U.S. Supreme Court Issues Decision In FLSA Car Dealership Case

Volume 15, Issue 15
July 6, 2016

On June 20, 2016, the U.S. Supreme Court issued its decision in Encino Motorcars, LLC v. Navarro, a case we discussed in January. The issue in this case was whether "service advisors" at car dealerships are exempt from the overtime-pay requirements of the Fair Labor Standards Act (FLSA).

The "service advisors" in this case identify service needs and sell service solutions to the dealership's customers. They contended that they were entitled to overtime pay. The employer argued that these employees are exempt from overtime under the FLSA exemption that applies to "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles." The employer relied upon the Department of Labor's (DOL) well-settled position - since 1978 - that this exemption included service advisors. The Ninth Circuit Court of Appeals, with jurisdiction over Nevada, disagreed with the employer and decided to follow a new 2011 DOL Regulation. The new regulation changed the DOL's position on this issue and limited the exemption only to salesmen who sell vehicles and partsmen and mechanics who service vehicles.

The U.S. Supreme Court did not decide whether service advisors are exempt under the FLSA exemption at issue. Instead, it sent the case back to the Ninth Circuit Court for further consideration of that issue. The Court did decide, however, that the Ninth Circuit was wrong to rely upon the 2011 DOL regulation because it was procedurally defective. While deference to an agency's regulations is often appropriate, here the regulation was issued without a reasoned explanation even though it changed the DOL's prior long-standing practice of including service advisors in the FLSA exemption.

Despite the Court's failure to answer the FLSA question and provide certainty to car dealerships in the Ninth Circuit, this decision is helpful for all employers because it checks the way in which federal agencies issue regulations. The Supreme Court made clear that if a federal agency, such as the DOL, wants its regulations to be applied by a court, it must carefully follow the correct rule-making procedures.

To read the Supreme Court's decision, click here.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.