On April 2, 2018, the U.S. Supreme Court held in Encino Motorcars, LLC v. Navarro that an auto dealership’s service advisors were exempt from overtime under the Fair Labor Standards Act (FLSA), which excludes “any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles” from the FLSA’s overtime provisions. While the case turned on this fairly specific overtime exemption question, however, the Court’s decision has much greater implications, laying out a new standard for analyzing overtime exemptions under the FLSA and rejecting the longstanding precedent that FLSA exemptions be “narrowly construed” in favor of a broader “fair reading” standard.
The FLSA is a federal wage-and-hour statute which establishes, among other things, minimum wage and overtime requirements for covered employers. Under the FLSA, most employees are entitled to overtime premium pay—pay at one-and-a-half times the regular hourly rate for hours worked in excess of 40 in a given work week. Some workers, however, are exempt from the FLSA’s overtime provisions, including executives, administrative employees, learned professionals (such as doctors and lawyers), and creative professionals (such as musicians and actors), among a number of others. Encino Motorcars dealt with a less common, more obscure FLSA exemption, set forth in § 213(b)(10)(A) of the FLSA, which states that “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements” is exempt from overtime under the FLSA.
In Encino Motorcars, a group of current and former service advisors at an auto dealership brought suit under the FLSA, alleging that they were owed back pay because their employer had misclassified them as exempt from overtime under the FLSA. The defendant then successfully moved to dismiss on the grounds that the plaintiffs fell within the “selling or servicing automobiles” FLSA exemption, which decision plaintiffs appealed to the U.S. Circuit Court of Appeals for the Ninth Circuit. The Ninth Circuit reversed the district court’s ruling, finding the language of the FLSA “ambiguous” and the legislative history “inconclusive.” Encino Motorcars then appealed the Ninth Circuit’s holding to the U.S. Supreme Court, which reversed and remanded in a 5-4 decision.