On September 28, 2017, the U.S. Supreme Court again granted certiorari to resolve a circuit split regarding whether “service advisors” at automobile dealerships are exempt from receiving overtime under an exemption for “salesmen, partsmen, and mechanics” under the Fair Labor Standards Act (FLSA). The case is Encino Motorcars, LLC v. Navarro, No. 16-1362 (U.S. Sep. 28, 2017).
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.
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.
Supreme Court Decision – June 2016
The Supreme Court heard and issued a ruling in this case in June 2016. The Court did not answer the question of whether service advisers are exempt from overtime. Instead, the Court held that the USDOL regulations that the Ninth Circuit Court of Appeals relied upon to hold that service advisors are not exempt were invalid. This decision by the Supreme Court is similar to decisions reached by the Fourth and Fifth Circuits. Rather than decide the matter, the Court remanded the case back to the Court of Appeals for reconsideration. On remand, the Court of Appeals reconsidered the issue without reference to the views of the Department of Labor. Looking solely at the language and intent of the statute, the Court of Appeals once again found that service advisors do not fall within the meaning of the terms “salesman, partsman, or mechanic” as used in the FLSA.
Once again, the Ninth Circuit's position on the exemption is at odds with rulings in the Fourth and Fifth Circuits. This time around, the Supreme Court is expected to resolve the underlying issue of whether the service advisors are entitled to overtime, providing needed certainty to employers. Until the Supreme Court definitively sorts this issue out, auto dealers who wish to classify their service writers or service advisors as exempt from overtime may wish to focus on the FLSA Section 7(i) exemption for employees of retail or service establishments who are paid primarily on a commission basis.
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