Justices to Review Scope of FLSA's Car Sales Exemption

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By Kevin McGowan

Jan. 15 — Granting a California car dealership's petition, the U.S. Supreme Court agreed to review if a Fair Labor Standards Act exemption for employees “primarily engaged” in selling or servicing automobiles means the dealership's “service advisors” aren't entitled to overtime pay.

The justices will review a U.S. Court of Appeals for the Ninth Circuit decision that allowed service advisers for Encino Motorcars LLC to pursue overtime pay claims even though the FLSA exempts “any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles.” In reviving the employees' FLSA complaint, the Ninth Circuit said the Labor Department's narrow interpretation of the “ambiguous” exemption was entitled to deference even though its ruling conflicts with two other federal circuits that reject the DOL's interpretation (56 DLR AA-1, 3/24/15).

The court's decision to grant review continues the justices' renewed interest in FLSA cases, as wage and hour litigation has proliferated in the lower courts. The Supreme Court in its recent FLSA decisions generally hasn't felt compelled to follow the DOL's regulations interpreting the act, particularly when the department has issued shifting interpretations.

In its petition, Encino Motorcars said Supreme Court review is “plainly warranted” to resolve “an acknowledged split of authority” over the FLSA exemption's meaning.

The Ninth Circuit's decision not only created a federal circuit split but “badly misconstrues” the exemption that covers employees “selling or servicing” cars, Encino said.

The U.S. Courts of Appeals for the Fourth and Fifth circuits and federal district courts had uniformly refused to defer to the DOL's “counter-textual interpretation” of the FLSA exemption, which is codified at 29 U.S.C. § 213(b)(10)(A), Encino said.

The Ninth Circuit's ruling “injects uncertainty into what had been a settled area of the law, and will have serious consequences for the nation's 18,000 car dealerships that employ more than 45,000 service advisors,” Encino said.

Allowing the Ninth Circuit's decision to stand would “require a wholesale restructuring” of how car dealerships compensate the service advisers, requiring them to divide their workforce in ways contrary to Congress's intent, Encino said.

No deference is owed to the DOL's 2011 final rule that said service advisers are nonexempt employees because they don't personally service automobiles, Encino said. The department's years of shifting interpretations give the DOL no persuasive authority on this matter, the dealership argued.

Paul D. Clement of Bancroft PLLC in Washington is counsel of record for Encino Motorcars.

Deference Owed to the DOL

In their brief opposing review, the employees said that given the ambiguity in the exemption, the DOL permissibly construed the FLSA not to exempt employees who don't personally service cars.

At Encino, the service advisers meet and greet customers, write up their requests for auto services and forward those work orders to other dealership employees who actually work on the cars, the employees said.

The FLSA's plain text doesn't unambiguously exempt such employees and the DOL reasonably declined to expand the statutory exemption to the service advisers, they said.

The Ninth Circuit properly deferred to the DOL's “delegated authority” to implement the FLSA, the employees said.

No Supreme Court review is warranted because the federal circuits don't disagree that deference is owed to the DOL's “legislative” regulations, such as its 2011 final rule, they said.

The conflicting federal circuit decisions cited by Encino all predate the DOL's 2011 rule, the employees pointed out.

Stephanos Bibas of the University of Pennsylvania Law School Supreme Court Clinic is counsel of record for the employees.

To contact the reporter on this story: Kevin McGowan in Washington at kmcgowan@bna.com

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

For More Information 
Text of the petition for review is at http://src.bna.com/b4I.