United States: Supreme Court Exemption Decision Could Have Broader Repercussions

Need FLSA exemptions be narrowly construed?

On April 2, the United States Supreme Court issued its decision on the issue of whether the Fair Labor Standards Act's (FLSA) exemption for those selling or servicing automobiles at car dealerships applied to service consultants. Encino Motorcars, LLC v. Navarro, Case No. 16-1362 (Apr. 2, 2018). Unless you are a car dealer or work for one, that appears to be a pretty narrow issue, but the Court's pronouncement may open the door to a less restrictive view of the act's exemptions generally.

Most of the exemption litigation under the FLSA turns on the so-called "white collar" exemptions, those for executive, administrative or professional employees, but Section 13 of the statute actually has scores of exemptions of different scopes applying to different types of employees and industries. These are generally found in 29 U.S.C. Section 213 (and, in particular, subsections a and b), and include everything from amusement parks to fishing, agriculture, small-town newspapers and maple syrup production. One of these various exemptions applies to "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, truck, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers." 29 U.S. C. Section 213(b)(10)(A).

Courts and the Department of Labor have gone back and forth over whether service advisers are covered by this exemption. In 1961, all auto dealer employees were exempt, but in 1966, the statute was amended and narrowed to the language cited above. Afterwards, those opposing the exemption pointed out that the advisers don't actually sell cars and don't personally service vehicles, falling between the cracks of the list of functions described in the statute. Those in favor of applying the exemption note that the service advisers do perform a sales function and are involved in providing a service with respect to the repair or maintenance of a vehicle.

In 2011, the Department of Labor reversed the view it had held since the late 1970s and issued a regulation that described the service advisers as not falling within the exemption. In the Navarro case, that prompted a group of dealer employees to commence seven years of litigation that included two Ninth Circuit decisions (both upholding the regulation and finding the work to be nonexempt) and two trips to the Supreme Court. While the first Supreme Court decision did not rule on the substance of the regulation due to technical reasons, in this instance, the Court, in a 5:4 vote, held squarely that auto service advisers do exempt work and fit within the exemption. We'll spare you the various rules of construction used by the Court, including an analysis of the "distributive canon," but the Court found that the manner in which the various functions were listed in the statute collectively implied a broader application that had been used by the lower court.

Significantly, the Court specifically addressed the principle used by the Ninth Circuit and many other federal courts that "exemptions to the FLSA should be construed narrowly." It declared flatly that "[w]e reject this principle as a useful guidepost for interpreting the FLSA." Instead, it found that the many exemptions under the FLSA suggested a "fair" – not "narrow" reading – as the exemptions "are as much a part of the FLSA's purpose as the overtime-pay requirement." As the majority concluded, "[w]e thus have no license to give the exemption anything but a fair reading."

The four-justice dissent would have found the advisers to be nonexempt, relying primarily on the 1966 legislative history limiting the scope of the exemption and resort to the rule of construction used by the Ninth Circuit to construe exemptions narrowly.

The majority decision casts aside one of the major building blocks used by plaintiffs' attorneys and countless courts to avoid the application of any one of the FLSA's many exemptions. Indeed, language about the narrow construction of exemptions permeates briefs challenging exempt status and in court decisions holding against employers. With this change, employers may prevail on a larger number of cases, including the use of the much more common white collar exemptions. Employers and practitioners should continue to watch how courts apply a fair as opposed to a narrow reading of exemptions, as well as whether that five-justice majority holds over the next few years.

The bottom line is this: The Supreme Court may have just limited one of the tools in the plaintiffs' arsenal in the FLSA context by directing lower courts to give exemptions a fair rather than narrow reading.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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