April 2, 2018

U.S. Supreme Court Holds That Service Advisors at Automobile Dealerships Exempt from Overtime Under FLSA

On April 2, 2018, the United States Supreme Court issued its opinion in Navarro v. Encino Motorcars, LLC, No. 16-1362, holding that service advisors at automobile dealerships are exempt under section 13(b)(10) of the Fair Labor Standard Act (FLSA).  This is the second time in two years that the high court has reversed Ninth Circuit decisions to the contrary.

Navarro is a wage and hour class and collective action brought in 2012 by five service advisors who worked at a Los Angeles Mercedes Benz dealership, claiming overtime under the Fair Labor Standards Act (FLSA) and state law. The district court dismissed the FLSA claims based on FLSA section 13(b)(10), which exempts from federal overtime “any salesman . . . primarily engaged in selling or servicing automobiles or trucks.”  The Ninth Circuit reversed in the initial appeal, departing from more than 40 years of legal precedent and in spite of the industry’s historical reliance on the exemption. The Ninth Circuit’s principal rationale for finding the exemption inapplicable was new regulatory guidance issued by the U.S. Department of Labor in 2011, which excluded service advisors from the exemption. In 2016, the U.S. Supreme Court reversed, holding that the 2011 DOL regulation was invalid and the Ninth Circuit had erroneously relied on it in interpreting the statute. But rather than addressing the scope of the exemption itself, the Supreme Court sent the case back to the Ninth Circuit to interpret the exemption without reliance on the DOL’s regulation. Not surprisingly, on remand the Ninth Circuit came to the same conclusion it had before, emphasizing that exemptions from overtime should be construed narrowly.

The Supreme Court again granted certiorari and has again reversed. This time, the court squarely held that service advisors are exempt from overtime under section 13(b)(10). First, it noted that a service advisor is “obviously a ‘salesman,’ under the plain meaning of the term.”  Next, because service advisors are an integral part of the servicing process, they are “primarily engaged in … servicing automobiles.”  The court rejected the notion that only individuals who perform hands-on, under-the-hood service functions are engaged in “servicing” within the meaning of the FLSA. Finally, in perhaps the most groundbreaking aspect of the ruling, the Supreme Court rejected the well-worn interpretive rule that exemptions to the FLSA should be construed narrowly. Observing that this “narrow construction” approach is not reflected anywhere in the FLSA’s language, the court held that exemptions are to be interpreted “fairly” rather than “narrowly.”

Hirschfeld Kraemer LLP partner Felicia Reid has represented amicus curiaeNational Automobile Dealers Association, California New Car Dealers Association, and other state dealer associations, throughout the Ninth Circuit and Supreme Court proceedings in this case.