Navarro v. Encino Motorcars, LLC, No. 13-55323 (March 24, 2015): The plaintiffs in Navarro v. Encino Motorcars, LLCwere “service advisors” at a Mercedes Benz dealership. The main duties of service advisors are to evaluate the repair needs of customers’ vehicles and then to recommend and sell service.

According to the Fourth and Fifth Circuit Courts of Appeals, as well as the Montana Supreme Court, service advisors are exempt from the overtime pay requirements of the Fair Labor Standards Act (FLSA). The Ninth Circuit Court of Appeals, however, recently created a circuit split by holding that service advisors should be classified as non-exempt.

The FLSA exempts from overtime “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” The dealership argued that under a plain reading of the statute, its service advisors should be considered exempt as “salesmen” engaged in “selling or servicing automobiles.” The plaintiffs argued that the statutory language is ambiguous because, while service advisors could be considered “salesmen,” they were not “selling automobiles.”

The Supreme Court of the United States has held that, when statutory language is ambiguous, lower courts should defer to an agency’s interpretation. As such, the plaintiffs argued that the court should defer to the U.S. Department of Labor’s (DOL) interpretation of the FLSA. Under the DOL’s 2011 regulatory definitions, service advisors would not be considered exempt (a fact to which the dealership conceded). Under that rubric, the plaintiffs argued that the court should defer to the DOL’s definitions and the service advisors would not be exempt from overtime. On the other hand, the dealership argued that because a plain reading of the statute contradicted the agency’s interpretation, the DOL’s interpretation should not control.

The Ninth Circuit acknowledged that there “are good arguments supporting both interpretations of the exemption.” The court ultimately held, however, that the statutory language was ambiguous—and “where there are two reasonable ways to read the statutory text, and the agency has chosen one interpretation, we must defer to that choice.”

According to Keith A. Watts, managing shareholder of the Orange County office of Ogletree Deakins, “The Ninth Circuit, to the chagrin of the motor vehicle industry, deferred to the DOL’s interpretation of the statute. The obligation to defer to the agency’s interpretation, however, is of little comfort to dealerships and other businesses. Until now, this was a safe haven overtime exemption under section 13(b)(10)(A) in what was otherwise thought to be a fairly well settled area of the law. 

While the Ninth Circuit is no stranger to blazing new trails, because of the circuit split with the Fourth and Fifth Circuits, the case may eventually be granted certiorari by the Supreme Court of the United States.

What then, are the practical implications and best practices? At a minimum, any automobile, truck, or other vehicle dealership within the Ninth Circuit should immediately review their pay plans—written or otherwise—and other pay practices. 

If an employer uses the section 13(b)(10)(A) exemption, they will need to carefully examine the definitions and terms under the DOL’s regulations and take a conservative or restrictive view. Employers may expect future courts (at least in the Ninth Circuit) to find overtime liability unless the employees are performing work or are engaged in ‘making sales or obtaining orders or contracts for sale of the automobiles, trucks, or farm implements that the establishment is primarily engaged in selling . . . primarily engaged in making sales or obtaining orders or contracts for sale of trailers, boats, or aircraft that the establishment is primarily engaged in selling’ or ‘doing mechanical work (such as get ready mechanics, automotive, truck, or farm implement mechanics, used car reconditioning mechanics, and wrecker mechanics) in the servicing of an automobile, truck or farm implement for its use and operation as such.’

Careful attention to whether the duties of employees fall within these narrow definitions will reduce the risk of wage and hour non-compliance and potential class action liability.”