9th Cir. Says Car Dealership Service Advisers Aren't FLSA-Exempt, Creating Circuit Split

Daily Labor Report® is the objective resource the nation’s foremost labor and employment professionals read and rely on, providing reliable, analytical coverage of top labor and employment...

By Jay-Anne Casuga

March 24 — A group of service advisers who worked at a California Mercedes-Benz dealership don't fall within the Fair Labor Standards Act's exemption for salesmen, partsmen or mechanics primarily engaged in selling or servicing automobiles, the U.S. Court of Appeals for the Ninth Circuit held March 24 on an issue of first impression for the circuit.

Disagreeing with the Fourth and Fifth circuits, the Ninth Circuit said it must give Chevron deference to Labor Department regulations that interpret the exemption as applying only to “salesmen who sell vehicles and partsmen and mechanics who service vehicles.” Service advisers, who sell services for cars, perform none of those duties and thus aren't covered by the exemption, it said.

The DOL made a “permissible choice” in choosing a narrower definition for the term “salesman” and the agency's interpretation “accords with the presumption that [FLSA] exemptions should be construed narrowly,” the court said.

Applying the DOL's rule, the Ninth Circuit reversed the dismissal of the service advisers' FLSA overtime claims against Encino Motorcars LLC.

Judge Susan P. Graber wrote the opinion, joined by Judges Kim M. Wardlaw and James C. Mahan.

FLSA Is Ambiguous in Defining ‘Salesman.'

Under the principles of regulatory deference adopted by the U.S. Supreme Court in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the Ninth Circuit said it must first determine whether Congress directly spoke to the precise question at issue within the statutory text of the FLSA.

The law at 29 U.S.C. § 213(b)(10)(A) exempts from its provisions “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles,” but doesn't otherwise define the terms “salesman, partsman, or mechanic.”

It is unclear from that text, the court said, whether Congress “intended broadly to exempt any salesman who is involved in the servicing of cars or, more narrowly, only those salesmen who are selling the cars themselves.”

As such, the FLSA is ambiguous about whether service advisers fall within the exemption at Section 213(b)(10)(A), the court said.

Chevron Standard Applies

The appeals court said the Labor Department issued regulations in 1970 that narrowly defined “salesman” as an employee who sells cars; a “partsman” as an employee who requisitions, stocks and dispenses parts; and a “mechanic” as an employee who performs mechanical work on cars.

Those definitions “have not changed in any relevant way” for 45 years and the agency reaffirmed that interpretation in 2011, when it declined to adopt broader definitions for those terms after a formal notice-and-comment period, the court said.

“Because we consider here a regulation duly promulgated after a notice-and-comment period, Chevron's ‘reasonableness' standard applies,” the court said.

DOL's Interpretation Reasonable, Court Says

An agency's interpretation is “reasonable” and entitled to judicial deference if it is “based on a permissible construction of the statute,” the Ninth Circuit explained.

Here, the court said the DOL permissibly defined “salesman” narrowly as including only employees who sell cars and not those who sell services for cars, acknowledging that its conclusion conflicts with the Fifth Circuit's decision in Brennan v. Deel Motors, Inc., 475 F.2d 1095, 20 WH Cases 1236 (5th Cir. 1973), and the Fourth Circuit's ruling in Walton v. Greenbrier Ford, Inc., 370 F.3d 446, 9 WH Cases2d 1128 (4th Cir. 2004).

Following Deel Motors, the Ninth Circuit said courts held that service advisers were exempt because their duties and pay structure were “functionally similar” to those of salesmen, partsmen and mechanics. But it added that the decision pre-dated Chevron and its functionally similar test “cannot be squared” with the FLSA's plain text.

Meanwhile, the court disagreed with the Fourth Circuit in Walton, which found that the DOL's interpretation is “unduly restrictive” and thus unreasonable. The Fourth Circuit said service advisers are salesmen because they sell services for cars and are in the general business of servicing automobiles.

But the Ninth Circuit said a “natural reading” of the FLSA “strongly suggests” that Congress didn't intend for salesmen to be primarily engaged in servicing vehicles, or for a mechanic to be primarily engaged in selling cars.

“[T]here are good arguments supporting both interpretations of the exemption,” the court said. “But where there are two reasonable ways to read the statutory text, and the agency has chosen one interpretation, we must defer to that choice.”

Fink & Steinberg represented the service advisers. Fisher & Phillips represented Encino Motorcars.

To contact the reporter on this story: Jay-Anne Casuga in Washington at jcasuga@bna.com.

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com.

Text of the opinion is available at http://www.bloomberglaw.com/public/document/HECTOR_NAVARRO_ANTHONY_PINKINS_KEVIN_MALONE_and_REUBEN_CASTRO_Pla.