On April 2, 2018, the U.S. Supreme Court, in a close 5-4 decision, held that car dealership service advisors are exempt from the overtime requirements of the Fair Labor Standards Act (FLSA). In reaching this conclusion, the court rejected the long-held belief that FLSA exemptions should be applied narrowly.
The lawsuit, which originated in California in 2012, was filed by current and former service advisors of Encino Motorcars, LLC, a California car dealership. The service advisors alleged Encino violated the FLSA by failing to pay them overtime wages. Encino moved to dismiss, arguing the advisors were exempt from receiving overtime under the FLSA. Specifically, Encino relied on §213(b)(10)(A), which exempts from the overtime requirement “Any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” at a covered dealership.
The California District Court agreed and dismissed the case. The Ninth Circuit Court of Appeals reversed the trial court’s decision, relying on a 2011 Department of Labor (DOL) rule that interpreted “salesman” to exclude service advisors. The Supreme Court vacated the Ninth Circuit’s ruling in 2016 and held that courts could not defer to the procedurally defective 2011 rule that lacked a reasoned explanation, but the Supreme Court did not determine the exempt status of the service advisors. Instead the Supreme Court remanded that issue back to the Ninth Circuit for determination without consideration of the DOL rule. On remand, the Ninth Circuit again found the service advisors were not exempt from receiving overtime. This time, the appeals court relied on the longstanding principle that exemptions to the FLSA should be construed narrowly.
In the April 2 decision, the Supreme Court opined for the first time since 1945 that FLSA exemptions should not be given narrow construction. The court found that because the FLSA gives “no textual indication that its exemptions should be construed narrowly,” the exemptions should be given a fair reading. In reaching this conclusion, the court examined whether the service advisors, who interact with customers and sell them services for their vehicles were “salesmen … primarily engaged … in servicing automobiles.” The court opined they were, not only because the description made sense, but also because the exemption requires a broad interpretation by beginning with the word “any.” Along those lines, the court found the narrow-construction principle relies on the flawed premise that the FLSA pursues its remedial purpose “at all costs.” The court held this is clearly not the intended purpose, as the FLSA has over two dozen exemptions in §213(b) alone, including the one at issue in the case. The full Encino Motorcars, LLC v. Navarro et al. decision can be found here.
So what does this mean for employers? The decision most significantly impacts car dealerships by concluding that service advisors are exempt from the FLSA overtime requirement. But other employers may see an impact as well. Specifically, employers no longer have to face the “narrow-construction” hurdle in convincing courts that their employees were properly classified and/or fall within an overtime exemption. Employers can now review their employees’ positions with a fair reading of the FLSA, rather than with a strong presumption of non-exempt status.