On April 2, 2018, the United States Supreme Court, in a 5-4 decision, resolved a circuit split by concluding that auto dealership service advisors are exempt from the overtime requirements under the federal Fair Labor Standards Act ("FLSA").
In Encino Motorcars, LLC v. Navarro, the Ninth Circuit disrupted longstanding industry practice by twice concluding that service advisors were not included in the FLSA's exemptions from overtime for "any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles" at a car dealership. Put simply, the Ninth Circuit's central holding was that the exemption only applies to (a) salesmen who sell vehicles, and (b) partsmen and mechanics who service vehicles. In other words, service advisors are not exempt because they are salespeople who sell services, not vehicles. Our previous Tonkon Tips regarding the Navarro case can be found here and here.
The Supreme Court sent the case back to the Ninth Circuit once before, on grounds related to the Court of Appeal's reliance on a defective 2011 Department of Labor ("DOL") opinion. On remand, the Ninth Circuit again came to the same conclusion, but without relying on the DOL rule. The Supreme Court granted certiorari for the second time, but this time to resolve the central question.
In coming to its decision, the high court rejected the Ninth Circuit's "narrow reading" of the FLSA exemption in favor of an interpretation allowing a "mix and match" of the three nouns (salesman, partsman, or mechanic) and the two gerunds (selling and servicing). That is, the statute applies not just to the salesperson who sells vehicles but also to the salesperson engaged in servicing vehicles — i.e., the service advisor. Thus, the Court concluded, because service advisors "are integral to the servicing process," they are properly classified as exempt. The Court similarly concluded, in dictum, that the rationale applies to partsmen as well: like service advisors, partsmen are integrally involved in the servicing process, and are therefore exempt.
Justice Ginsburg — joined by Justices Breyer, Sotomayor, and Kagan — dissented, explaining that "[b]ecause service advisors neither sell nor repair automobiles, they should remain outside the exemption[.]"
Her view, however, did not carry the day. As a result, the Court's decision ratified decades of industry practice. Car dealerships can safely exempt their service advisors and partsmen from the FLSA's overtime requirements. Nonetheless, it is possible that in some jurisdictions, state law is more favorable than the federal FLSA. In those states, employers may still need to pay overtime to any affected employees.
This 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 contact an attorney in our Labor & Employment Practice Group, or the attorney with whom you normally consult.