Fair Labor Standards Act Update

On April 2, 2018, the US Supreme Court issued its much-awaited opinion in Encino Motorcars, LLC v. Navarro, 16-1362, — US — (U.S. Apr. 2, 2018). In a 5-4 opinion, the Supreme Court case makes clear that car dealership service advisors are exempt from the Fair Labor Standards Act (“FLSA”) overtime requirements because they are ‘salesmen’ who are ‘primarily engaged in servicing automobiles.’

The FLSA requires that employers pay minimum wage and overtime to employees unless an employee qualifies for an exemption. Section § 213(b)(10)(A) of the FLSA exempts “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” from the overtime requirement.
In reaching its decision that services advisors are exempt from the FLSA overtime requirements, the Supreme Court found that service advisors are “obviously” salesmen as that term means “someone who sells goods or services”. The Supreme Court also found that service advisors are “‘primarily engaged in … servicing automobiles’” because:

• Service advisors are “integral to the servicing process”;
• Servicing means either “the action of maintaining or repairing a motor vehicle” or “[t]he action of providing a service”; and
• The phrase “primarily engaged in … servicing automobiles” applies to both partsmen and service advisors because it includes “some individuals who do not physically repair automobiles themselves but who are integrally involved in the servicing process”.

The Supreme Court also rejected the employee’s position that the Court should apply the long-held principle that FLSA exemptions are to be narrowly construed. Instead, the Supreme Court stated that exemptions under the FLSA are to be given a “fair reading” because the “narrow-construction principle relies on the flawed premise that the FLSA ‘pursues’ its remedial purpose ‘at all costs.’” The significance of this is best summarized by the four dissenting justices who explained that “[i]n a single paragraph, the Court ‘reject[s]’ this longstanding principle . . . without even acknowledging that it unsettles more than a half a century of our precedent.”

Although car dealerships will likely benefit from this resolution to the long standing question of whether service advisors may be classified as exempt under the FLSA, the Supreme Court’s rejection of the narrow-construction principle has wider reaching implications. It could also put employers in other industries in a more advantageous position during litigation concerning misclassification of employees. Employers should still be mindful of their FLSA compliance obligations and aware of the potential for misclassification claims, however, until it becomes clearer as to how the courts will apply this new “fair reading” standard.