Supreme Court Jettisons Narrow Interpretation of Overtime Exemptions

5-4 decision rules car service advisors were exempt

Allen Smith, J.D. By Allen Smith, J.D. April 2, 2018
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​By finding that car service advisors are exempt from overtime requirements, on April 2 the Supreme Court may have given HR more confidence that courts won't expand coverage of exemptions to the Fair Labor Standards Act (FLSA) beyond what Congress intended, workplace attorneys say. 

The Supreme Court rejected the principle that exemptions should be construed narrowly. Justice Clarence Thomas wrote the 5-4 decision, joined by Chief Justice John Roberts Jr. and Justices Anthony Kennedy, Samuel Alito Jr. and Neil Gorsuch.

The decision is welcome relief for auto dealerships, but the case will be most-significant for its broader interpretation of FLSA exemptions, according to Lee Schreter, an attorney with Littler in Atlanta. "What we're seeing is the court righting the ship on this. I've always believed that narrow construction was at odds with congressional intent," she said.

Broader interpretation may result in fewer conditional certifications of FLSA class actions, which can be expensive for employers to defend, and fewer summary judgments in plaintiffs' favor, she predicted.

This is a win for employers, Adam Sencenbaugh, an attorney with Haynes and Boone in Austin, Texas, noted.

But Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., cautioned that the broader interpretation of overtime exemptions may not apply to regulatory exemptions—such as ones applying to executive, administrative, professional, outside sales and computer employees—as opposed to statutory exemptions such as the one at issue in this case.

Background

Five service advisors at Encino Motorcars, a Mercedes-Benz dealership in Los Angeles, sued, claiming the dealership broke the law by failing to pay them overtime compensation. They worked regular hours, 7 a.m. to 6 p.m., at least five days per week. They sought time-and-a-half compensation for hours worked beyond 40 hours each week, as required by the FLSA for nonexempt positions.

[SHRM members-only toolkit: Complying with U.S. Wage and Hour Laws and Wage Payment Laws]

Encino Motorcars argued that the plaintiffs fit within the FLSA exemption for "any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles" at a covered dealership.

The service advisors, who sell repair services but not the vehicles themselves, argued that they did not fit within the exemption because they did not actually perform repairs but rather acted as a "communications channel" between customers and mechanics, noted Richard Reice, partner at Hoguet Newman Regal & Kenney LLP in New York City.

The 9th U.S. Circuit Court of Appeals originally relied on 2011 Department of Labor (DOL) regulations to hold that the plaintiffs should be paid overtime, but the Supreme Court vacated the decision in 2016, holding the regulations invalid. The 9th Circuit heard the case again and ruled, based on the law's plain language, that service advisors are not exempt. Encino Motorcars appealed.

Court's Ruling

Reversing, the Supreme Court decided that service advisors fit within the FLSA exemption. It stated that "a service advisor is obviously a salesman."

In addition, the court found that service advisors are "primarily engaged in … servicing automobiles." They meet customers, listen to their concerns about their cars, suggest repair and maintenance services, sell new accessories or replacement parts, record service orders, follow up with customers as the services are performed, and explain the maintenance work when customers return for their vehicles. "True, service advisors do not spend most of their time physically repairing automobiles," the court stated, "but the statutory language is not so constrained."

Service advisors are integral to the servicing process, the court found, which Sencenbaugh said will be useful language for employers to defeat misclassification claims. For example, other jobs at car dealerships might be integral to the servicing process, too.

The court observed that the FLSA exemption at issue has long been understood to cover service advisors. Although the DOL initially interpreted it to exclude them from the exemption, the federal courts rejected that view. The DOL issued an opinion letter in 1978 explaining that service advisors are exempt in most cases—a view that prevailed until the 2011 regulations, which prompted this litigation.

The court noted that the 9th Circuit applied the principle that FLSA exemptions should be construed narrowly. "We reject this principle as a useful guidepost for interpreting the FLSA," the Supreme Court said. "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."

Dissent

Service advisors neither sell nor repair cars, so should remain outside the exemption, wrote Justice Ruth Bader Ginsburg in a dissent joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan. Service advisors meet and greet car owners, solicit and suggest repair services to address owner complaints, solicit and suggest supplemental vehicle services, and provide owners with cost estimates, the dissent noted.

The dissent observed that in 1961, Congress exempted all car dealership employees from the FLSA's overtime requirements. Five years later, Congress scaled the dealership exemption back to three categories of employees: car salespeople, mechanics and partsmen. Congress did not exempt numerous other categories of dealership employees, including service advisors.

"The reach of today's ruling is uncertain, troublingly so," the dissent said. By expansively interpreting the exemption, the court risks restoring much of what Congress intended the 1966 amendment to end—the blanket exemption of all dealership employees, the dissent wrote.

Salesmen, partsmen and mechanics all work irregular hours, which justified the exemption, the dissent stated. Service advisors, by contrast, have regular hours.

Finally, the dissent noted that the Supreme Court rejected the long-standing principle of interpreting FLSA exemptions narrowly, "without even acknowledging that it unsettles more than half a century of our precedent."

This decision is Encino Motorcars LLC v. Navarro, No. 16-1362.

 

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