SCOTUS Rejects Narrow Construction FLSA Overtime Exemption

FLSA Overtime Exemption

The Fair Labor Standards Act (FLSA) requires employers to pay overtime compensation to covered employees, but provides numerous categories of workers an overtime exemption. On April 2, 2018, the Supreme Court of the United States (SCOTUS) rejected the longstanding principle that these FLSA exemptions must be construed narrowly, holding that service advisors at a California automobile dealership are exempt from the overtime requirements under the FLSA.

Background

As we covered in previous posts about overtime exemptions, at issue in Encino Motorcars, LLC v. Navarro was the “exempt” classification of service advisors at a car dealership. The service advisors premised their argument for overtime on a 2011 Department of Labor rule that expressly excluded service advisors from the definition of “salesman.”  The specific section of the FLSA is section 213(b), which exempts “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles ….” Service advisors sell, but they sell mechanic service rather than cars, and they are not mechanics themselves. The advisors argued that they fall into a gap in 213(b): they are not “salesm[e]n … primarily engaged in selling … automobiles,” and they are not “partsmen, or mechanic[s] primarily engaged in … servicing automobiles.” In response, the dealer argued that service advisors are plainly “salesm[e]n … primarily engaged in … servicing automobiles ….”

The district court found that the FLSA overtime exemption applied to service advisors. The Ninth Circuit reversed, deferring completely to the 2011 DOL rule.  The Supreme Court rejected this conclusion, holding that the regulation was procedurally defective and courts should not defer to it or rely upon it.  The Supreme Court remanded the case to the Ninth Circuit for reconsideration. The Ninth Circuit again found that service advisors were entitled to overtime because they do not fall within the exemption.

SCOTUS Opinion  FLSA overtime exemption

In its second look at this particular exemption in recent years, the Supreme Court again reversed, basing its conclusion on what it called a “best reading” of the statute’s text. The Court held 5-4 with its opinion reading, “We reject this principle as a useful guidepost for interpreting the FLSA…. Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a “narrow”) interpretation.’”

Justice Clarence Thomas’ opinion noted that the FLSA contains “over two dozen” exemptions, that the exemptions “are as much a part of the FLSA’s purpose as the overtime-pay requirement,” and that “[w]e have no license to give the exemption[s] anything but a fair reading.” The Court further held that the exemption was not limited to sales employees primarily engaged in selling automobiles and ultimately held that service advisors were exempt because they are “salesm[e]n . . . primarily engaged in . . . servicing automobiles.”

In dissent, Justice Ginsburg, along with Justices Breyer, Sotomayor, and Kagan, sought to emphasize how the majority’s holding was a stark departure from precedent. Underscoring the importance of the Court’s holding regarding the interpretation of FLSA exemptions, Justice Ginsburg wrote that the Court was overruling “half a century” of precedent by rejecting the narrow construction principle.

Conclusion

The Court’s decision is significant as it abandons the longstanding principle that FLSA exemptions are to be construed narrowly in favor of non-exempt status. Generally speaking, courts will now need to place exemptions on the same statutory and interpretive footing as the substantive overtime requirements in the statute. For example, the more common FLSA exemptions, such as the executive, administrative and professional employee exemptions may now be subject to the broader “fair reading” standard in cases that come before the High Court. 

The lawyers at Kingsley & Kingsley will continue to monitor SCOTUS opinions on FLSA exemptions. In the meantime, should you have questions about California’s wage and hour laws, don’t hesitate to contact one of our leading California employment lawyers.

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