United States: Meowing Dogs And Barking Cats: Supreme Court's Grant Of Cert On Exempt Status Of Automobile Service Advisors May Result In Reminder That Exemptions Are Functional And Flexible

The U.S. Supreme Court recently agreed to resolve the question of whether "service advisors" at car dealerships—workers whose primary job responsibilities involve identifying service needs and selling service solutions to the dealership's customers—are exempt from the Fair Labor Standard Act's ("FLSA") overtime pay requirements. Although the case involves a somewhat-discrete exemption that has been ruled on only a handful of times in the past four decades, far-reaching implications on the interpretation of FLSA exemptions may ride on the Supreme Court's decision.

Case Background

In Navarro et al. v. Encino Motorcars, LLC, a group of current and former car dealership employees who worked as service advisors brought a collective action under the FLSA in the Central District of California alleging that their dealership employer failed to pay them overtime wages. As service advisors, the plaintiffs would meet and greet car owners as they entered the service area; evaluate customers' service and repair needs; suggest services to be performed on the vehicle to address the customers' complaints; solicit supplemental services to be performed (such as preventive maintenance); prepare price estimates for repairs and services; and inform the owner about the status of the vehicle. Service advisors did not receive an hourly wage or a salary but were instead paid by commission based on the services sold.

The district court dismissed the overtime claim and concluded (consistent with an unbroken line of authority from federal and state courts across the country) that service advisors fall within the FLSA's exemption for "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles," 29 U.S.C. § 213(b)(10)(A), because service advisors are "salesm[e]n ... engaged in ... servicing automobiles."

The Ninth Circuit reversed, deferring to a Department of Labor regulatory definition stating that the exemption is limited to salesmen who sell vehicles and mechanics who service vehicles, thus excluding from the exemption service advisors (i.e., salesmen who sell services). In doing so, the Ninth Circuit acknowledged that its holding "conflicts with decisions of the Fourth and Fifth Circuits, several district courts, and the Supreme Court of Montana"—i.e., every other court to have considered the question—which had uniformly ignored or refused to defer to the Department of Labor's "restrictive" interpretation of § 213(b)(10)(A) and recognized that the use of the disjunctive "or" in § 213(b)(10)(A) between the words "selling" and "servicing" means that the exemption applies to any salesman, partsman, or mechanic who is primarily engaged in either of those duties. In contrast, the Ninth Circuit concluded that a "natural reading" of the exemption suggested that Congress could not have intended that "selling" and "servicing" would apply to all three subjects (salesman, partsman, mechanic), proposing a similarly structured phrase involving what to do if "my dogs or cats were barking or meowing" and stating that the interpretation adopted by the other courts "would include a meowing dog and a barking cat." Accordingly, the Ninth Circuit took a more narrow approach to interpreting the exemption, holding that Congress likely intended "salesman" to be connected only to "selling" automobiles, thus excluding service advisors (salesmen who sell services) from the exemption.

The Supreme Court granted the dealership's petition for a writ of certiorari and agreed to answer the question of "whether 'service advisors' at car dealerships are exempt under 29 U.S.C. § 213(b)(10)(A) from the FLSA's overtime-pay requirements."

Potential Implications for FLSA Collective Actions

While the Supreme Court's ruling on this issue undoubtedly will have immediate and significant impact on the nation's 18,000 franchised car dealerships and estimated 45,000 service advisors, it may also have far-reaching implications for the interpretation of FLSA exemptions generally.

For example, in 2012, the Supreme Court rejected a "narrow" interpretation of the outside sales exemption in Christopher v. SmithKline Beecham Corp., which would have excluded pharmaceutical sales representatives, and favored a "functional," "flexible," and "realistic" rather than "technical" and "formalistic" approach to interpreting the FLSA exemption. Similarly here, the dealership is asking the Supreme Court to reject the Ninth Circuit's narrow interpretation and to take a functional and realistic approach to interpreting § 213(b)(10)(A) because service advisors are "a paradigmatic example of a salesman engaged in servicing automobiles," are "functionally equivalent" to salesmen, partsmen, and mechanics, and are similarly responsible for the selling and servicing of automobiles." If the Supreme Court agrees, it would provide further evidence to support a more flexible and elastic approach to interpreting FLSA exemptions—a critical development as the Department of Labor issues its upcoming revisions to the white-collar exemptions.

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