Reversing Ninth Circuit, U.S. Supreme Court Rules that FLSA Overtime Exemptions Should be Interpreted Fairly, Not Narrowly

Category: Client Update
Date: May 9, 2018 04:09 PM

The U.S. Supreme Court recently rejected the Ninth Circuit’s interpretation that the overtime exemptions from the Fair Labor Standards Act (“FLSA”) should be “construed narrowly.”  The case was Encino Motorcars, LLC v. Navarro.

Navarro and other employees worked as “service advisors” at Encino Motorcars, a car dealership which sold and serviced Mercedes-Benz cars.  The company’s service advisors were expected to greet car owners at the dealership service area, note customer concerns about the condition of their cars, evaluate repair and maintenance needs, suggest services to car owners, write up estimates, and communicate with customers while repair work was in progress.

Navarro and other employees sued, claiming that Encino Motorcars improperly denied them overtime wages in violation of the FLSA. Under the FLSA, employers must pay overtime wages for hours worked above 40 hours in a seven-day work period, unless an FLSA overtime exemption applies.  Encino Motors asserted that service advisors are exempt under FLSA provisions for “salesm[e]n…primarily engaged in …servicing automobiles.

The trial court found in favor of Encino Motors but the Ninth Circuit reversed on appeal and found in favor of Navarro and other employees. The U.S. Supreme Court then reversed the Ninth Circuit and remanded the case for further findings.  When the Ninth Circuit again found in favor of  Navarro, Encino Motors sought further review in the Supreme Court.  The Court again reversed the Ninth Circuit.

First, the U.S. Supreme Court found that the service advisors are “salesmen” within the meaning of the FLSA because they sell goods or services.  Specifically, they sell vehicle maintenance and repair services to dealership customers.  They are also “primarily engaged in …servicing automobiles” because they provide a service to dealership customers. It was not necessary for service advisors to spend the majority of their time physically repairing vehicles to qualify for this exemption given that they are “integrally involved in the servicing process.” Thus, the Court found that the service advisors were exempt from the FLSA overtime requirements.

Next, the U.S. Supreme Court went further and rejected the principle, long applied by the Ninth Circuit, that FLSA overtime exemptions should be construed narrowly.  This approach, according to the Supreme Court, relies on the flawed premise that the remedial purposes of the FLSA  --  awarding back pay to misclassified employees -- should be pursued at all costs. Rather, the FLSA’s overtime exemptions are a key portion of the statute and should be given a “fair reading” rather than a narrow interpretation.

Encino Motorcars, LLC v. Navarro, 138 S.Ct. 1134 (2018).

Note: 

Although the reasoning, in this case, is encouraging for employers, it is still the employer’s burden to prove that one of the exemptions to FLSA overtime that is listed in 29 USC section 213 applies.  This U.S. Supreme Court opinion may make it easier for an employer to meet that burden.  This opinion does not discuss the FLSA regular rate of pay that is used to calculate FLSA overtime, nor does it offer any guidance on how to interpret the types of pay that are included in the FLSA regular rate of pay under 29 USC section 207(e). 

 

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