Supreme Court Considers If Auto Service Advisors Are Exempt

Deference to DOL regulation is at stake

By Allen Smith, J.D. Apr 25, 2016

An argument over whether service advisors are covered by a Fair Labor Standards Act (FLSA) exemption for employees primarily engaged in selling or servicing automobiles may boil down to whether the Supreme Court will defer to a Department of Labor (DOL) regulation.

The DOL takes the position that service advisors are not exempt and the 9th U.S. Circuit Court of Appeals has agreed. But two other federal circuit courts have concluded that service advisors are exempt. The most interesting aspect of the oral argument in the case which has now reached the Supreme Court was Justice Stephen Breyer’s struggle to understand what an agency has to do when it has changed its mind, as the DOL reportedly did with a 2011 regulation that—to muddy the waters—removed its discussion of why the job of “service advisor” was not exempt, said Brian Netter, an attorney with Mayer Brown in Washington, D.C. Part of the April 20 oral argument centered on whether there had, in fact, been a change in the DOL’s position. Breyer believes there had at least been a change made between the publication of a DOL manual saying a service advisor was exempt and the department’s current position, despite its pared-down regulation, that a service advisor is not exempt.

Rulemaking is “a messy process that is not immune to error,” Netter said.

Although the references to service advisors were removed from interpretive regulations in 2011, the DOL takes the stand that courts should defer to its exclusion of service advisors from its definition of exempt employees, said Matthew Disbrow, an attorney with Honigman in Detroit.

The upcoming decision’s importance is limited, he added, because most service advisors work on commission, and there is a separate exemption for commissioned workers.

In this case currently before the Supreme Court, service providers at Encino Motorcars in Encino, Calif., met and greeted car owners as they entered the service area of the dealership and then evaluated the repair needs based on owners’ complaints. The advisors wrote up estimates for repairs and may have recommended that additional work be done beyond what the owners originally requested.

In 2012, five service advisors sued Encino Motorcars, alleging that the company violated the FLSA by failing to pay overtime wages. The district court dismissed the claim, concluding the employees fit within the FLSA’s exemption for “any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles.” But the 9th Circuit reversed.

Change in Position

Breyer said to Stephanos Bibas, a professor at the University of Pennsylvania Law School and the plaintiffs’ attorney, “Here we have [the DOL] going along and issuing a manual where they say the opposite of what you’re saying now. And then we see what happened when, after 30 years, they changed their mind.” He added, “Their reason happens to be this: ‘The 4th Circuit says the opposite, but we think not.’ ” Breyer asked why the change.

Bibas suggested there might not be a change of position. Later, he remarked, “What [the defendant] is saying, if you exempt the OR [operating room] nurse, you also have to exempt the hospital intake clerk who does paperwork, maybe even the hospital intake nurse who takes vital signs.”

Breyer asked similar questions of Assistant to the Solicitor General Anthony Yang, who argued in support of the plaintiffs.

“I think what’s necessary is for the agency to recognize that it had a prior position, which it did here. It also has to explain what it’s doing, which it did here. It explained how it understood the statute to be most appropriately read,” Yang said.

Paul Clement, an attorney with Bancroft in Washington, D.C., and the defendant’s attorney, noted, “Up until 2011, the interpretive rights that date back to 1970 had a specific provision, (c)(4), that addressed service advisors, and it explained the rationale why service advisors weren’t exempt. I don’t think it was particularly persuasive to any of the courts, but at least there was something that addressed service advisors specifically.” In 2011, that language was removed.

“I don’t think they’re really entitled to, in 2011, take something out of the [regulations] and then all of a sudden say, ‘Well, because we took them out of the regs for notice-and-comment rulemaking, we now get … deference where previously we might not have.’ ”

Clement said the language of the statute was plainly understandable, and reflected that service advisors are exempt because they are part of the team selling and servicing automobiles. So, deference to the agency’s interpretation wasn’t needed.

Justice Elena Kagan queried Yang about why the more specific explanation was removed.

“I have been informed that there was an inadvertent mistake in drafting,” he answered.

“Wow,” she said. “I really did not expect you to say that.”

He tried to explain why it didn’t make a difference. “They redid (c)(1), (2) and (3), and they just didn’t reprint (4) because it hadn’t changed at all,” Yang said.

Kagan said, “Not an A-plus explanation.”

“It’s a passing grade,” Yang replied.

This case is Encino Motorcars v. Navarro, No. 15-415.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.


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