U.S. Supreme Court Holds Service Advisors are Exempt from the FLSA Overtime-Pay Requirement

Under the Fair Labor Standards Act (FLSA), employers must pay overtime to covered employees who work more than 40 hours in a week.    The law, however, exempts many categories of employees, among whom are employees at car dealerships.  Congress narrowed the exemption to cover sales and parts employees, and mechanics primarily engaged in selling or servicing automobiles and other vehicles.  For years, the law was understood to exempt service advisors.  However, in 2011, the Department of Labor (DOL) determined that service advisors were not “sales employees” and, therefore, were not exempt from overtime requirements under the FLSA.

The DOL’s position gave rise to a lawsuit in which services advisors sought backpay, arguing their employer (a car dealership) violated the FLSA by failing to pay them overtime.  Eventually, the case was heard by the 9th Circuit Court of Appeals, which ruled in favor of the service advisors, deferring to the DOL’s rule.  The employer filed an appeal to the U.S. Supreme Court.

On April 2, 2018, the U.S. Supreme Court issued its decision and reversed the 9th Circuit in Encino Motorcars, LLC v. Navarro.  In a 5-4 decision, with Justice Clarence Thomas writing for the majority, the Court concluded that service advisors are exempt from the overtime-pay requirement of the FLSA because they are sales employees who are primarily engaged in servicing automobiles.  In rendering its decision, the Court broke with its longstanding principles of reading exemptions narrowly against employers.  The Court created a new standard, under which courts should give exemptions a “fair reading.”  Legal commentators believe the application of this new standard will ease the burden for employers who claim an FLSA exemption.  Additionally, some commentators believe the Court’s ruling should impact exemptions for executive, administrative, and professional employees, which are not defined under the FLSA.

Of course, it is too early to tell what the impact of the Court’s decision will be.  Nevertheless, the case has the potential to be a very significant decision for employers defending wage and hour cases.



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