United States: Employers, Rev Your Engines: SCOTUS Rejects Narrow Construction Of FLSA Exemption In Encino Motorcars, LLC v. Navarro

Last Updated: April 12 2018
Article by Joshua B. Waxman and Cori K. Garland

The Fair Labor Standards Act (FLSA) requires employers to pay overtime compensation to covered employees, but exempts from overtime numerous categories of workers.  Traditionally, these exemptions have been construed narrowly against the employer asserting them.  Not anymore.

In its second look at this particular exemption in recent years, the U.S. Supreme Court in Encino Motorcars, LLC v. Navarro considered whether the automotive sales exemption "applies to service advisors—employees at car dealerships who consult with customers about their servicing needs and sell them servicing solutions."1  But in deciding that the exemption does apply to service advisors, the Court dropped a true bombshell with respect to FLSA jurisprudence: it rejected the longstanding principle that exemptions are to be construed narrowly.  As a result, going forward, courts will need to place exemptions on the same statutory and interpretive footing as the substantive overtime requirements in the statute. 

Background

Current and former service advisors of a car dealership sued for unpaid overtime, alleging they were misclassified as exempt employees.  Service advisors "interact with customers and sell them services for their vehicles." Specifically, 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 (for instance, if new problems are discovered); and explain the repair and maintenance work when customers return for their vehicles." The service advisors premised their argument for overtime on a 2011 Department of Labor rule that expressly excluded service advisors from the definition of "salesman."  The district court found instead that the exemption applied to service advisors. The Ninth Circuit reversed, deferring completely to the 2011 DOL rule.  The Supreme Court rejected this conclusion, holding that the regulation was procedurally defective and courts should not defer to it or rely upon it.  The Supreme Court remanded the case to the Ninth Circuit for reconsideration. The Ninth Circuit again found that service advisors were entitled to overtime because they do not fall within the exemption.

The Supreme Court again reversed, basing its conclusion on what it called a "best reading" of the statute's text.  The text exempts "any salesman, parts-man, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements." §213(b)(10)(A).  The Court noted that service advisors are "salesm[e]n," and they are "primarily engaged in . . . servicing automobiles." First, because salesman is not defined in the statute, the Court looked to the word's ordinary meaning as found in two commonly used dictionaries, and determined a salesman to be "someone who sells goods or services." The Court found that service advisors "obviously" meet this requirement because they sell customers services for their vehicles.  Second, the Court found that even though the service advisors do not spend their time repairing cars, they do spend their time "servicing" automobiles because they are integral to the servicing process. 

The Court disregarded the Ninth Circuit's use of the distributive canon of statutory construction2 under which the Ninth Circuit linked salesman to selling, and partsman and mechanics to servicing.  The Court found that this analysis ignored the plain  meaning and usage of the word "or" in the exemption.  Thus, a salesman could either sell or service automobiles and fall within the exemption.  Interestingly, the Court noted that the Ninth Circuit's "narrow distributive phrasing is an unnatural fit here because the entire exemption bespeaks breadth." (emphasis added).

Finally, and most significantly, the Court rejected the Ninth Circuit's reliance on the commonly held principle that exemptions are to be narrowly construed.  Noting that nothing in the FLSA's text demands a narrow construction of exemptions and that the FLSA contains "over two dozen" exemptions, the Court reasoned that exemptions are as integral to the statute as are the overtime and minimum wage requirements.  Thus, quoting language from a decision from last term that "it is quite mistaken to assume . . . that whatever might appear to further the statute's primary objective must be the law," it held that courts "have no license to give the exemption anything but a fair reading." 

In dissent, Justice Ginsburg, along with Justices Breyer, Sotomayor, and Kagan, sought to emphasize how the majority's holding was a stark departure from precedent. Underscoring the importance of the Court's holding regarding the interpretation of FLSA exemptions, Justice Ginsburg wrote that the Court was overruling "half a century" of precedent by rejecting the narrow construction principle. 

While the Court's ruling is no doubt welcome news for any automobile dealers that wish to rely on the automotive sales exemption for their service advisors, the Court's decision could have broader implications for all employers that rely on any FLSA exemption for their employees.  Going forward, individuals challenging the application of an exemption will no longer have the advantage of arguing that FLSA exemptions must be narrowly construed.  Rather, courts must now analyze exemptions through a "fair reading" of the statute, taking into consideration the plain, ordinary meaning of the words on the page.  The Court's ruling will have an impact on every case involving the application of FLSA exemptions to employees, whether those cases are brought by individuals or as collective actions on behalf of similarly situated workers.  Indeed, it will be worth watching whether the decision might also affect how courts going forward adjudicate motions for conditional certification involving these exemptions. 

Footnotes

1 Section 213(b)(10)(A) exempts from the overtime requirement of the FLSA "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, 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."

2 The distributive canon links "each expression to its appropriate referent." Slip Op. at 4-5. As noted by the Court, "[w]here a sentence contains several antecedents and several consequents," courts should "read them distributively and apply the words to the subjects which, by context, they seem most properly to relate." Id. at 8 (citing 2A N. Singer & S. Singer, Sutherland Statutes and Statutory Construction §47:26, p. 448 (rev. 7th ed. 2014)).

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