The Supreme Court ruled on April 2, 2018, that automobile service advisors are exempt under the Fair Labor Standards Act (“FLSA”) and therefore not entitled to overtime pay. The Court’s opinion, in Encino Motorcars, LLC v. Navarro, ends a long-running controversy over the extent of the FLSA’s overtime exemption (29 U.S.C. § 213(b)(10)(A)) for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements.”

The FLSA, which is the federal law mandating minimum wage and overtime pay, contains dozens of exemptions from overtime pay. At one time, the FLSA exempted all car dealership employees from overtime pay, but in 1966 and 1974 Congress limited the car dealership exemption to only “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.” Since then, there have been several cases dealing with whether service advisors meet this overtime exemption. Service advisors are car dealership employees who consult with customers about their servicing needs and sell them services.

The U.S. Department of Labor (“DOL”) initially ruled that service advisors are not exempt, but in 1978 the DOL issued an opinion letter stating that they are exempt. In 2011, however, the DOL again reversed course, issuing a regulation that interpreted the exemption to exclude service advisors, so that they were entitled to overtime pay.

In this case, the plaintiffs were service advisors for a Mercedes-Benz dealership in California. Their job duties included consulting with customers to sell them services for their cars, suggesting repair and maintenance services to customers, selling accessories and replacement parts, recording service orders, and other communications with customers about work performed on their cars. The plaintiffs sued the dealership, relying on the 2011 DOL regulation to claim that they were not FLSA exempt and were owed overtime pay. The district court dismissed the case, holding that service advisors are exempt under the FLSA. On appeal, the Ninth Circuit reversed, holding that under the 2011 DOL regulation service advisors are not exempt. The Supreme Court vacated that Ninth Circuit decision on the basis that the 2011 DOL regulation was procedurally defective and should not be relied on. On remand, without relying on the 2011 DOL regulation, the Ninth Circuit nonetheless again held that service advisors are not exempt.

The defendant dealership again appealed to the Supreme Court. Applying the ordinary meaning of the word “salesman,” the Supreme Court held that a “service advisor is obviously a ‘salesman’ … someone who sells goods or services” and that service advisors are also “primarily engaged in … servicing automobiles.” In reaching this conclusion, the Supreme Court rejected the Ninth Circuit’s claim that FLSA exemptions should be construed narrowly. “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.'” The Supreme Court noted that the FLSA’s dozens of exemptions “are as much a part of the FLSA’s purpose as the overtime-pay requirement.”

Car dealerships should take this opportunity to review how they compensate their service advisors. All employers should note the Supreme Court’s willingness to construe FLSA exemptions more broadly than other courts and the DOL have in the past. As always, it is important to consult with experienced labor and employment law counsel regarding employee compensation matters. The labor and employment law attorneys at Vandeventer Black LLP are available to assist you.