Ruling has encouraging implications for all employers

Earlier today, the U.S. Supreme Court ruled that auto service advisors—employees at car dealerships who advise customers about repair work—are exempt from the Fair Labor Standards Act’s (FLSA) overtime requirements. The ruling reverses unexpected decisions by the Department of Labor and the Ninth Circuit that upended what had been standard practice at auto dealerships.

The 5-4 decision in Encino Motorcars, LLC v. Navarro turned on the interpretation of the FLSA’s exemption of “any salesman, partsman, or mechanic” who is “primarily engaged in selling or servicing automobiles.” Justice Clarence Thomas’ majority opinion determined that services advisors fall under the exemption because they are primarily engaged in servicing automobiles vis-à-vis their sales of those services.

Although the analysis of FLSA exemptions is highly fact-specific, the Encino Motorcars decision impacts all employers because the majority rejected the commonly-invoked principle that FLSA exemptions should be interpreted narrowly. Instead, the Court held that the “narrow-construction principle relied on the flawed premise that the FLSA ‘pursues’ its remedial purposes at ‘all costs’.” In other words, the majority established that a court’s objective in analyzing FLSA exemptions is to give them a fair reading, not a narrow one. This rejection of the “narrow reading” of FLSA exemptions means that employers seeking to apply the exemptions to their employees now face a more relaxed standard.

The Supreme Court’s decision affirms the established pay practices for service advisors at dealerships throughout the United States. Employers can now confidently treat these employees as exempt from overtime requirements under the FLSA. However, employers should make sure that they also follow any applicable state wage law requirements. Employers with employees who perform functions similar to auto service advisors should take this opportunity to re-examine those employees’ job duties, compensation, and classification to ensure compliance with federal wage and hour law.