Why it matters

With a broad reading of the overtime exemptions of the Fair Labor Standards Act (FLSA), the Supreme Court ruled 5 to 4 in favor of the employer in a long-running dispute involving service advisors at car dealerships. A group of current and former service advisors sought back pay under the statute for overtime work. The employer refused, arguing they were exempt from overtime payment under a provision covering “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements.” A district court judge dismissed the suit, the U.S. Court of Appeals, Ninth Circuit reversed and the Supreme Court vacated the decision. On the second go-around, the Ninth Circuit held the exemption did not apply to the service advisors and the justices reversed again in an opinion authored by Justice Clarence Thomas. The Court noted that the plaintiffs meet customers, listen to their concerns, suggest repair and maintenance services, sell new accessories or replacement parts, and explain the work when customers return for their vehicles, among other tasks, “obviously” leaving them within the category of a salesman. “The ordinary meaning of ‘salesman’ is someone who sells goods or services,” the majority wrote. “Service advisors do precisely that.” In a dissenting opinion, Justice Ruth Bader Ginsburg expressed concern about the majority’s “expansive” reading of the FLSA exemption.

Detailed discussion

When the Fair Labor Standards Act (FLSA) was enacted in 1938, Congress created many categories of employees that were exempt from the requirement that employers pay them overtime for working more than 40 hours in a week. All employees at car dealerships were initially exempt from the overtime pay requirement.

That changed with amendments to the statute in 1966 that limited the exemption at car dealerships to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” pursuant to Section 213(b)(10)(A). In 2011, the Department of Labor (DOL) issued a rule that interpreted the term “salesman” to exclude service advisors.

In response, a group of current and former service advisors at Encino Motorcars in California filed suit seeking back pay. A federal district court dismissed the suit, but the U.S. Court of Appeals, Ninth Circuit reversed. Finding the text ambiguous, the federal appellate panel deferred to the DOL’s rule.

When the case went before the Supreme Court for the first time, the justices vacated the Ninth Circuit’s judgment and explained that the 2011 rule was procedurally defective, meaning courts could not defer to it. The justices remanded the case for the court to address whether the exemption covers service advisors.

On remand, the Ninth Circuit again held that the exemption does not include service advisors, invoking the distributive canon and applying the principle that exemptions to the FLSA should be construed narrowly. The employer filed a second petition for certiorari, and the Supreme Court again reversed.

Are service advisors “salesm[e]n … primarily engaged in … servicing automobiles”?

“We conclude that they are,” Justice Clarence Thomas wrote for the majority. “Under the best reading of the text, service advisors are ‘salesm[e]n,’ and they are ‘primarily engaged in … servicing automobiles.’ The distributive canon, the practice of construing FLSA exemptions narrowly, and the legislative history do not persuade us otherwise.”

A service advisor is “obviously” a salesman, the Court said, applying the ordinary meaning of “someone who sells goods or services.” Service advisors do precisely that by selling customers services for their vehicles.

In addition, service advisors are also “primarily engaged in … servicing automobiles,” the justices wrote. While they do not spend most of their time physically repairing automobiles, they are “integrally involved in the servicing process,” a description that also applies to partsmen, who are similarly exempt.

As for the distributive canon, the Court found that statutory context favored the ordinary disjunctive meaning of “or” in the exemption, as the narrow, distributive phrasing used by the Ninth Circuit was “an unnatural fit” and required the reader to mix and match the precise combinations, a result the justices found unlikely. “The more natural reading is that the exemption covers any combination of its nouns, gerunds, and objects,” the Court said.

The justices also rejected the federal appellate panel’s conclusion that exemptions to the FLSA should be construed narrowly. “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,’” Justice Thomas wrote. With over two dozen exemptions in Section 213(b) alone, the exemptions “are as much a part of the FLSA’s purpose as the overtime-pay requirement.”

Nor did a 1966 DOL Handbook or legislative history sway the majority.

“[T]he best reading of the statute is that service advisors are exempt,” the Court concluded. “Even for those Members of this Court who consider legislative history, silence in the legislative history, ‘no matter how “clanging,”’ cannot defeat the better reading of the text and statutory context.”

A dissenting opinion authored by Justice Ruth Bader Ginsburg emphasized that only three occupations—salesmen, partsmen and mechanics—were exempted from the FLSA overtime requirements by Congress, with no mention of service advisors.

“I would not enlarge the exemption to include service advisors or other occupations outside Congress’ enumeration,” she wrote. “The reach of today’s ruling is uncertain, troublingly so: By expansively reading the exemption to encompass all salesmen, partsmen, and mechanics who are ‘integral to the servicing process,’ the Court risks restoring much of what Congress intended the 1966 amendment to terminate, i.e., the blanket exemption of all dealership employees from overtime-pay requirements.”

To read the opinion in Encino Motorcars, LLC v. Navarro, click here.