Supreme Court Broadly Interprets Overtime Exemptions Specified in the Fair Labor Standards Act

April 2018

On April 2, 2018, the U.S. Supreme Court issued its decision in Encino Motorcars, LLC v. Navarro, holding that the Fair Labor Standards Act (FLSA) exempts service advisors at car dealerships from the FLSA’s otherwise applicable overtime-pay requirement. This seemingly narrow decision could affect how FLSA exemptions are generally interpreted by the courts.

The FLSA, passed as part of the New Deal, generally requires employers to pay overtime wages to employees who work more than 40 hours in a given week. However, many categories of employees are exempted from the overtime-pay requirement. One such category includes “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements.” The question in Encino Motorcars was whether service advisors, who meet with customers and help them determine what repairs their cars need, fall under this exemption. For decades, the U.S. Department of Labor (DOL) had treated service advisors as exempt. But in 2011, the DOL issued a new regulation reversing its prior position and stating that service advisors are covered employees entitled to overtime pay.

A group of service advisors, relying on the new regulation, sued to recover alleged unpaid overtime wages. The District Court ruled against the service advisors, but the Ninth Circuit reversed, holding that service advisors, though admittedly “salesmen,” are not “primarily engaged in servicing automobiles.” 

In a 5-4 decision, the Supreme Court reversed the Ninth Circuit’s decision and held that service advisors are exempted from the FLSA’s overtime-pay requirement. The majority held that service advisors are salesmen primarily engaged in servicing. This is true even though “service advisors do not spend most of their time physically repairing automobiles,” because service advisors are nonetheless “integral to the servicing process”: they suggest repair and maintenance services, sell accessories and replacement parts, and follow up with customers as the services are performed. As the Supreme Court explained, “If you ask the average customer who services his car, the primary, and perhaps only, person he is likely to identify is his service advisor.”

Although the holding in Encino Motorcars might appear narrow, the implications are potentially far-reaching. As the Ninth Circuit had done in Encino Motorcars, many courts have construed the FLSA’s overtime exemptions “narrowly.” The Supreme Court, however, seemingly rejected this approach, instead holding that the FLSA’s exemptions must be given a “fair reading.” To this end, the Supreme Court explained, the “exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement.”

In light of the Supreme Court’s elevation of the many exemptions in the FLSA to equal status with the language creating the FLSA’s overtime-pay requirement, employers should carefully consider their employees’ statuses under the FLSA. Our Labor and Employment Practice Group has assisted many employers facing these issues. If you have questions about this case or need assistance in this area, contact an attorney above.