Many thanks to Arslan Sheikh for his assistance in preparing this post.
In a decision issued on April 2, 2018 the Supreme Court of the United States held in Encino Motorcars, LLC v. Navarro that service advisors at an auto dealership are exempt from the Fair Labor Standards Act’s (FLSA) overtime pay requirement. Most importantly, the Court also rejected the 9th Circuit’s holding and Department of Labor policy that FLSA exemptions should be construed narrowly. Instead, courts should apply a fairness test to determine whether a particular job is covered under the exempt classifications of the act. As a result, employers should be aware of this recent decision and consider how it may apply to them.
Although the Supreme Court issued this decision in April 2018, the litigation surrounding this case began back in 2012. This case involved service advisors employed by Encino Motorcars, LLC, a Mercedes-Benz dealership in California. Service advisors perform various job functions, including consulting with customers about their servicing needs and selling them services for their vehicles. Service advisors are required to work at least 55 hours per week on the dealership’s premises. In this action, the service advisors sought time-and-a-half compensation for hours worked beyond the 40 per week maximum prescribed by the FLSA.
By way of background, the FLSA exempts from its overtime pay requirement any “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles…if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles to ultimate purchasers.” Both parties agreed that the issue in this case was whether service advisors qualify as salesmen who are primarily engaged in servicing automobiles. The Supreme Court answered in the affirmative and held that service advisors are exempt from overtime pay under the FLSA.
Writing for the majority, Justice Thomas concluded that a service advisor is “obviously a salesman” because the ordinary meaning of “salesman” is someone who sells goods or services. Similarly, Justice Thomas held that a service advisor is “primarily engaged in servicing automobiles” because in the context of this case, “servicing” can mean either maintaining a motor vehicle or providing a service. A service advisor satisfies both definitions because his job responsibilities include meeting customers, listening to their concerns, and suggesting repair and maintenance services. Although service advisors do not spend most of their time physically repairing automobiles, they are integrally involved in the servicing process and thus satisfy the statutory language.
For the vast majority of employers, the most important part of this decision came at the end of Justice Thomas’ opinion. The Supreme Court rejected the 9th Circuit’s conclusion that exemptions to the FLSA should be construed narrowly. According to the majority, courts interpreting the FLSA should construe the exemptions fairly because the FLSA gives no “textual indication” that its exemptions should be construed otherwise. This means that courts are now permitted to interpret FLSA exemptions more broadly than before, potentially leading to fewer employees being entitled to overtime under the FLSA.
Employers who employ service advisors should be aware of this case. Under this ruling, service advisors are now exempt from overtime pay under the FLSA. This decision is also important, however, for employers who do not employ service advisors. The Supreme Court made clear in this decision that exemptions to the FLSA should be construed fairly instead of narrowly. This may open the door in the coming years for courts to find an increasing number of jobs exempt under the FLSA and may provide some cover to employers looking to more expansively view the exempt status of their employees.