In Encino Motorcars, LLC v. Navarro, the Supreme Court determined that “service advisors” at car dealerships are exempt from overtime requirements under the Fair Labor Standards Act (FLSA). Although the case only concerned “service advisors,” the case is significant because the Court modified how overtime exemptions are generally interpreted. Ultimately, Encino could benefit employers by making it more difficult for employees to show that they are non-exempt under the FLSA.
The plaintiffs, (including named plaintiff Hector Navarro), were current and former “service advisors” for Defendant Encino Motorcars, LLC (Encino Motorcars). Encino Motorcars is a Mercedes-Benz dealership in California. “Service advisors” at Encino Motorcars interact with customers, suggest maintenance services, and sell services and parts. Plaintiffs sued Encino Motorcars for backpay, alleging that the dealership failed to pay them overtime. Particularly, Plaintiffs claimed “service advisors” were non-exempt under the FLSA and were therefore entitled to overtime.
Encino Motorcars moved to dismiss the lawsuit by arguing that “service advisors” were exempt. Encino Motorcars pointed to language in the FLSA that referred to an exemption from overtime, which states, “any salesman, partsman, or mechanic primarily engaged in selling or service automobiles,” and argued that this language applied to them. The trial court granted the dismissal, but the Court of Appeals for the Ninth Circuit reversed finding a Department of Labor regulation made “service advisors” non-exempt.
The Supreme Court first examined the case in 2016 and found the Department of Labor regulation to be “defective,” meaning the regulation could not be considered. At that time, the Supreme Court did not make a final determination regarding whether “service advisors” were non-exempt and therefore entitled to overtime. The case was then sent down to the Ninth Circuit.
The Ninth Circuit again determined that the FLSA exemption did not cover “service advisors.” In holding “service advisors” to be non-exempt, the Ninth Circuit relied, in part, on the principle that FLSA exemptions should be narrowly interpreted. The Supreme Court then granted review of the Ninth Circuit’s decision.
The Supreme Court’s Analysis
The Supreme Court reversed the Ninth Circuit’s decision and held that “service advisors” are exempt from FLSA overtime requirements because “service advisors” are “salesmen . . . primarily engaged in . . . servicing automobiles” and are thus covered under the FLSA exemption.
The Court began its analysis by examining the language of the exemption. The Court first determined that service advisors are “salesmen,” and are primarily engaged in servicing automobiles. The Court noted that even though “service advisors” do not spend the majority of their working hours physically repairing automobiles, the exemption must include positions integral to the servicing of automobiles, which includes “service advisors.” Therefore, “service advisors” are exempt from overtime requirements.
Next, the Court addressed points made by the Ninth Circuit in the Ninth Circuit’s decision. This caused the Supreme Court to consider rules of statutory interpretation and apply them to the FLSA exemption at issue. Ultimately, the Court found these rules of interpretation did not favor Plaintiffs.
Then, the Court discussed what could be the most impactful part of the decision. The Court addressed the principle that FLSA exemptions should be narrowly interpreted. The Court rejected the narrow interpretation principle for FLSA exemptions. The Court explained that because the FLSA does not indicate that its exemptions should be narrowly interpreted, the narrow interpretation principle should not be used when interpreting FLSA exemptions.
Finally, the Court noted the legislative history of the FLSA, such as statements by Senators regarding the law. The legislative history did not affect the Court’s conclusion that “service advisors” are exempt from overtime requirements.
For the foregoing reasons, because “service advisors” are “salesmen . . . primarily engaged in . . . servicing automobiles,” they are exempt from FLSA overtime requirements.
Takeaways from the Decision
Notably, service advisors at car dealerships are now exempt from FLSA overtime requirements. However, state overtime laws may still require service advisors be eligible for overtime.
The larger effect of the decision is the rejection of the narrow interpretation rule for FLSA exemptions. This principle had guided courts for over seventy (70) years and often served as a presumption against exempt status for employees. For example, in Nordquist v. McGraw-Hill Broadcasting Co., (1995) 32 Cal.App.4th 555, 562 the court explained that exemptions are narrowly construed against the employer and further explained that for exemptions to apply, employees must be plainly and unmistakably within the terms of the exemption. Furthermore, in Arnold v. Ben Kanowsky, Inc. (1960) 361 U.S. 388, 392, the court explained that exemptions are to be narrowly construed against the employers seeking to assert them.
Therefore, the decision’s repudiation of the rule may have a positive impact on employers by making it easier to demonstrate that employees are rightfully classified as exempt.
However, of note, the rejection of the narrow interpretation rule for FLSA exemptions does not necessarily mean that all positions are now considered exempt from overtime requirements. It is important to remember that state overtime laws may step in and continue the non-exempt status of these positions.
If you have questions about whether your current overtime pay practices are compliant with federal or state overtime requirements, please contact the attorneys at Palmer Kazanjian Wohl Hodson LLP.