unsettles more than half a century of our precedent.”
So, while Encino does not seem like a very impactful case, it is likely that the last few pages of the opinion regarding the “fair reading” v. “narrow interpretation” exemption construction issues in the FLSA context will be cited and debated for years to come. The change from narrow construction to fair construction could have a tremendous impact on FLSA law. Indeed, if the exemptions are all entitled to fair interpretation, it would follow that this opens the door for employers to offer new arguments that the exemptions have broader reach.