United States: Supreme Court Rules Car Dealership Service Advisors Exempt From FLSA Overtime Pay, Exemptions Should Be Plainly Construed

In its April 2, 2018, decision in Encino Motorcars, LLC v. Navarro, the U.S. Supreme Court ruled that automobile service advisors are exempt from the Fair Labor Standards Act's (FLSA) overtime provisions because they are salesmen primarily engaged in servicing automobiles. While the Supreme Court's decision directly impacts all automobile service advisors, the Supreme Court's repudiation of the doctrine that exemptions under the FLSA should be narrowly construed will have broader impact, beyond just automobile service advisors, as to all exemptions under the FLSA. Rather than a narrow construction of FLSA exemptions, the Supreme Court explained that such exemptions should be construed plainly as written, without a tilt in favor of finding that an exemption does not apply.

This case involved a lawsuit brought by current and former service advisors from Encino Motorcars, LLC, a Mercedes-Benz dealership in Encino, California, who claimed they were entitled to back pay for overtime work under the FLSA. In a 5-4 decision, Justice Clarence Thomas, writing for the majority and joined by Chief Justice John Roberts and Justices Anthony Kennedy, Samuel Alito and Neil Gorsuch, reversed the Ninth Circuit and held that automobile service advisors are exempt from overtime under section 213(b)(10)(A) of the FLSA.

Case Background

Auto dealers have historically received special treatment under the FLSA. The FLSA, 52 Stat. 1060, as amended, 29 U. S. C. §201 et seq., requires employers to pay overtime compensation to covered employees. Notably, the FLSA exempts from the overtime-pay requirement "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles" at a covered dealership. 29 U. S. C. §213(b)(10)(A).

In 2011, the Department of Labor issued a rule that interpreted "salesman" to exclude service advisors. 76 Fed. Reg. 18832, 18859 (2011) (codified at 29 CFR §779.372(c)). Relying on the department's 2011 regulation, a group of current and former service advisors filed suit against their employer, Encino Motorcars, LLC, alleging that Encino had violated the FLSA by failing to pay them overtime. Encino moved to dismiss, arguing that service advisors are exempt under §213(b)(10)(A). The district court agreed with Encino and dismissed the complaint, but the Court of Appeals for the Ninth Circuit reversed. The Ninth Circuit explained it found the statute ambiguous and the legislative history inconclusive, relying heavily on the 2011 Department of Labor rule that interpreted the term "salesman" not to include service advisors. After granting certiorari in 2016, the Supreme Court vacated the Ninth Circuit's judgment and remanded the case, directing that courts cannot defer to the department's 2011 rule because "it is procedurally defective." On remand, the Ninth Circuit again held that the exemption does not include service advisors, noting that its interpretation was supported by the principle that exemptions to the FLSA should be narrowly construed. The Supreme Court again granted certiorari. The sole question before the Supreme Court was whether service advisors are exempt from receipt of overtime compensation under §213(b)(10)(A).

After reviewing the daily activities of the service advisors who filed suit, which included interacting with customers both at initial meetings and at follow-up visits, listening to customer concerns, suggesting repairs and maintenance services, selling new accessories and replacement parts, and recording service orders, the Supreme Court concluded that the "a service advisor is obviously a 'salesman,'" and thus exempt under §213(b)(10)(A).

The Supreme Court's Analysis

In determining that automobile service advisors are exempt, the Court explained: (1) the ordinary meaning of "salesman" obviously includes service advisors as they "sell [customers] services for their vehicles"; and (2) service advisors are "primarily engaged in... servicing automobiles" §213(b)(10)(A). On the latter point, the Court explained the word "servicing" in this context could mean either "the action of maintaining or repairing a motor vehicle" or "[t]he action of providing a service." The Court held these service advisors were primarily engaged in servicing automobiles because they were "integrally involved in the servicing process" and played a vital role in customer service as evidenced by their daily activities.

The majority also rejected the Ninth Circuit's interpretation that "exemptions to the FLSA should be construed narrowly," explaining "[b]ecause 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.'" Noting that the FLSA contains over two dozen exemptions, Justice Thomas stated that those exemptions are "as much a part of the FLSA's purpose as the overtime-pay requirement." 

In a dissenting opinion, Justice Ruth Bader Ginsburg, joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan, wrote that because service advisors "neither sell nor repair automobiles, they should remain outside the exemption and within the Act's coverage." The dissent argued the Court "add[ed] an exemption of its own creation," thus "veer[ing] away from that comprehension of the FLSA's mission." The dissent also disagreed with the majority's rejection of the principle that FLSA exemptions should be narrowly construed.

What This Means for Employers

This case not only represents a victory for automobile dealerships who employ service advisors, but also represents a significant shift in the construction of FLSA exemptions. By categorically rejecting the longstanding principle that FLSA exemptions should be narrowly construed, the Court adopted a broader interpretation of FLSA exemptions. This new understanding of FLSA exemptions may create additional opportunities for employers trying to utilize these exemptions because the exemptions will be construed plainly as written, without a tilt in favor of finding that an exemption does not apply. However, when classifying employees as exempt or nonexempt under the FLSA, employers should remember they must also comply with applicable state law overtime requirements, which may be different than the FLSA. 

For Further Information

If you have any questions about this Alert, please contact any of the  attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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