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Legislative / Government Affairs Updates

Legislative Update 

 

SCOTUS Rules That Car Dealership Service Advisors Are Exempt, Puts the Brakes On Overtime Claims

Submitted by:  William Grob, Legislative Director, HR Tampa

Authors: Alfred B. Robinson, Jr. and S. Arsen, Ph.D., Ogletree Deakins

In its April 2, 2018, decision in Encino Motorcars, LLC v. Navarro, the Supreme Court of the United States issued its second opinion in this case and definitively ruled that automobile service advisors are exempt from overtime under section 213(b)(10)(A) of the Fair Labor Standards Act (FLSA). The sole question before the Court was whether a service advisor is a salesman who is “primarily engaged in . . . servicing automobiles.” In a 5-4 decision, Justice Thomas wrote for the majority stating that the best reading of the statutory text leads to the conclusion that service advisors are exempt from overtime because they are salesmen in that they do make sales of services for vehicles and they are primarily engaged in servicing automobiles. 

The Court’s opinion comes less than two years after it had ruled that the FLSA’s overtime exemption must be construed without placing controlling weight on a 2011 U.S. Department of Labor (DOL) rule according to which service advisors were not exempt. This time, the Court ruled that the service advisors are “obviously” salesmen and, therefore, exempt. Encino Motorcars, LLC v. Navarro, Supreme Court of the United States, No. 16–1362 (April 2, 2018).

The Supreme Court’s Decision

The FLSA’s exemption under section 213(b)(10)(A) states that the overtime requirements do not apply to “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.” The service advisors who had filed the suit regularly performed the following duties: They met with customers; suggested repairs and maintenance services; sold accessories, replacement parts, and services for their vehicles; and explained the work performed when customers returned for their vehicles. On this basis, the Court concluded that the service advisors were clearly salesmen because they sold services for vehicles to customers.

The Court also found that the service advisors were primarily engaged in servicing automobiles and met this requirement in two ways:

1.       They played a vital role in the automobile servicing process between the customers and the mechanics who performed the maintenance and repair work on the customers’ automobile.

2.       They were “integrally involved in the servicing process” since the statute itself does not limit that phrase only to individuals who performed the physical repair work but also includes others such as partsmen and service advisors.   

Interestingly, with regard to “the principle that exemptions to the FLSA should be construed narrowly,” which the Ninth Circuit Court of Appeals had used in arriving at its conclusion, the majority stated, “[w]e reject this principle as a useful guidepost for interpreting the FLSA.” According to the Court, “[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.’”

Practical Impact

Twice now the Supreme Court has reversed and remanded a Ninth Circuit ruling in this case that service advisors are not eligible for this FLSA overtime exemption. Ironically, in this 2018 decision, the Court ruled exactly as Justice Thomas urged it to in his dissenting opinion to the 2016 case - to “hold that the FLSA exemption set out in § 213(b)(10)(A) covers the service advisors in this case.”

In what may be the most striking aspect of this decision, the Court rejected one of the rationales for the Ninth Circuit’s decision that was based upon a longstanding principle that FLSA exemptions should be narrowly construed. As the dissent noted, this principle traces back to a 1960 Supreme Court decision in which the Court ruled that FLSA “exemptions are to be narrowly construed against the employers seeking to assert them and their application limited.” In Encino Motorcars, the majority found that the FLSA contained no “textual indication” that exemptions should be construed narrowly. Citing a treatise authored in part by the late Justice Scalia, the majority ruled that FLSA exemptions should be accorded a fair, as opposed to a narrow, reading. The majority noted that the principle to narrowly construe exemption is based on a “flawed premise” that the remedial purpose of the FLSA is paramount “at all costs.”

The four dissenting justices objected to this summary dispatch of the narrow-construction principle by the majority when they stated, “[i]n a single paragraph, the Court ‘reject[s]’ this longstanding principle . . . without even acknowledging that it unsettles more than a half a century of our precedent.” Since the Court apparently has elevated the many exemptions in the FLSA to have equal footing with its overtime compensation requirement, this shift in balancing exemptions may create new opportunities for applying these FLSA exemptions.

 

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