On its second trip to the U.S. Supreme Court, a six-year-long dispute between five auto dealership employees and their employer came to an end when the Supreme Court found that the employees were properly classified as exempt employees under the Fair Labor Standards Act (“FLSA”). In the case, plaintiffs Hector Navarro and four other employees worked as service advisors—employees who meet and greet customers bringing their cars to dealerships for service or maintenance and suggest and sell such services to customers.
The service advisors in this case filed suit in 2012, claiming back pay under the FLSA for hours worked in excess of 40 in a week on the basis that they were misclassified as exempt. Specifically, the employees argued that they neither sold nor repaired vehicles and, therefore, were improperly denied overtime in violation of the FLSA. The employees also alleged violation of California state wage and hour laws. However, in 2013, the district court agreed with the dealership’s argument that an exemption applied, dismissing the FLSA claims and declining to exercise jurisdiction over the California state law claims.
The Ninth Circuit reversed the District Court relying on regulations issued by the Department of Labor (“DOL”) in 2011. In 2016, the Supreme Court reversed the Ninth Circuit because it had deferred to the DOL’s rule that service advisors were not overtime exempt, which the Court concluded was procedurally defective. On remand, in 2017, the Ninth Circuit again found in favor of the service advisors.
On April 2, 2018, the Supreme Court reversed the Ninth Circuit for the second time in this case, holding that “service advisors” are “salesmen . . . primarily engaged in . . . servicing automobiles.” Accordingly, the service advisors are exempt from payment of overtime wages under federal law.
Although the implications of the Supreme Court’s decision may vary depending upon state law, the decision is important for at least two reasons. First, the Court’s holding creates clarity with respect to an area of law that has been in flux since the Supreme Court declined to follow the Department of Labor’s 2011 regulations that classified service advisors as overtime exempt. Employers now have clarity on the classification of this category of job for purposes of the FLSA.
Second, the decision is meaningful to employers because the Supreme Court’s holding rejected the principle that the FLSA’s exemptions must be “narrowly construed” in light of the FLSA’s remedial purpose. The Supreme Court concluded that the text must be given a fair reading and that a “narrow reading” of the exemption at issue was nowhere mandated by the language of the statute. The import of this reasoning is that other exemptions under the FLSA—some of which are presently undecided or face a circuit split—may eventually be read just as broadly by the highest court, resulting in employers finding more exemptions available to them.
Despite the positive import for employers, employers should be thoughtful when classifying employees as “exempt,” taking into account both state and federal law—engaging counsel for audits where appropriate—in addition to considering the impact on the costs and efficiencies for business operations.