Supreme Court to Rule on Payroll-Related Cases

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By Michael Baer

Decisions on several payroll-related cases are to be made over the next several months by the U.S. Supreme Court, which opened its 2017-2018 session Oct. 2.

Among the critical decisions are whether service advisers at a car dealership were entitled to overtime after working more than 40 hours in a week, and whether collective or class action lawsuits may be allowed without regard to employment-related arbitration agreements. In addition, a petition regarding joint-employment situations is to be considered by the high court.

Overtime. In early 2017, the federal appeals court for the Ninth Circuit determined that car dealership service advisers were eligible for overtime pay, affirming its 2015 ruling on the same case that was sent back by the Supreme Court in 2016. The Supreme Court said in 2016 that the 2015 ruling by the Ninth Circuit erroneously deferred to a Labor Department rule on advisers who sell repair services provided by other workers. The high court sent the case back to the Ninth Circuit, calling the regulation “procedurally defective.”

The most recent Ninth Circuit ruling relied on the statutory language and legislative history of the Fair Labor Standards Act section that addresses advisers, focusing on an FLSA section that provides an exemption from overtime for “any salesman, parts man, or mechanic primarily engaged in selling or servicing automobiles.” In 1966, Congress narrowed the exemption that included all employees of an automobile dealer by limiting it to specific positions, the court said. This statutory language is “arguably flexible” enough to support an interpretation that service advisers are involved in servicing autos because they contribute to the dealer’s process for supplying maintenance and repair, the court said. But this would go beyond the words’ ordinary meaning, the court said (Navarro v. Encino Motorcars LLC, 2017 BL 5153, 9th Cir., No. 13-55323, 1/9/17).

The dealership filed its petition for a Supreme Court review to resolve the question of advisers’ entitlement to overtime pay, which was accepted Sept. 28 ( Encino Motorcars v. Navarro, U.S., No. 16-1362, review granted 9/28/17). The court could resolve a split among the federal appeals courts on whether the advisers were covered by the exemption. The Fourth and Fifth circuit courts excluded service advisers from overtime pay in previous rulings.

Collective and class actions. Cases involving workers who try to sue employers despite being otherwise obliged to follow arbitration procedures designed to prevent such litigation are to be heard by the Supreme Court.

The court is to consider three consolidated cases, NLRB v. Murphy Oil USA, Inc., Epic Systems Corp. v. Lewis, and Ernst & Young LLP v. Morris. The Fifth Circuit had upheld Murphy Oil’s use of a class waiver in its arbitration agreement. The Seventh Circuit rejected class waivers in mandatory arbitration agreements in Epic Systems as did the Ninth Circuit in Ernst & Young.

Employers are increasingly using arbitration agreements that cover employment-related disputes to reduce the number of class and collective actions in labor and employment law.

Arbitration is a form of alternative dispute resolution similar to a court proceeding. In arbitration, the parties in a dispute select a neutral third party, known as an arbitrator, to hear arguments, review evidence, and issue a decision. The hearings are less formal, so disputes are often resolved more quickly than at a trial. When employers and employees agree to resolve disputes through arbitration, the Federal Arbitration Act requires enforcement of the agreement and generally supersedes state laws barring arbitration of employment disputes.

Employers seeking arbitration must make the process voluntary and not a condition of employment. Additionally, even if employees were precluded from suing in court, federal or state agencies still may file lawsuits on behalf of workers. Nevertheless, some workers have been able to pursue actions collectively in some cases, despite the presence of such agreements.

According to the Economic Policy Institute, about 55 percent of nonunion private-sector employees in the U.S. have arbitration agreements in their workplaces. That percentage is almost double what it was when the information was last collected in the early 2000s, the EPI report said Sept. 27.

Joint employers. The Supreme Court has yet to decide on a petition to hear a case involving joint employment this session. In DirectTV LLC v. Hall (No. 16-1449), the high court was asked to consider whether a business was liable as a joint employer under the Fair Labor Standards Act for technicians who were hired by an intermediary and claimed they were not paid overtime. The workers in this case waived their right to file a reply brief, but the justices requested that they file a response.

Reporters Lawrence E. Dubé and Madison Alder in Washington contributed to this article. To contact the reporter on this story: Michael Baer at To contact the reporter on this story: Michael Baer at contact the editor on this story: Michael Trimarchi at

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