Encino Motorcars LLC v. Navarro: The Regulatory Pendulum Swings Back to the Department of Labor, by Ruben J. Garcia

As the Obama Administration nears its end, the Department of Labor (DOL) is furthering a number of regulatory actions to try to fulfill the promise of the Fair Labor Standards Act of 1938 (FLSA), which provides for minimum wage and overtime protections for millions of workers. The DOL has engaged in several initiatives recently to modernize the statute, including new regulations on the overtime exemptions to the FLSA, for executive, administrative and professional employees who earn above a certain salary threshold.

The U.S. Supreme Court’s decision on Monday in Encino Motorcars, LLC v. Navarro, dealing with service advisors at automobile dealerships, reminds us that there are many exemptions in the statute that do not depend on the salary level of the employee, such as being an “outside salesperson,” a “computer employee,” or, as in this case, one who is “primarily engaged in the selling or servicing of automobiles.” Unfortunately for the service advisor plaintiffs in the case, six justices voted to swing the regulatory pendulum back to the DOL to get more detail about why the DOL currently holds that service advisors should not be exempt from the coverage of overtime pay, and two justices voted to end the case and enter judgment for the defendants.

As I wrote previously here when the case was argued on April 20, the FLSA issue is whether “service advisors,” those friendly employees who greet customers and complete the service forms for the mechanics who will actually work on your car, need not be paid overtime for hours worked over 40 in a workweek.   The FLSA exempts employees “primarily engaged in the selling and servicing of automobiles.” 29 U.S.C. § 213(b). The key textual question is whether service advisors are primarily engaged in the servicing of automobiles — even though they never actually get under the hood or get “their hands dirty, by “work[ing] as a mechanic’s right hand man or woman,” as the brief for the service advisors asserted. Ginsburg, J., concurring at 1 n.1 (quoting Respondents’ Brief, 32-35).

In the briefing and at the oral argument, most of the attention focused on the linguistic gymnastics and the dueling canons of statutory construction that each side believed would win the case. Instead, the case focused on the DOL’s pendulum swings since 1970, first holding in an interpretive regulation that service advisors are not exempt, and then finding that the courts rejected their position. Then, in the waning days of the George W. Bush Administration, a rulemaking proposing that service advisors be exempt from overtime was started, but soon scuttled as the Obama Administration began. In the meantime, current and former service advisors filed suit in federal court in Los Angeles against the Encino Motor Cars Group alleging that the dealership owed them unpaid overtime wages.

The Court, in an opinion by Justice Anthony Kennedy, held that the DOL’s justification for the new rule was lacking, since there was little justification at all due to what was apparently “an inadvertent mistake in drafting.” Tr. of Oral Arg. 50. The Court remanded the case back to the Ninth Circuit to interpret the statute without giving “controlling weight” to the DOL’s interpretation. Justice Ginsburg, joined by Justice Sotomayor, wrote a concurring opinion to emphasize that the DOL should not be expected to provide a heightened justification for its conclusions. It suffices, according to Justice Ginsburg, that the new policy is permissible under the statute, “and that there are good reasons for it, and the agency believes it to be better, which the conscious change of course adequately indicates.” Ginsburg, J., concurring, at 2 (quoting FCC v. Fox Television Stations, 556 U.S. 502 (2009)).

Justice Clarence Thomas, joined by Justice Samuel Alito, wrote a dissenting opinion arguing that there was no need to remand to the lower court, and the Court should enter judgment for the dealerships since the FLSA exemption clearly includes service advisors, even though the words “service advisors” do not appear in the statute.  In doing so, the dissent mocked both the distributive canon of construction favored by the plaintiffs, and the canon that the FLSA should be construed broadly because it is a remedial statute. Quoting the late Justice Antonin Scalia, Justice Thomas wrote that this view of the FLSA rests on an “elemental misunderstanding of the legislative process.” Thomas, J., dissenting, at 5.   On the other hand, numerous FLSA opinions by courts over the last 80 years favoring a broad construction of the statute suggests that if a canon for broad construction of the FLSA does not exist in name, it surely exists in practice.

As luck would have it, while writing this post I took my automobile to the dealership for service. Each time I have done this, I have interacted with a service advisor. To me, it stretches credulity to say that these workers are either “primarily engaged in the selling or servicing” of automobiles. As with the employees in Encino Motorcars, they work primarily for commissions, rather than salary, and that tells me that they have incentives to sell services (a word not used in the exemption), in contrast to those who sell automobiles, who are clearly exempt under the text of the statute. To me, service advisors are simply the intermediary between me and the exempt mechanic who is actually working on my car. Of course, my opinion is not one of the 8 that matters.

To perhaps nearly all of those who take their own car in for service, the dissenting view that the statute on its face clearly exempts service advisors seems without context. This group of workers seems exactly the kind who would fall into the margins of these decades-old statutes were it not for the DOL filling the gaps left by Congress. Once the DOL properly does so, it seems that the agency’s judgment should be given deference.   As with many of the regulatory initiatives of the DOL in the final year of the Obama era, however, much depends upon who the next President of the United States will be.


Picture Credit: http://www.clipartpanda.com/clipart_images/pendulum-25052717

Ruben Garcia

Ruben J. Garcia is Professor of Law at the University of Nevada, Las Vegas, William S. Boyd School of Law. Prior to joining the UNLV faculty in 2011, he was Professor of Law and Director of the Labor and Employment Law Program at California Western School of Law in San Diego, where he taught for eight years. He also has held academic appointments at the University of California, Davis School of Law, the University of Wisconsin Law School, and at the University of California, San Diego. Before beginning his teaching career in 2000, Garcia worked as an attorney for public and private sector labor unions and employees in the Los Angeles area. His scholarship has appeared in a number of leading law reviews, including the Hastings Law Journal, the University of Chicago Legal Forum and the Florida State University Law Review, among others. His first book, published by New York University Press in 2012, is entitled Marginal Workers: How Legal Fault Lines Divide Workers and Leave Them Without Protection. From January 2014 to January 2016, he served as the Co-President of the Society of American Law Teachers (SALT), and has served on the Board of Directors of the ACLU of Nevada. In Fall 2015, he was selected as a UNLV Leadership Development Academy fellow. He is a member of the Board of Directors of the American Constitution Society (ACS), a national nonprofit organization, and an advisor to the Boyd Law Student and Las Vegas Lawyer Chapters of the ACS.