By: Brad Adler and Michael Hill
In February, we wrote about the U.S. Department of Labor’s unexpected decision to change the decades-long understanding of the salesman exemption to the Fair Labor Standards Act (FLSA) and the ruling of the Ninth Circuit Court of Appeals that upheld it. This week, however, in Encino Motorcars, LLC v. Navarro, the Supreme Court vacated that decision and sent the case back to the Ninth Circuit to decide anew. While car dealerships in the Ninth Circuit are no doubt excited about this second chance, the ruling may come as a disappointment to people on both sides of the issue who wanted the Supreme Court to provide some much-needed clarity and make a decision on the merits.
The issue here is whether service advisors at car dealerships (i.e., the people who interact with the customers and sell repair and maintenance services) are exempt as “salesmen” under the FLSA’s overtime requirement. The FLSA exemption applies to “any salesman . . . primarily engaged in selling or servicing automobiles” at a covered dealership. Since at least 1978, the Department of Labor (DOL) has taken the position that service advisors were exempt, and it confirmed this position in its 1987 Field Operations Handbook and a 2008 proposed rule.
Then, in 2011, the DOL suddenly reversed course and, with “barely any explanation” (in the words of the Supreme Court), decided that service advisors would not be exempt. The Supreme Court thus found that the Ninth Circuit was not entitled to defer to the DOL’s interpretation of the law because the DOL “gave almost no reasons at all” for its interpretation. Now the Ninth Circuit has to make the decision on its own, without giving any deference to the DOL.
We will continue to monitor this case and provide an update when the Ninth Circuit issues a new decision. Although the Supreme Court’s majority declined to address the merits of the issue, Justices Clarence Thomas and Samuel Alito indicated in a dissenting opinion that they think the exemption should apply to service advisors.