Auto Dealership Service Advisors Exempt From Overtime Under The FLSA

On April 2, 2018, the Supreme Court ruled 5-4 that service advisors at auto dealerships are exempt from overtime under the Fair Labor Standards Act (“FLSA”).

In this case, Encino Motorcars, LLC v. Navarro, the question revolved around whether service advisors were considered salespeople under the FLSA, which would make them exempt or ineligible for overtime. The FLSA states that overtime does not apply to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.”

Congress amended the FLSA to include the salesperson exemption in 1974. The Department of Labor (“DOL”) issued a regulation that service advisors were not defined as salespeople, but federal courts across the country rejected this interpretation. The DOL then conformed with the court rulings in 1978 with an opinion letter stating that service advisors are exempt from overtime in most cases. However, in 2011, the Department of Labor reversed course, issuing a rule that interpreted the exemption to exclude service advisors, making them eligible for overtime leading to this ruling in Encino.

The Supreme Court’s conservative majority in Encino found that service advisors were indeed “salespeople,” based on that term’s ordinary meaning, and are thus exempt from overtime, as they were primarily engaged in selling or servicing automobiles.

The liberal dissent found that the service advisors neither sell nor repair automobiles, but actually solicit and suggest repairs and services, and thus should be covered under the FLSA and eligible for overtime. They relied on a longstanding Supreme Court precedent dating back to 1945, which held that FLSA exemptions are to be narrowly construed against employers. In other words, employees had the advantage in close cases where there was a dispute over whether their job duties made them eligible for overtime.

This case effectively overturns this 1945 precedent. Justice Thomas cited a treatise from the late Justice Scalia in writing the majority opinion: “We reject [the narrow construction principle] as a useful guidepost for interpreting the FLSA. Because 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.’”