HIGHLIGHTS:

  • In Encino Motorcars, LLC v. Hector Navarro, et al., the U.S. Supreme Court decided 5-4 that service advisors at car dealerships are exempt from overtime pay under the Fair Labor Standards Act (FLSA).
  • The Court held that service advisors fall under the FLSA overtime pay exemption for "any salesman, partsman, or mechanic" primarily engaged in selling or serving automobiles" at a covered dealership.
  • Critically, the court rejected the practice of construing FLSA statutory exemptions narrowly. Although the core holding of this opinion is relevant only to car dealerships, the Court's reasoning potentially has far broader implications for how other FLSA exemptions should be interpreted.

The U.S. Supreme Court on April 2, 2018, issued its opinion in Encino Motorcars, LLC v. Hector Navarro, et al., No. 16-1362, 584 U.S. __ (2018). The case involved the question of whether service advisors (employees at car dealerships who consult with customers regarding their vehicle servicing needs and sell them servicing solutions) fall under the Fair Labor Standards Act (FLSA) overtime pay exemption for "any salesman, partsman, or mechanic primarily engaged in selling or serving automobiles" at a covered dealership. 29 U.S.C. 213(b)(10)(A). In a 5-4 decision, the Court held that service advisors are exempt from overtime pay.

Plain Meaning Should Be Given to Undefined Statutory Terms

Although the core holding of this opinion is relevant only to car dealerships, the Court's reasoning potentially has far broader implications for how other FLSA exemptions should be interpreted. The Court framed the issue as whether service advisors are "salesm[e]n. . . primarily engaged in . . . servicing automobiles" and concluded that they are. The Court explained that "[u]nder the best reading of the text, service advisors are "salesm[e]n," and they are "primarily engaged in . . . servicing automobiles." (emphasis added). Critically, the court rejected the practice of construing FLSA exemptions narrowly.

In focusing on the plain reading of the text of the statute, the court gave the term "salesman" its ordinary meaning, citing the definitions in The Oxford English Dictionary and The Random House Dictionary of the English Language. Importantly, the Court observed that the FLSA did not otherwise define the term "salesman" or, presumably, the Court would have deferred to the statutory definition. Based on the ordinary meaning of the term "salesman" – one who sells goods or services – the Court easily concluded that service advisors meet the ordinary definition of a "salesman" because they sell customers services for their vehicles. Slip Op., 6.

Although service advisors do not sell cars, the Court held that they "service" cars. The Court gave a plain reading to the term "servicing," again citing to the Oxford and Random House dictionaries (the action of maintaining or serving a vehicle, or the action of providing service). The Court concluded that service advisors meet both definitions because they meet with customers, listen to their concerns, suggest repair or maintenance services, sell new accessories or replacement parts, record service orders, and explain the repair and maintenance work performed on the vehicle. The Court acknowledged that service advisors do not spend much time under the hood but gave a broad reading to the phrase "primarily engaged ... servicing automobiles" by concluding that this "must include some individuals who do not physically repair automobiles themselves but who are integrally involved in the servicing process." Slip Op., 7.

FLSA Statutory Exemptions Should Not Be Construed Narrowly

The Court then went on to reject the manner in which the U.S. Court of Appeals for the Ninth Circuit interpreted the statutory language; in particular, how it read the term "or" in the context of the statutory text. Of greater relevance to most employers is that the Court also rejected the Ninth Circuit's invocation of the principle that exemptions to the FLSA should be construed narrowly. Specifically, the Court held, "We reject this principle as a useful guidepost for interpreting the FLSA. Because the FLSA gives no 'textual indication' that its exemptions should be construed narrowly, there is no reason to give them anything other than a 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.' " Slip op., 9 (internal citations omitted).

The Court went on to explain, "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." Id.

Implications for Employers

Although this case involved a very specific exemption not relevant to most employers, the Court's reasoning suggests that exemptions of a broader application such as the white collar exemptions (executive, administrative, professional, computer professional and outside salesperson) may be open to broader application then courts currently afford those exemptions.

In particular, employers may find that the administrative exemption – the exemption that vexes most employers – will cover more employees if courts dispense with the narrow construction principle. Of course, the white collar exemptions are primarily creatures of regulation rather than statutory text, so it remains to be seen how Encino Motors will be applied.