On April 2, 2018, the U.S. Supreme Court issued a decision, Encino Motorcars, LLC v. Navarro, interpreting what is known as the “auto dealers exemption” under the Federal Labor Standards Act (“FLSA”). While Navarro involved a special subset of the FLSA applicable only to auto dealers, the Court’s decision may have broad repercussions for all employers.
The FLSA is the federal law which imposes minimum wage and overtime pay requirements on employees—except for employees whose pay and duties fall under certain “exemptions” to the law. Although not often the subject of litigation, under 29 U.S.C. § 213(10)(a), certain employees of automobile dealerships are exempt from the FLSA’s overtime requirements. Specifically, that statute exempts from overtime:
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…
In Navarro, the Court considered whether the auto dealers exemption applies to service advisors at an auto dealership.
On one hand, if multiple categories of auto dealer employees are exempt from the FLSA’s overtime requirements, is there any reason why service advisors should be treated any differently? On the other hand, does a service advisor technically qualify as a “salesman,” “partsman” or “mechanic”? The Ninth Circuit Court of Appeals found that exemptions in the FLSA should be construed narrowly and concluded that service advisors, since not expressly mentioned in the statute, did not fall within the exemption.
The Supreme Court disagreed. In a 5-4 decision written by Justice Clarence Thomas, the Court found that service advisors are “salesmen,” because they are selling services. In addition, the Court concluded that the exemption must be read as including “some individuals who do not physically repair automobiles themselves but who are integrally involved in the servicing process.” In other words, the Court found that, by virtue of their job duties, service advisors fall within the spirit, if not the letter, of the auto dealers exemption, and accordingly, qualify for exemption from the overtime requirements of the FLSA.
Plainly, this decision is important to car dealerships, but what are its repercussions beyond that industry? Most importantly, the Court rejected the principle that FLSA exemptions should be construed narrowly. Instead, the exemptions must be afforded a “fair reading” in the same manner as other provisions of the Act. The Court’s language could be interpreted as applying not only to the auto dealers exemption, but also to the so-called “white collar exemptions” relied upon by untold numbers of employers across multiple industries.
The Court’s decision in Navarro help employers in that it may cause federal courts to construe all FLSA exemptions more broadly than perhaps they construed them before. However, employers should be mindful that exemptions are always exceptions to the rule and that they will bear the burden of proving the applicability of an exemption to any job position. Employers should confer with their legal counsel to ensure that they are properly applying the FLSA, including overtime exemptions, to the workforce.
Authored by Kara E. Shea