Later this year, California Automobile Dealerships will get a decisive ruling from the U.S. Supreme Court about a decades-old controversial issue. The issue is whether Service Advisors are exempt from overtime requirements under the Fair Labor Standards Act (FLSA). Section 13(b)(10)(A) of the FLSA exempts “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.”
On January 15, 2016, the U.S. Supreme Court announced that it would take the matter under consideration and will ultimately clarify the issue for dealers in California and across the country. The Court will hear an appeal of the Navarro v. Encino Motorcars, LLC case, and its decision is expected by June 2016.
Historically, Service Advisors were included in the “salesperson” exemption. Beginning in 1973 with a federal appellate decision in Brennan v. Deel Motors, Inc., and continuing as recently as 2013 with the Montana Supreme Court's decision in Thompson v. J.C. Billion, Inc., courts have uniformly held that Service Advisors are exempt from overtime under Section 13(b)(10) of FLSA.
Over the years, Car dealerships have faced uncertainty since the U.S. Department of Labor's (USDOL) track record in this area has been inconsistent. At times, the Department of Labor has said that Service Advisors could qualify for the exemption; at other times, it has said that they could not. At one point, the USDOL issued an interpretive provision where it took the position that Service Advisors did not fall within the exemption; however, several courts nevertheless applied the exemption and the USDOL said it would no longer dispute the issue.
The USDOL reversed course in April 2011 by deleting the controlling regulation, stating that the change reflected its view that the exemption should be limited “to salesmen who sell vehicles and partsmen and mechanics who service vehicles,” and that Service Advisors did not fall within this description.
In Navarro v. Encino Motorcars, LLC, the 9th Circuit Court of Appeals deferred to USDOL's most recent interpretation of the exemption and became the first court to hold that Service Advisors are not exempt from overtime pursuant to the “salesperson” exemption.
SCOTUS Will Issue The Final Word
On January 15, 2016, the U.S. Supreme Court announced that it would take the matter under consideration and hear an appeal of the Navarro case. The Court's decision will apply to dealers throughout the country. In the event the Court somehow finds that Service Advisors are not exempt from overtime under the “salesperson” exemption, dealerships should be prepared to update or revise Service Advisor pay plans to satisfy the “commission-paid” exemption, which is also available to dealers in most states.
Questions about California's Wage and Hour Laws?
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