On April 2, 2018, the United States Supreme Court issued a decision holding that automobile dealerships are not required by federal law to pay overtime to individuals employed as service advisors. The far greater significance of the decision, however, is that in doing so the Court rejected a longstanding principle that Fair Labor Standards Act (FLSA) exemptions should be narrowly construed against an employer.
The case, Encino Motorcars, LLC v. Hector Navarro, et al., involved a group of service advisors employed by a California automobile dealership whose job duties included meeting customers, understanding their vehicle concerns, suggesting repair and maintenance series, selling accessories or replacement parts, recording service orders, following up with customers as the services are performed and explaining the repair and maintenance work when customers return for their vehicles. The dealership classified the service advisors as exempt from overtime under the FLSA’s industry-specific overtime exemption reserved for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” who are employed by an automobile dealership and are engaged in retail automobile sales. 29 U.S.C. § 213(b)(10)(A) (the “Auto Sales Exemption”).
In a 5-4 decision authored by Justice Clarence Thomas, the Supreme Court ruled that the service advisors qualified for the FLSA’s Auto Sales Exemption and were therefore not entitled to statutory overtime for any hours worked over forty in a workweek. The Court explained that the service advisors are clearly “salesmen” and their responsibilities established that they were “primarily engaged in servicing automobiles” as required by the exemption. Encino Motorcars brings clarity to automobile dealerships, who have endured conflicting court decisions and a flip-flop by the U.S. Department of Labor (DOL) on the issue of whether service advisors meet this industry-specific exemption.
Notable for all employers is that the high court’s majority rejected a long-held principle that FLSA exemptions should be narrowly construed against the employer asserting them. Specifically, the court held, “[b]ecause 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.” Employers still have the burden of establishing that employees meet one or more FLSA overtime or minimum wage exemption. The new “fair interpretation” standard, however, does provide employers with a new analytical framework for applying FLSA exemptions, particularly where the determination is a close call. Any employer who has analyzed the exempt status of its workforce knows there can be challenging exemption determinations for employees on the bubble. The new standard will place employers on equal footing with the employee if the exemption is challenged.