The United States Supreme Court will address again whether service advisors are exempt from overtime compensation requirements of the Fair Labor Standards Act (“FLSA”).
In a case involving several procedural twists and turns, the Supreme Court, for the second time, will hear Encino Motorcars, LLC v. Navarro. That case involves five service advisors who were employed by a California Mercedes-Benz dealership. In 2012, the employees sued the dealership, under the FLSA, after it refused to pay them overtime compensation. The employees alleged, among other things, that as a part of their job duties, they were required to upsell customers for additional automobile services, but were not required to actually sell cars or perform auto repairs. They further alleged that they were only paid by commission and were “mandated” to work from 7 a.m. to 6 p.m. at least five days a week.
The FLSA requires that employers pay employees overtime compensation equal to 1 and 1/2 times their regular rate for all hours worked in excess of forty per week, unless an exemption applies. Section 213(b) of FLSA is at issue in this case and provides that overtime compensation is not required for an employee who is a “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles…”
A California district court dismissed the case, but the Ninth Circuit Court of Appeals reversed that decision, finding that the service advisors were eligible for overtime compensation, as they did not fall within the meaning of a “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” The Ninth Circuit rested its decision on a Department of Labor regulation, issued in April 2011, which the Supreme Court later found invalid.
In its first time reviewing the case, instead of determining the issue of whether the service advisors were qualified for the Section 213(b) exemption, the Supreme Court kicked the question back to the Ninth Circuit for reconsideration, instructing the lower court to rule without considering the Department of Labor’s regulation. Although the Supreme Court side stepped the issue in 2016, Justice Thomas in a dissenting opinion joined by Justice Alito projected how they would resolve the issue, opining that Section 213(b) covered the employees.
After reconsideration, the Ninth Circuit again found that service advisors do not fall with Section 213(b) of the FLSA. The Ninth Circuit’s ruling is at odds, as it acknowledged, with several other courts, including the Fourth Circuit, Fifth Circuit, and the Supreme Court of Montana. Given this discrepancy, the Supreme Court will hear the case yet again to hopefully put this topic to rest by issuing a final resolution.
In the meantime, there is a clear ambiguity in how auto dealers should classify employees in service advisor type roles. Until this case is resolved, auto dealers who wish to classify service advisors as exempt from overtime should consider the applicability of Section 7(i) of the FLSA. That section provides an overtime exemption applicable to employees who are employed by a retail or service establishment and are paid primarily on a commission basis.