Service Advisors at Auto Dealerships Not Exempt, Says the Ninth Circuit

By Haley Morrison

On January 9, 2017, the Ninth Circuit issued its opinion in Navarro v. Encino Motorcars, LLC, on remand from the United States Supreme Court. It held, once again, that service advisors at car dealerships are not exempt from overtime under the Fair Labor Standards Act ("FLSA").

The federal FLSA exempts from overtime "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements" at a covered dealership. See 29 USC § 213(b)(10)(a) (emphasis added). The Oregon statute is virtually identical. See ORS 839-020-0125(3)(g).

In the 1970s, the Department of Labor ("DOL") issued an opinion letter stating that service advisors at car dealerships were included in the definition of "salesman" under the exemption, because they sell services related to vehicles. The DOL has since flip-flopped a few times, and, in 2011, concluded that the FLSA intended to "limit the exemption to salesmen who sell vehicles and partsmen and mechanics who service vehicles." Thus, according to the DOL, in order for the exemption to apply, (a) salesmen must sell vehicles, and (b) partsmen must service vehicles.

In March 2015, the Ninth Circuit addressed the DOL's 2011 regulation in Navarro v. Encino Motorcars, LLC, 780 F.3d 1267 (9th Cir. 2015). In a significant departure from prior decisions from other courts – the Fourth and Fifth Circuits, and Supreme Court of Montana, in particular – the Ninth Circuit held that service advisors are not exempt from overtime because they are not salesmen who sell vehicles. 

The decision was appealed to the United States Supreme Court. The high Court concluded that the applicable FLSA statute must be construed without giving controlling weight to the DOL's 2011 regulation. In other words, splintering the exemption to "salesmen who sell vehicles" and "partsmen who service them" is not the definitive law of the land simply because the DOL came to that conclusion. The Court remanded the case to the Ninth Circuit for consideration, without controlling deference to the DOL regulation.

On remand, the Ninth Circuit persisted with its ultimate holding, concluding that service advisors are non-exempt employees entitled to overtime. In dicta, the court suggested that auto dealership "partsmen" are also non-exempt employees, unless their primary duty is to "service" cars, much like a mechanic.

The bottom line for dealerships in the Ninth Circuit – which includes Oregon, California and Washington, among other states – is that, unless another exemption applies, service advisors (and very likely partsmen) must be paid as non-exempt employees entitled to overtime. 

This client update is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have any questions regarding this update, or for more information about this topic, please an attorney in our Labor & Employment practice group, or the attorney with whom you normally consult.

Posted in
Filed under