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Fair, Not Necessarily Narrow: Supreme Court Changes Course Regarding the Interpretation of FLSA Exemptions

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Recently, the U.S. Supreme Court issued a ruling concluding that service advisors at car dealerships are exempt from overtime pay under the Fair Labor Standards Act (FLSA). In doing so, the Court abandoned 70 years of precedent, construing FLSA exemptions fairly rather than under the historic narrow standard. This change may signal a more level playing field for employers when courts interpret FLSA exemptions.

The Encino Case

The FLSA exempts from its overtime-pay requirement “any 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.” From 1974 to 2011, the Department of Labor (DOL) treated service advisors as exempt. However, in 2011, the DOL changed course, interpreting “salesman” to exclude service advisors.

Encino Motorcars, LLC v. Navarro arose out of the DOL’s changed interpretation. The Ninth Circuit had concluded that service advisors of car dealerships were not exempt from the FLSA. In overturning the Ninth Circuit’s decision, the Supreme Court expressly rejected the principle that the FLSA exemptions should be construed narrowly. The Court stated that the FLSA exemptions must be given a “fair” reading.

Under a fair reading of the FLSA exemption here, the Court concluded that service advisors are exempt from the overtime-pay requirement because they qualify as “salesm[e]n . . . primarily engaged in . . . servicing automobiles.”

Impact on Employers

For employers relying on the FLSA’s exemptions from overtime pay, the Court’s decision provides more latitude in interpreting the exemptions under federal law. Courts now must consider what a “fair” interpretation of the statute is when looking at exemptions, rather than a narrow one.

If you have any questions about the impact of the Encino decision on your business or the FLSA generally, please contact one of Honigman’s Labor and Employment attorneys.