On April 2, 2018, the Supreme Court, with its second consideration of the same case, held in a 5-4 decision, that automobile service advisors are exempt from overtime under the Fair Labor Standards Act (FLSA). In Encino Motorcars, LLC v. Navarro, the Supreme Court held that service advisers fall under the FLSA exemption applicable to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements” because they are are “employees at car dealerships who consult with customers about their servicing needs and sell them servicing solutions.”
Since 1966, the Department of Labor (DOL) had maintained that service advisors were exempt from overtime under the FLSA. In 2011, however, the DOL unexpectedly changed its position and issued a regulation that service advisors were no longer to be considered exempt. Relying upon that newly-issued regulation, Encino Motorcars employees sued for overtime pay.
The federal trial court dismissed the employees’ case, but the Ninth Circuit reversed, deferring to the DOL’s new 2011 regulation, and holding they were entitled to overtime. In this case’s first trip to the Supreme Court, in 2016, the Supreme Court reversed the Ninth Circuit’s decision, holding that the DOL’s regulation was not due deference because the DOL did not justify its changed position with and in the 2011 regulation, and therefore, directed the Ninth Circuit to reconsider the service advisor exemption issue without reference to the regulation. The Ninth Circuit, on remand, once again held service advisors to be non-exempt, the second time relying on language directly from the FLSA. The Supreme Court, its second time, definitively reversed that decision.
The dictionary and statutory construction controlled much of the discussion. The Supreme Court concluded that service advisors are “salesmen” within the ordinary meaning of that word because they sell “services” to customers for their vehicles. Just as partsmen do not spend time fixing or servicing vehicles, the fact that service advisors do not fix cars, is not fatal to the issue. The Supreme Court held that service advisors, like partsmen, are integral to the servicing process. The advisors are “primarily engaged” in servicing automobiles because their responsibilities include: speaking with customers; listening to their concerns; suggesting repair and maintenance services; selling accessories or replacement parts; entering service orders; following up with customers during the service process, including if new problems are discovered; and explaining the repair and maintenance work when customers pick up their vehicles.
Accordingly, the Supreme Court concluded that service advisors are sales persons primarily engaged in servicing automobiles, and therefore are subject to the overtime exemption. In so concluding, the Supreme Court expressly rejected the Ninth Circuit’s analysis that a “salesman” is to be matched with selling and a “partsman and mechanic” matched with servicing, to conclude the exemption did not apply to salesmen primarily engaged in servicing automobiles. The Supreme Court focused on the word “or” which, in the disjunctive, means the exemption covers a salesman primarily engaged in either selling or servicing cars.
In addition to making a conclusive statement on the exemption, the Supreme Court rejected the notion that the FLSA exemptions are to be narrowly construed. The majority decision unequivocally rejected “this principle as a useful guidepost for interpreting the FLSA” rationalizing that the exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirements and therefore, the courts have “no license to give the exemption anything but a fair reading.” This disregard of the FLSA’s narrow construction principle very well may send tremors through FLSA trial court litigation for the foreseeable future.