Supreme Court to Reconsider Whether Car Service Advisors Are Exempt

Guidance on how lower courts should interpret the FLSA expected

By Allen Smith, J.D. Oct 5, 2017
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​The U.S. Supreme Court will revisit whether car dealership service advisors are exempt from overtime pay under the Fair Labor Standards Act (FLSA). Although the specific FLSA issue is narrow, the court may provide additional guidance on when courts should defer to statements of the Department of Labor (DOL), such as opinion letters, or the department's Field Operations Handbook, noted Alexander Passantino, an attorney with Seyfarth Shaw in Washington, D.C., and former acting administrator of the DOL's Wage and Hour Division.

"Or we might finally get the court to state that the FLSA's exemptions should be read and interpreted as they are written by Congress, instead of narrowly construing them as many courts have done."

Five service advisors at Encino Motorcars, a Mercedes Benz dealership in Los Angeles, sued in 2012, claiming the dealership violated the FLSA by failing to pay them overtime compensation.

The 9th Circuit originally held they should be paid overtime. Relying on DOL regulations issued in 2011, the court said the advisors were not exempt from overtime requirements. In 2016, the Supreme Court vacated the 9th U.S. Circuit Court of Appeals' decision and sent the case back to the lower court. The high court said that DOL regulations stating the advisors are entitled to overtime could not be relied upon because the agency had flip-flopped on whether the advisors are exempt without an explanation for the switch.

The appeals court earlier this year reaffirmed its initial position that service writers are not exempt. The Supreme Court announced on Sept. 28 that it would review this decision.

[SHRM members-only toolkit: Determining Overtime Eligibility in the United States]

Agency Flip-Flop

The flip-flop that the Supreme Court referred to in its 2016 decision originates from decades ago.

In 1966, Congress enacted an exemption from the FLSA's overtime compensation requirements for "any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles." A 1970 regulation excluded service advisors from the exemption because service advisors sell repair services but not the vehicles themselves—therefore, the advisors were nonexempt and eligible for overtime pay.

Three years later, the 5th Circuit rejected the DOL's regulation and several district courts subsequently did as well. In 1978, the DOL issued an opinion letter stating that service advisors could be exempt in line with the court rulings. In 1987, the DOL amended its Field Operations Handbook to clarify that service advisors are exempt. The department issued a proposed rule in 2008, recommending that the rule be changed to interpret the exemption to cover service advisors. But in 2011, the DOL issued a final rule that said—without explanation—that service advisors are nonexempt. The department had come full circle.

9th Circuit Again Rules that Advisors Are Not Exempt

In the 9th Circuit's 2017 decision, the appeals court analyzed the statutory language and a "longstanding rule" that exemptions to the FLSA are to be narrowly construed against employers, said Steven Suflas, an attorney with Ballard Spahr in Denver and Cherry Hill, N.J.

"The 9th Circuit acknowledged that its decision is contrary to opinions from the 4th and 5th Circuits, as well as the Supreme Court of Montana, all of which found service writers to be exempt because they were involved in the sale of auto services," he said. "As a result, the U.S. Supreme Court is presented with a clear split in the circuits, which requires its intervention."

"The appellate courts are divided on whether service advisors are exempt because there is a difference between how the courts read the wording of the statute in general and, in particular, the meaning of the phrases 'salesman, partsman or mechanic' and 'primarily engaged in selling or servicing automobiles,'" said Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., and former acting administrator of the Wage and Hour Division. The high court's decision "may boil down to just how narrowly the Supreme Court may read the statutory exemption, relying on the statutory language itself, the context of the exemption and its legislative history."

 

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