Since 1960, the Supreme Court has held that FLSA exemptions are to be construed narrowly, meaning that in cases where the language of an exemption was unclear, the ambiguity would be resolved in favor of the reading that most benefited employees. Earlier this week, the Supreme Court overturned that precedent, rejecting the “narrow construction” principle and holding that FLSA exemption language should be evaluated under a “fair reading” standard.
The case, Encino Motorcars v. Navarro, involved auto service advisors who worked at Encino Motorcars, a Mercedes-Benz dealership in California, serving as liaisons between the dealer’s customers and its service technicians. Service advisors meet with customers, listen to concerns about their cars, suggest repair and maintenance services, sell accessories or replacement parts, record services, and follow up with customers to apprise them of the status of their repairs or explain the repair or maintenance work to the customers once the service is complete.
The FLSA includes an exemption from overtime for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” In 1978, the U.S. Department of Labor (DOL), which enforces and administers the FLSA, issued an opinion letter that stated that service advisors were exempt, and that opinion was confirmed in the 1987 revision to the agency’s Field Operations Handbook. In 2011, however, the DOL reversed this interpretation and issued regulations interpreting the term “salesmen” to exclude service advisors and declaring that service advisors were not exempt from the FLSA. In light of this new regulation, the service advisors at Encino Motorcars filed suit in federal court alleging that Encino Motorcars had violated the FLSA by failing to pay them overtime. The district court dismissed the case based on the FLSA exemption, but the Ninth Circuit Court of Appeals reversed and held that, in light of the DOL’s 2011 regulations, the service advisors were not exempt and were entitled to overtime pay. Encino Motorcars appealed the decision to the Supreme Court.
The Supreme Court held that the 2011 regulations were not entitled to deference because the rule changed the exempt status of service advisors without adequate explanation. The Court then looked to the FLSA exemption itself. The Ninth Circuit had held that the service advisors were not exempt because they are not primarily engaged in servicing automobiles (because they did not actually perform the repair and maintenance services), and because it concluded the exemption does not apply to salesmen who are primarily engaged in servicing. According to the Ninth Circuit, the “selling” part of the exemption should be applied only to salesmen, and the “servicing” part of the exemption applied only to partsmen and mechanics.
The Supreme Court rejected this interpretation and held that “primarily engaged in selling or servicing automobiles” applied to salesman as well as partsmen and mechanics. Since the service advisors were clearly not partsmen or mechanics, and they did not sell automobiles, the issue was whether the service advisors are salesmen primarily engaged in servicing automobiles. The Supreme Court held that they are – they are salesmen because they sell a service (vehicle maintenance and repair services), and they are engaged in servicing automobiles because they are integral to the service process. The Court acknowledged that the service advisors do not physically repair the vehicles, but it noted that the same is true for partsmen, who just obtain the parts and provide them to the mechanics who do the repairs, but who are still exempt from the FLSA.
Finally, the court soundly rejected the “narrow construction” principle as applied to FLSA exemptions. Citing former Justice Antonin Scalia, the Court stated, “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.'” The Court also noted that the FLSA’s exemptions, which appear directly in the statute, “are as much a part of the FLSA’s purpose as the overtime-pay requirement” and therefore deserve to be given a fair reading.
This decision is helpful to employers, and not just those in the auto industry. The rejection of the narrow construction principle significantly changes the playing field with respect to interpreting ambiguous exemptions under the FLSA. The full text of the Court’s opinion can be found here.