On April 2, 2018, the Supreme Court of the United States, in Encino Motorcars, LLC v. Navarro, 584 U.S. ___ (2018), ruled that automobile service advisors are exempt from the overtime requirements of the Fair Labor Standards Act (“FLSA”). In doing so, the Supreme Court ended a multi-year battle over the applicability of section 213(b)(1)(A) of the FLSA.
A number of current and former service advisors at Encino Motorcars, LLC (“Encino”) sued Encino for back pay, alleging that they were entitled to overtime compensation for all hours worked over 40 in a week pursuant to the FLSA. In filing their complaint, the service advisors relied on a 2011 U.S. Department of Labor regulation saying that service advisors are not exempt. Encino moved to dismiss, arguing that the employees were exempt. The district court agreed with Encino and dismissed the complaint. The Ninth Circuit reversed, deferring to the 2011 regulations. The United States Supreme Court remanded that matter, finding the 2011 regulations were adopted without a reason and thus were not entitled to Chevron deference.
Following remand, the Ninth Circuit again found the service advisors were not exempt, this time relying on the language of the exemption and rationalizing that exemptions should be narrowly construed.
Supreme Court’s Decision
Pursuant to the relevant part of section 213(b)(1)(A) of the FLSA, “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” is exempt from the overtime compensation requirements of the FLSA.
In a 5-4 decision, the Supreme Court held that service advisors are “salesm[e]n . . . primarily engaged . . . in servicing automobiles” exempt from overtime. Relying on the parties’ admissions that partsmen, who purchase and issue spare parts for cars, are engaged in servicing automobiles, the Supreme Court held that the statutory definition of “servicing” is not limited to physically repairing automobiles. Instead, service advisors, who are an integral part of the service process, are engaged in servicing vehicles. In addition, the Supreme Court held that, under the statutory language, salesman who engage in either selling or servicing are exempt under the FLSA.
In reaching its decision, the Supreme Court expressly addressed the canons of statutory construction on which it relied. First, in rejecting the legislative history relied upon by the Ninth Circuit, the Supreme Court reaffirmed that silence in legislative history cannot clarify ambiguous statutory text. Second, the Supreme Court held that “[b]ecause the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.’”
Impact of SCOTUS’s Decision
While the applicability of the exemption at issue may have a significant impact, even outside of the automobile industry, the greater impact moving forward may be the rationale utilized by the Supreme Court. In issuing FLSA decisions, the Supreme Court and courts across the country historically have held that FLSA exemptions should be narrowly construed. In Encino, the Supreme Court expressly and unequivocally rejected the narrow construction concept in favor of “fair reading.”
In recognizing that the “exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement,” the Supreme Court has reset the wage and hour landscape, requiring the overtime exemptions to be treated equally with the overtime compensation requirements. While only time will tell the breadth to which this decision will impact the applicability of FLSA exemptions, it will surely force lower courts and administrative agencies to recalibrate the lenses through which they evaluate these matters.
The rationale of the Supreme Court’s decision poses additional questions in New Jersey, where the New Jersey Department of Labor and Workforce Development (“DOLWD”) has incorporated certain federal regulations into the New Jersey Wage and Hour Law’s regulations by reference. Recognizing that the New Jersey Wage and Hour Law was modeled off of the FLSA, the purpose of such incorporation by reference was to maintain consistency between the FLSA and Wage and Hour Law. Although the Wage and Hour Law is independent of the FLSA, the Supreme Court’s rationale and DOLWD’s strive for consistency between state and federal law offer new opportunities to address relevant exemptions.
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