SCOTUS Update: DOL Rule Reversal to Impact “Narrowly Construed” FLSA Class Exemptions

In a 5-4 decision, the Supreme Court ruled on Monday that automobile service advisors are exempt from the overtime requirements of the Fair Labor Standards Act. While the decision would appear to apply only to a narrow class of employers (automobile dealers), the majority opinion rejected the principle that exemptions to the FLSA should be construed narrowly, which has the potential for much broader impact.

Encino Motorcars v Navarro involved an exemption under the FLSA which provides that that statute’s overtime-pay requirement does not apply to “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 or implements to ultimate purchasers.” §213(b)(10)(A). For many years, this exemption was understood to exempt automobile service advisors (i.e., the folks who interact with customers at counters). 

In 2011, however, the Department of Labor reversed course and issued a rule that interpreted “salesman” to exclude service advisors. In 2012, petitioners (current and former service advisors for Encino Motorcars, a Mercedes-Benz dealership in California) sued for backpay, relying upon the 2011 DOL rule. In a 2016 opinion, the Supreme Court rejected that reliance, holding that the 2011 DOL rule was procedurally defective. It remanded the case to the Ninth Circuit to consider the petitioners’ claims, without reference to the 2011 DOL rule. On remand, the Ninth Circuit held that the exemption did not cover service advisors.

Today, the Court reversed that decision. In a majority opinion authored by Justice Thomas, the Court explained that the question was “whether service advisors are ‘salesm[e]n . . . primarily engaged in . . . servicing automobiles.” It answered this question affirmatively, including that, “[u]nder the best reading of the text, service advisors are ‘salesm[e]n,’ and they are ‘primarily engaged in . . . servicing automobiles.’”

The Court first held that the ordinary meaning of “salesman” – someone who

sells goods or services – encompasses a “service advisor,” because a service advisor sells customers services for their vehicles. The court also held that service advisors are “primarily engaged in . . . servicing automobiles” because “[t]he word ‘servicing’ in this context can mean either ‘the action of maintaining or repairing a motor vehicle’ or ‘[t]he action of providing a service,’” and a service advisor satisfies both elements. The Court acknowledged that “service advisors” do not spend most of their time physically repairing automobiles, but held that the statutory language was not so contained:

[T]he phrase “primarily engaged in . . . servicing automobiles” must include some individuals who do not physically repair automobiles themselves but who are integrally involved in the servicing process. That description applies to partsmen and service advisors alike.

The Court next rejects the “distributive canon” the Ninth Circuit used to reach its decision (If you’re interested in the back-and-forth on the distributive canon, as applied to this exemption, I’d suggest reading this analysis).

More importantly for employers nationwide, the Court also rejected the principle, invoked by the Ninth Circuit, that exemptions to the FLSA should be construed narrowly.  The Court holds that, because the FLSA gives no “textual indication” that its exemptions should be construed narrowly, there is no reason to do so. The Court expressly notes that the FLSA has over two dozen exemptions in §213(b) alone, including the one at issue here, and holds that these exemptions are entitled to a “fair reading” consistent with the remainder of the statute.

Demonstrating the importance of this aspect of the Court’s ruling, the issue of whether the exemptions to the FLSA should be construed narrowly – in light of its overall “remedial purpose” – was the subject of an amicus brief from the Chamber of Commerce which argued that the Court “should seize the opportunity presented in this case to reject the ‘made-up canon’ that FLSA exemptions must be narrowly construed,” and an amicus brief from the National Employment Lawyers Association, urging the Court to narrowly construe its exemptions.

The Supreme Court seized the opportunity and rejected the canon that FLSA exemptions should be narrowly construed.  The majority’s reasoning in this 5-4 decision suggests that this ruling impact will impact how courts across the country interpret other FLSA exemptions in the future.

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