High Court to Review Scope of FLSA Exemption

By Joanne Deschenaux Jan 22, 2016
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The U.S. Supreme Court agreed to consider whether a Fair Labor Standards Act (FLSA) exemption for employees primarily engaged in selling or servicing automobiles applies to a California car dealership’s “service advisors” (Encino Motorcars LLC v. Navarro, No. 15-415).

The justices, on Jan. 15, granted review of a decision from the 9th U.S. Circuit Court of Appeals that permitted service advisors for Encino Motorcars to bring overtime pay claims even though the FLSA exempts “any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles.” In reviving the employees' FLSA complaint, the 9th Circuit said that the narrow interpretation given by the U.S. Department of Labor (DOL) to the “ambiguous” exemption was entitled to deference even though the court’s ruling conflicts with those of two other federal circuit courts.

Advisors Involved in Servicing Cars

Encino Motorcars sells and services new and used Mercedes-Benz automobiles. It employs five workers as service advisors. According to their complaint, their job duties are to meet and greet car owners as they enter the service area of the dealership and then to evaluate the service and/or repair needs of the owners based on their complaints. The advisors write up an estimate for repairs and may recommend that additional work be done on the cars beyond what the owners originally request. The advisors receive neither an hourly wage nor a salary, but are paid on a commission basis only.

In 2012, the five service advisors filed suit alleging, among other things, that the company violated the FLSA by failing to pay overtime wages. The district court dismissed the overtime claim because, the court concluded, the employees fall within the FLSA’s exemption for “any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles.” The employees appealed to the 9th Circuit, which reversed, and said the claims should be allowed to proceed to trial.

The appellate court said that because the statutory definition was ambiguous, the court would defer to the DOL’s regulations, which limit the application of the exemption to car salesmen, partsmen (workers who requisition, stock and dispense parts,) and mechanics. The plaintiffs do not fit into any of those three categories and so are not exempt from overtime, the court said.

However, the U.S. Courts of Appeals for the 4th and 5th circuits and several district courts have interpreted the exemption as including service advisors, who, while not repairing the cars themselves, are certainly engaged in “servicing automobiles.”

Employer Says 9th Circuit Misconstrues Exemption

In its petition for Supreme Court review, Encino Motorcars said that the high court should step in to resolve “an acknowledged split of authority” over the FLSA exemption's meaning. The 9th Circuit's decision not only created a federal circuit split but “badly misconstrues” the exemption that covers employees “selling or servicing” cars, Encino said.

The 9th Circuit's ruling “injects uncertainty into what had been a settled area of the law, and will have serious consequences for the nation's 18,000 car dealerships that employ more than 45,000 service advisors,” Encino said.

Allowing the 9th Circuit's decision to stand would “require a wholesale restructuring” of how car dealerships compensate the service advisors, requiring them to divide their workforce in ways contrary to Congress's intent, Encino said.

Employees Argue Deference Owed to the DOL

In their brief opposing review, the service advisors said that given the ambiguity in the exemption, the DOL permissibly construed the FLSA not to exempt employees who don't personally service cars.

The FLSA's plain text doesn't unambiguously exempt such employees and the DOL reasonably declined to expand the statutory exemption to the service advisors, they said.

The 9th Circuit properly deferred to the DOL's “delegated authority” to implement the FLSA, the employees added.

The decisions finding service advisors not to be covered by the exemption predate the DOL’s 2011 final regulation.

The Supreme Court, in its recent FLSA decisions, often has not felt compelled to follow the DOL's regulations when interpreting the act.

Joanne Deschenaux, J.D., is SHRM’s senior legal editor.

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