4.10.18

The tie goes to the runner — one of the unwritten rules of baseball is that a runner called “safe” in a situation where he and the ball arrive at the base at the same time. A similar principle has applied to Fair Labor Standards Act (“FLSA”) exemption analysis for decades.  However, following the Supreme Court’s decision in Encino Motorcars, LLC v. Navarro,[1]the rules of the game have changed.

When first enacted, the FLSA exempted all employees working at car dealerships.[2]  The exemption was later narrowed to its current language, which exempts from overtime coverage: “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles . . . if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.”[3]

In Encino Motorcarsthe Supreme Court was called upon to further define the scope of this exemption relied upon by car dealerships throughout the country.  The question of the casewas whether service advisors duties and responsibilities caused them to qualify for the exemption.[4]  
Service advisors are employees that “‘interact with customers and sell them services for their vehicles.’”[5]  

For years, courts throughout the country treated service advisors as exempt employees.[6]  This position was similarly adopted by the Department of Labor (“DOL”) from 1978 to 2011.[7]  
However, the DOL reversed its position in 2011, amended the regulations, and excluded service advisors from the exemption.[8]  The aforementioned deviation called into question years of case law and the issue of the scope of the exemption was escalated to the Supreme Court for a resolution.
 

In considering the application of the exemption to service advisors, the Supreme Court succinctly deliberated and then answered the question with the following: 
 

“The question, then, is whether service advisors are ‘salesm[e]n . . . primarily engaged in . . . servicing automobiles.’  We conclude that they are.”[9]

In explaining its reasoning for determining that service advisors were not exempt, the Supreme Court analyzed the positions relied upon by the Ninth Circuit Court of Appeals.  In particular, the Court addressed the Ninth Circuit’s reliance on the principle that “exemptions to the FLSA should be construed narrowly.”[10]  Under this standard, employers were burdened with the task of clearly establishing that an exemption applies to the employee in question.  In effect, where the decision between whether an employee was exempt or non-exempt was a close call, the presumption was that exemption did not apply to that particular employee.

The majority in Encino Motorcarsrejected this principle finding that it had no basis in the text of the FLSA.[11]  The Court explained that it has “no license to give the exemption anything but a fair reading.”[12]

Though the Court’s rejection of this principle is not the actual holding of the case, it does represent a definitive position by a majority of the Court and will have substantial impact on FLSA exemption cases going forward.  While employers should welcome this news, they should remain diligent in applying FLSA exemptions to employees.  The exposure that exists from incorrectly applying an exemption can be substantial.  Being able to successfully defend a claim when it comes is the immediate goal, but taking steps to avoid the claim ever being filed is the better plan.

By: Michael Willats

Michael Willats is an attorney in the Firm’s Labor and Employment Practice Group. If you have any questions or concerns about this issue or any other matter, please contact Michael directly at 813-223-1099.