Executive Summary: On April 2, 2018, the U.S. Supreme Court ruled 5-4 in Encino Motorcars, LLC v. Navarro that service advisors at automotive dealerships are exempt from overtime. The exemption at issue involves “any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles.” 29 U.S.C. 213 (b)(10). The Supreme Court reversed the Ninth U.S. Circuit Court of Appeals which had ruled that based on a plain reading of statutory text, principles of statutory interpretation (narrow construction of FLSA exemptions), and legislative history, the exemption does not encompass service advisors.

The Supreme Court majority rejected the Ninth Circuit’s analysis. As a matter of statutory construction, the Court held that service advisors sell customers services for their vehicles and are engaged in servicing automobiles as they are integral to the servicing process. This conclusion largely turned on a grammatical parsing of the exemption, finding that service advisors are “salesm[e]n…primarily engaged in…servicing automobiles.”

The Court also rejected arguments against the exemption based on legislative history. The legislative history of the exemption discusses “automobile salesmen, partsmen, and mechanics” but not service advisors. The Court stated that silence in the legislative history “cannot defeat the better reading of the text and statutory context.”

The majority’s rejection of the principle that exemptions to the FLSA should be narrowly construed is perhaps the most significant aspect of the opinion and has ramifications beyond the job position and industry involved in the case. The Court said that principle “relies on the flawed premise that the FLSA ‘pursues’ its remedial purpose ‘at all costs.’ ” Instead, exemptions should be construed under a “fair (rather than narrow) interpretation.” The Court pointed out that the FLSA has dozens of exemptions, and that those exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement. The dissent argued that this ruling upended more than a half century of precedent narrowly construing FLSA exemptions.

Employers’ Bottom Line:

This ruling will provide clarity and uniformity to automotive dealerships that service advisors are exempt from overtime under the FLSA. 29 U.S.C. 213 (b)(10). The Court’s rejection of the principle that exemptions to the FLSA should be construed narrowly will have a far-reaching impact on FLSA cases throughout the country. Employers have the burden of proof that an exemption from overtime applies. That burden now may be easier to meet in a particular case since exemptions will be construed under a fair (rather than narrow) interpretation.