Supreme Court Holds FLSA Overtime Exemptions Not to be Construed Narrowly
On April 2, 2018, in Encino Motorcars, LLC, v. Navarro, the Supreme Court held that auto service advisors – those who “interact with customers and sell them services for their vehicles” – are exempt from the overtime pay requirements of the Fair Labor Standards Act (“the FLSA”). The Court’s decision will certainly affect auto service advisors, but its impact will not be limited to the auto dealership industry.
The crux of the Court’s decision centered around Section 13(b)(10)(A) of the FLSA, which states that “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” is exempt from the FLSA overtime requirement. In a 5-4 decision, the majority found that a service advisor is “obviously a salesman” under the ordinary meaning of salesman, given that a salesman sells goods or services and service advisors “sell [customers] services for their vehicles.” The Court also found that service advisors are “primarily engaged in . . . servicing automobiles” due to their integral involvement in the servicing process. Thus, the Court held that sales advisors are exempt from the FLSA overtime pay requirement under Section 13(b)(10)(A). Significantly, in reaching its conclusion, the majority departed from the Supreme Court’s longstanding principle that FLSA exemptions should be narrowly construed against employers, and, instead, held that the exemptions should be given a “fair reading.”
The departure from the narrow construction principle, which had been uniformly applied to the FLSA exemptions, may have significant implications. The Court’s decision could make it easier for employers to successfully establish an exemption by demonstrating the exemption in question applies apply under a “fair reading” analysis. It is important to note, however, that the Court’s decision in Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960), which established the narrow-construction principle, was not completely disturbed. The Encino Motorcars opinion makes no explicit reference to the additional requirement, set forth in Arnold, that an exemption should be found only when it “plainly and unmistakably” applies. Nevertheless, the Court’s adoption of a “fair reading” standard in place of the narrow-construction principle creates the possibility that exemptions will be construed more broadly.
If you have any questions regarding this blog, or wage and hour issues generally, contact an attorney in the Gibbons Employment & Labor Law Department.