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Supreme Court Revises Standard for FLSA Overtime Exemptions

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.

The majority rejected the Ninth Circuit’s decision, finding that the plaintiff service advisors are “obviously” salesmen who “service” automobiles, as they listened to customers about their concerns, suggested repairs and maintenance services, sold accessories and replacement parts, and followed up with customers after transactions to explain repairs and inform them of any problems. As such, they were covered by the FLSA’s exemption.

In coming to its conclusion, the Court also reviewed the precedent and standard relied upon by the Ninth Circuit: that the FLSA’s overtime exemptions are to be “construed narrowly.” In its decision in Encino Motorcars, the Court stated, “We reject this principle as a useful guidepost for interpreting the FLSA,” explaining that the FLSA does not itself create such a requirement, but does contain over two dozen categories of workers who are exempt from overtime. Justice Clarence Thomas, writing for the majority, stated, “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.”

The decision was controversial, with only a narrow 5-4 majority and Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor, and Elena Kagan dissenting. Justice Ginsburg, who wrote the dissenting opinion, argued that service advisors should fall outside the exemption, since they do not actually sell nor repair automobiles. Such a broad reading, Justice Ginsburg stated, would require the Court to “enlarge the exemption” under the FLSA to include such employees and went against the established precedent of narrowly construing FLSA exemptions. She noted that the Supreme Court has long held that the FLSA’s overtime exemptions are “particular” and are not meant to be broadened “by implication”—rather, any employees who are not within the FLSA’s “narrow and specific” exemptions should be understood to be covered by its overtime protections. In enlarging this exemption and discarding the “narrowly construed” standard, Justice Ginsburg wrote, the Court “in adding an exemption of its own creation, veers away from that comprehension of the FLSA’s mission.”

If you believe that your employer has violated wage-and-hour laws, including misclassifying you as exempt from overtime, contact The Harman Firm, LLP.

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