A 'Fair' Reading Of FLSA Exemptions: The Supreme Court Holds That Service Advisors Are Exempt From Federal Overtime Laws

If you're not a car dealer and you missed the Supreme Court's decision last week in Encino Motorcars, LLC v. Navarro, we forgive you. After all, at first blush, the decades-long battle over application of the "salesman" exemption to service advisors under Section 213(b)(10) of the federal Fair Labor Standards Act (FLSA) should not concern anyone outside the dealership industry.

However, tacked to the end of a thoughtful discussion on the rules of statutory construction, the distributive canon, and the disjunctive meaning of the word "or," Justice Clarence Thomas' majority opinion contains sweeping language potentially altering the analysis of FLSA exemptions generally.

The History of Service Advisors and Their Status Under the FLSA

For those interested in a detailed history of service advisors' exempt status under the FLSA, we encourage you to read our prior reports that map the long road from the 2011 change, through the contrary cases that followed it, to our ultimate destination: the Encino Motorcars decision.

However, to make a long story short(er), the FLSA was amended in 1966 to include an overtime exemption for

[A]ny 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.

29 U.S.C. § 213(b)(10).

In 1970, the U.S. Department of Labor (USDOL) opined that the exemption did not apply to service advisors, or dealership employees whose "principal function may be diagnosing the mechanical condition of vehicles brought in for repair, writing up work orders for repairs authorized by the customer, assigning the work to various employees and directing and checking on the work of mechanics." 29 C.F.R. §779.372(c)(4). The federal courts disagreed, uniformly holding that service advisors are "salesm[e]n . . . primarily engaged in . . . servicing vehicles" within the scope of the exemption. As a result, in 1987, the USDOL stated that it would "no longer deny the OT exemption for" service advisors.

Then, more than two decades later, the USDOL changed its mind. In 2011, the USDOL announced that it would revert to its pre-1987 position and take the stance that service advisors are entitled to overtime premium pay. The USDOL's reversal sparked a wave of new litigation over the exempt status of service advisors, including the Encino Motorcars...