Supreme Court Finds Auto Service Advisors Exempt from Overtime, Rejects ‘Narrow Construction’ Principle in Applying FLSA Exemptions

On April 2, 2018, the U.S. Supreme Court issued its ruling in Encino Motorcars, LLC v. Navarro.

This case addressed the status of auto dealer service advisors under the Fair Labor Standards Act’s Section 13(b)(10) overtime exemption.  The ruling resolves a court spilt on the application of the exemption, but more importantly, it has implications far beyond the specific exemption and the industries to which it pertains. 

After years of litigation, including two trips to the Supreme Court, on whether service advisors who work in an automobile dealership are exempt from overtime under the FLSA, the Court held, in a 5-4 decision, that service advisors are exempt from overtime under the “Automobile Dealer” exemption applicable to salespersons, partspersons, and mechanics employed by dealerships.

 The case involved a group of Encino Motorcars service advisors who sued the dealership, arguing that it should have paid them overtime premium wages for hours worked over 40 per week.  The dealership denied the service advisors’ claim, pointing to the FLSA’s Section 13(b)(10) exemption.  The Supreme Court concluded that the service advisors were “salesmen primarily engaged in servicing automobiles”, and “integral to the servicing process” meaning that Encino Motorcars was correct in classifying them as exempt from the overtime pay provisions of the FLSA.

The most significant aspect of the Encino Motor Cars case is the rationale given by the Supreme Court in reaching its ruling.  The decision dispels the long-standing principle that due to the FLSA’s status as a “remedial” statute, exemptions should be narrowly construed against the employer and should apply only when an exemption pertains plainly and unmistakably.  In effect, this interpretation gave employees the benefit of the doubt in cases where the application of a FLSA exemption was a close call.  In numerous rulings over the years, courts have relied on this traditional application.  But in its first hearing of the case in 2016, the Supreme Court remanded Navarro back to the Ninth Circuit Court of Appeals, with this statement:

“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. The narrow-construction principle relies on the flawed premise that the FLSA pursues its remedial purpose at all costs. 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. We thus have no license to give the exemption anything but a fair reading.”

For over 50 years the narrow construction principle has been routinely cited in cases involving the application of FLSA exemptions.  Now the Supreme Court has unequivocally rejected this approach, noting that exemptions are just as much a part of the FLSA as are the overtime provisions.   The impact of this decision will be significant.  The courts and the DOL, in enforcing the FLSA, will have to decide exemptions without resorting to the longstanding approach that tended to favor workers’ claims of FLSA violations due to misclassification as overtime exempt employees.   Employers can take some comfort in that change in the legal landscape.

The material in these presentations is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.The opinions expressed in these videos are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.

- Mike Staebell