On April 2, the United States Supreme Court handed auto dealerships a long-awaited 5-4 victory in Encino Motorcars v. Navarro, holding service advisers are exempt from the Fair Labor Standards Act’s overtime-pay requirement because they are “salesm[en] … primarily engaged in … servicing automobiles.” After close to six years and two trips to the high court, the decision restored decades of unsettled dealership practice, until the U.S. Department of Labor’s stunning and controversial 2011 agency decision. Ultimately, the decision ratifies roughly 40 years of established pay practices for the approximately 100,000 service advisers employed at dealerships throughout the United States.
For those not in the dealership industry, a service adviser is responsible for the intake of customers who enter the service area of a dealership. The intake process includes the service adviser evaluating the customer’s complaints, determining the service needs of the vehicle, and selling supplemental services beyond those that would directly address the customer’s complaint. For several decades, the Department of Labor interpreted the FLSA to exempt service advisers from overtime requirements, relying on the exemption for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” Obviously, “service adviser” is not mentioned, but the agency agreed with numerous lower courts that service advisers fell within the exemption as salesman selling services. Then, in 2011, the Department of Labor unexpectedly backtracked, determining service advisers were generally not exempt. The agency limited its interpretation of the FLSA to exempt only salesmen who sold automobiles (not services) or service technicians who worked on vehicles.
Relying on this new agency interpretation, a group of service advisers sued their dealership employer seeking unpaid overtime and penalties. In a 2015 decision, the Ninth Circuit Court of Appeals, holding that service advisers were not exempt, described the agency’s radical position change as “rationally explained” and supported by history showing that they had given the issue “considerable thought.” In 2016, on this case’s first trip to the United States Supreme Court, the court disagreed with the Ninth Circuit’s characterization. With only eight justices presiding after the loss of Justice Antonin Scalia, the court, in a 6-2 decision, reversed and remanded, directing the Ninth Circuit to interpret the exemption’s statutory language, giving no deference to the agency’s interpretation.
In 2017, the Ninth Circuit again held service advisers were not exempt from the FLSA’s overtime requirements. For a second time, the dealership sought Supreme Court relief. Finally, this spring, with a fully constituted complement of nine justices, the court held service advisers are exempt from federal OT law. The Supreme Court rejected the Ninth Circuit’s 2016 reasoning and affirmed the long- standing rationale relied upon for decades by other courts across the country, which had determined service advisers exempt from the FLSA’s overtime requirements. Justice Clarence Thomas’ majority opinion determined service advisers fall under the exemption even though they do not personally go under the vehicle’s hood. Rather, service advisers are exempt because service advisers are primarily engaged in servicing automobiles vis-à-vis their sales of those services. The court rested its decision on the plain language of the statute, which it explained, “has long been understood to cover services advisors.” What reads like an English grammar exercise in diagramming sentence structure, the court began with the uncontroversial premise that service advisers are salesmen. It then determined that service advisers are primarily engaged in both dictionary definitions of “servicing,” such that they satisfy the exemption under the statute. It importantly noted that the phrase “primarily engaged in … servicing automobiles” applies to both partsmen and service advisers.
The Supreme Court also handed employers across all industries a potentially significant victory by rejecting the oft-invoked principle that FLSA exemptions should be interpreted narrowly. Noting that the FLSA’s text provides no suggestion that it should be construed in such a restrictive manner, the court announced the “narrow-construction principle relied on the flawed premise that the FLSA ‘pursues’ its remedial purposes at ‘all costs.’” Thus, the court made clear that a court’s role in reading FLSA exemptions is not to give them a “narrow” reading but a fair one. This rejection of the “narrow reading” of FLSA exemptions should soon affect a whole host of FLSA exemption cases. The rejection of the anti-exemption canon means that the judicial thumb pressed down in favor of employees is now off the scale when employers fairly assert that employees are exempt from the FLSA’s overtime requirements.
Today, dealerships may confidently treat these employees as exempt from overtime requirements under the FLSA. It is too soon to tell the impact that the court’s decision to pull back the “construed narrowly” admonition will have as lower courts engage in the statutory interpretation of FLSA exemptions. But it appears that one powerful arrow is no longer in the quiver.
Todd B. Scherwin is the regional managing partner of the Los Angeles office of Fisher Phillips. He can be reached at firstname.lastname@example.org. Wendy McGuire Coats is a partner and appellate counsel in Fisher Phillips’ San Francisco office. Coats is a certified specialist in appellate law. She can be reached at email@example.com. Karl R. Lindegren is a partner in the firm’s Irvine office. He can be reached at firstname.lastname@example.org. All three authors defended Encino Motorcars in the case before the Supreme Court.