On Wednesday, the United States Supreme Court will hear arguments in the case Encino Motor Cars LLC. v. Navarro. The issue is whether “service advisors” (or sometimes called “service writers”) are exempt from the overtime provisions of the Fair Labor Standards Act (FLSA). But in the backdrop of the case will be pending new overtime exemption rules that will affect many more millions of workers than this case, and which might also come back to the Court in the years to come. As with many recent Department of Labor (DOL) initiatives, the Republican majority likely will challenge the new rules in Congress, and the new rules may be scrutinized eventually in the lower courts and the U.S. Supreme Court, much in the way that the underlying DOL regulation in Navarro is being examined.
The Navarro case is the next of several FLSA cases that have come before the Court in recent years. Other cases recently have dealt with the definition of hours worked (Integrity Staffing Solutions, Inc. v. Busk in 2014) favoring employers, and class and collective actions (Tyson Foods v. Bouaphakeo in March 2016) favoring workers. The most recent 5-4 FLSA decision was in Christopher v. SmithKline Beecham, where the Court addressed the DOL’s switch on whether “detailers,” (outside salespersons for pharmaceutical companies) are exempt even when they are legally prevented from “completing” a sale. The Court, in an opinion by Justice Samuel Alito (joined by the late Justice Antonin Scalia), ruled that the DOL could not reasonably exclude these employees from the overtime exemption, and the dissent, authored by Justice Stephen Breyer, argued that the majority was not giving the word “sell” its ordinary meaning.
The Navarro case will also deal with the reasonableness of a DOL interpretation first including — and then excluding – certain employees in an FLSA exemption from overtime. The auto dealers, represented by Paul Clement of Bancroft PLLC, say that the DOL interpretation was not a permissible construction of the statute, and the plaintiff service advisors, represented in the Court by Stephanos Bibas of the University of Pennsylvania Law School Supreme Court clinic, say, of course, that the interpretation was reasonable and deserves the Court’s deference.
Navarro concerns a narrow part of the existing exemptions from overtime, but will arise in the context of the looming final DOL rule on the executive, administrative and professional exemptions. The FLSA exempts from overtime requirements those employed in a bona fide “executive, administrative or professional capacity, or “any salesman, partsman or mechanic primarily engaged in the selling or servicing of automobiles” as under FLSA Section 213(b)(10)(a). The issue in Navarro is whether the service advisors/writers–usually those friendly employees who greet you, check in your car, and sometimes try to “sell” additional services and repairs–are not required to be paid time and half their regular rate for hours over 40 worked in a week.
A panel of the Ninth Circuit unanimously held that the service advisors were not exempt from overtime. On January 15 of this year, the Court agreed to hear the case. Whether Justice Scalia was one of the justices voting to hear the case is unknown, but my guess is that he would have had a field day with the plain language issues raised by the Act: Do the service advisors “sell” anything in the traditional sense of that word? Do they provide any “parts” when they recommend certain services be done to your car? Can they be considered mechanics if they don’t have the certification required to fix cars? Apparently, there were at least four justices who thought that the Ninth Circuit was insufficiently attuned to the “whole context” of the sales and service process in dealerships when they agreed to hear the case? The U.S. Courts of Appeal for the Fourth and Fifth Circuits previously found the DOL’s interpretation unreasonably restrictive and found that the service advisors were exempt from overtime. Notably, though, both of these cases were decided before the DOL’s 2011 revision of regulation at issue in this case.
The case will certainly have large ramifications for the auto dealer industry – as explained in the brief amicus curiae of the National Association of Automobile Dealers urging reversal. There are also the usual dueling briefs of employer representatives (U.S. Chamber of Commerce) supporting the petitioner, and labor unions that represent employees in the industry (International Association of Machinists), and labor law professors urging affirmance.
Whatever the outcome, the decision will be the tip of the FLSA iceberg this summer as the DOL has proposed raising the salary threshold for overtime eligibility to $50,440. Under the new regulations, workers earning below that will be presumptively entitled to overtime pay for hours worked over 40 in a week. If the service advisors prevail, they will receive overtime, unless they can be considered for some other overtime exemption, which is why raising the proposed salary threshold to $50,440 under which employees would be presumptively nonexempt is so relevant for all employees and employers covered by the FLSA (approximately 90 percent of the economy). DOL estimates that 5 million workers currently earning above $23,660 annual salary level but below the $50,440 will be eligible for overtime under the new rules.
Those regulations are likely to be made effective this summer, and the majority in Congress have announced their intent to block their implementation. The Navarro case is one of several challenge to the DOL’s regulations, which we have been seeing more frequently in this divided government election year, during the President’s final year in office.
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