I know most of you reading this aren’t in the auto sales and service business.  This also is a Fair Labor Standards Act case.  So, employers subject to California law may not benefit from the Court’s decision. But the Court’s 5-4 opinion in Encino Motorcars, LLC v. Navarro includes an important holding that will be useful to a wider group of employers. So, hang in there until the exciting part.  

This case involves a Fair Labor Standards exemption from overtime pay: “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trailers, trucks, farm implements, or aircraft.”  29 U.S.C. § 213(b)(10)(A).  “Service advisors” are the service department employers who interact with customers and “sell” the services that the mechanics perform.  

Encino, the employer, is a California Mercedes dealership.  It employed service advisors, who sued for mis-classification under the FLSA.  The service advisors based their lawsuit on a 2011 Department of Labor Regulation.

Until 2011, it was accepted that service advisors are exempt under the FLSA.  But in 2011, the U.S. Department of Labor issued a regulation, in which it decided service advisors do not qualify for the exemption.  

Reversing the Ninth Circuit, which had held that service advisors were “non-exempt” under the 2011 DOL regulation, the Supreme Court decided that regulation was invalid in its 2016 opinion in Encino Motorcars, LLC v. Navarro. The Court then sent the case back to the Ninth Circuit. The Ninth Circuit reaffirmed that service advisors are non-exempt even without the regulation. So, Encino sought high court review again. 

On this trip to the Supreme Court, the Court squarely decided that service advisors are indeed “exempt” under section 213(b)(10)(A).  To reach this conclusion, the Court had to decide that service advisors are “salesmen” under the statute, and then that they are “primarily engaged in selling or servicing automobiles” etc.

The Court, in an opinion penned by Justice Thomas, made short work of finding service advisors are “sales” employees: 

A service advisor is obviously a “salesman.” The term “salesman” is not defined in the statute, so “we give the term its ordinary meaning.” Taniguchi v. Kan Pacific Saipan, Ltd., 566 U. S. 560, 566 (2012). The ordinary meaning of “salesman” is someone who sells goods or services. See 14 Oxford English Dictionary 391 (2d ed. 1989) (“[a] man whose business it is to sell goods or con­ duct sales”); Random House Dictionary of the English Language 1262 (1966) (“a man who sells goods, services, etc.”). Service advisors do precisely that. As this Court previously explained, service advisors “sell [customers] services for their vehicles.” Encino I, 579 U. S., at ___ (slip op., at 2).

The Court majority also easily concluded that service advisors are “primarily engaged in servicing” 

Service advisors are integral to the servicing process. They “mee[t] customers; liste[n] to their concerns about their cars; sugges[t] repair and maintenance ser­ vices; sel[l] new accessories or replacement parts; recor[d] service orders; follo[w] up with customers as the services are performed (for instance, if new problems are discov­ered); and explai[n] the repair and maintenance work when customers return for their vehicles.” Encino I, su- pra, at ___ (slip op., at 2). If you ask the average customer who services his car, the primary, and perhaps only, per­ son he is likely to identify is his service advisor.

So, at least under federal law, service advisors are indeed exempt salespersons. As stated, though, California law does not have to follow the FLSA. Therefore, in California, employers must be careful not to mis-classify service advisors based on this decision.

Well you made it through the narrowcast part of the case. So here is the part of the case that will benefit employers in any industry.  The Ninth Circuit’s decision in part was based on a principle that it should construe exemptions to the FLSA narrowly. In fact, many cases say that exemptions to overtime are narrowly construed.  But this Court decided otherwise:

The Ninth Circuit also invoked the principle that ex­emptions to the FLSA should be construed narrowly. 845 F. 3d, at 935–936. We reject this principle as a useful guidepost for interpreting the FLSA. Because the FLSA gives no “textual indication” that its exemptions should be construed narrowly, “there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) inter­pretation.”  *  *  *  *

But the FLSA has over two dozen exemptions in §213(b) alone, including the one at issue here. Those exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement. See id., at ___ (slip op., at 9) (“Legislation is, after all, the art of compromise, the limitations expressed in statutory terms often the price of passage”). We thus have no license to give the exemption anything but a fair reading.

This part of the Court’s opinion will have ripple effects far beyond auto dealerships and service advisors.  Courts frequently cite the principle that “exemptions are narrowly construed” under the FLSA. I don’t think for a moment that California courts will adopt the Court’s view here. In fairness, there are way fewer exemptions under California law. So the majority’s rationale does not fully apply to California law.  

But FLSA decisions guide California courts in a number of contexts. And many employers have operations outside California where the FLSA is the only wage-hour law. So, this interpretation of the FLSA an important development in wage-hour law.

You can read the opinion in Encino Motorcars LLC v. Navarro here.  

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