By: David A. Napper and Alexandra R. Rambis
September 30, 2016
Are automobile service agents exempt from the Fair Labor Standard Act’s (“FLSA”) overtime requirements? Although the United States Supreme Court has remanded the case back to the Ninth Circuit to interpret the statute without deference to the Department of Labor’s decision, one thing is certain now: the answer will have significant implications for automobile dealerships.
In Navarro v. Encino Motorcars, LLC (2016) 136 S. Ct. 2117, service advisors brought an action against the automobile dealership where they were employed, alleging that their employer was required by the FLSA to pay them overtime wages. The dealership argued that the position and duties of a service advisor brought the plaintiffs within an exemption to the FLSA provisions, which exempts employees engaged in selling or servicing automobiles from overtime wages. Indeed, the FLSA exemption, codified as 29 U.S.C. §213(b)(10)(A), exempts “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.”
As service advisors, the plaintiffs’ job duties were to greet Mercedes Benz owners as they entered the service area of the dealership and then evaluate the service or repair needs of the vehicle owner in light of the complaints communicated to them by the vehicle owners. Presently, service advisors at Encino Motorcars, LLC are paid on a commission basis only and do not receive an hourly wage or a salary.
In 2015, the Ninth Circuit deferred to the Department of Labor’s conclusion that the FLSA exemption is limited to salesmen who sell vehicles and partsmen and mechanics who service vehicles. Accordingly, the Ninth Circuit held that the FLSA exemption did not apply to service advisors, whose job duties were to sell repair and maintenance services. Thus, the Ninth Circuit found that the plaintiffs’ employer was required under the FLSA to pay service advisors overtime wages.
On June 20, 2016, the Supreme Court determined that the Department of Labor’s regulation interpreting the FLSA exemption to cover only salesmen who sell vehicles and partsmen and mechanics who service vehicles, should not have been given the level of deference afforded by the Ninth Circuit. Consequently, the Supreme Court vacated and remanded the case back to the Ninth Circuit, holding that the FLSA exemption must be construed without any deference given to the Department’s conclusion that service advisors are excluded from the FLSA exemption.
For automobile dealers, the further proceedings in the Ninth Circuit which are required to be consistent with the United States Supreme Court’s decision as to whether service advisors are exempt from overtime requirements under the FLSA will have significant and far reaching consequences. It is possible that automobile dealers who employ service advisors on a commission-only basis may now be subject to liability for failure to pay overtime wages. Therefore, automobile dealers should be aware of this potential for liability.