Jun 22, 2016
On June 20, the U.S. Supreme Court avoided issuing a major ruling on whether an automobile dealership’s service advisors fall into the same category as dealership salesmen, partsmen, and mechanics, who are explicitly exempt from overtime pay requirements under the Fair Labor Standards Act (FLSA).
The Supreme Court remanded the case (Encino Motorcars, LLC v. Navarro) to the Ninth Circuit Court of Appeals to interpret the exemption without granting deference to the Department of Labor’s (DOL) 2011 interpretation of the FLSA exemption. The Court noted that, when the DOL issued the 2011 regulation described below, there was a lack of explanation for the deviation from the long-standing earlier position that the exemption applied to service advisors.
For decades, the DOL and the courts interpreted the FLSA overtime pay exemption for auto dealership salesmen, partsmen, and mechanics to include service advisors. In April 2011, the DOL disavowed its 24-year-old opinion that FLSA’s §213(b)(10)(A) overtime exemption applies to auto dealership employees working as “service advisors” or “service writers”. The DOL’s new interpretation contended that a “service advisor” was not included in §213(b)(10)(A)’s list of “salesman, partsman, or mechanic,” which meant that, according to the DOL, service advisors/writers would no longer be considered exempt from the FLSA’s overtime requirements. The DOL’s reversal came despite at least five federal courts since the 1970’s finding that service advisors/writers were exempt under the same statutory language. The Supreme Court heard this case because there was a split on this particular issue between the Circuits, with Fourth and Fifth Circuit cases holding that the exemption applies to service advisors, and the Ninth Circuit finding to the contrary.
This decision is significant because the Supreme Court could have agreed with the Ninth Circuit, and many service advisors, therefore, presumably would have qualified for overtime pay under the FLSA. Fortunately for dealerships, the DOL’s 2011 rule has no controlling weight. Under the guidance provided by the Supreme Court, the Ninth Circuit must determine whether service advisors are exempt from the overtime provisions under §213(b)(10)(A). Auto dealerships outside the Ninth Circuit have no controlling authority preventing them from continuing to treat service advisors as exempt under §213(b)(10)(A) and continuing their business practices and compensation models in the same fashion.
Dealerships within the Ninth Circuit must wait until the Ninth Circuit issues a new opinion as to whether the exemption applies. As such, the Supreme Court’s decision impacts a narrow group of dealerships that are (1) located within the Ninth Circuit; and (2) that rely exclusively on the §213(b)(10)(A) exemption to classify their service advisors as exempt from overtime. Notably, most dealerships pay their service advisors using a pay plan specifically designed to qualify the service advisor for the §207(i) commissioned sales exemption – the so-called “commission-paid retail” employee exemption. This means that, even though the exemption for partsmen, salesmen, and mechanics may not apply, as long as the pay plan is correctly structured, service advisors may qualify under the exemption from overtime pay described in 29 U.S.C. § 207(i).
Another takeaway for automobile dealerships is that automobile dealerships have a special overtime exemption whereas non-dealerships do not. For instance, a dealership repair estimator may qualify for the exemption whereas a non-dealership repair estimator doing the exact same thing will not qualify for the Section 213 exemption (however, the §207(i) applies equally to both employers).
If you have any questions about FLSA exemptions or any other wage and hour matter, please do not hesitate to contact Jamie M. Westbrook, Karen E. Milner, R. Michael Lowenbaum, Robert S. Seigel, Corey L. Franklin, Christopher M. Sanders, David P. Frenzia, or Whitney P. Cooney.