Apr. 7, 2018
Encino Motorcars, LLC v. Navarro, 584 U.S. ___ (2018) (Thomas, J.).
Response by Alan B. Morrison
Geo. Wash. L. Rev. On the Docket (Oct. Term 2017)
Slip Opinion | CNN | SCOTUSblog
Encino Motorcars, LLC v. Navarro: No Overtime Exemption for Dealership Service Advisors
When you go to your friendly automobile dealer to have your car serviced, the person who takes down your problems, and later calls to tell you what the mechanic found, is called a service advisor. The issue in Encino Motorcars, LLC v. Navarro1 was whether service advisors are exempt from the overtime pay requirements of the Fair Labor Standards Act of 1938 (“FLSA”).2
Congress first created a broad overtime exemption for employees at auto dealerships in 1961, and then subsequently narrowed and refined it so that it now excludes “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.”3 Some parts of the exemption are clear: The person who tries to sell you a car is exempt, as is the person who actually does the mechanical repairs. So are partsmen, who provide the parts used by the mechanics. But service advisors do not fit neatly into any of those categories; they surely do not sell automobiles, and they do not actually repair any vehicles. Instead, they are the intermediaries between the customer and the dealership in determining what service will be done and at what price.
The five-Justice majority, in an opinion written by Justice Thomas, parsed the statutory language and concluded that a service advisor is a “salesman . . . primarily engaged in [the sale of] servicing automobiles,” and hence is not required to be paid overtime rates for work beyond forty hours a week.4 Put another way, because the service advisor is the person who made a “sale” of “service” to the customer, that person is a “salesman” under this exemption as someone who is “integral to the servicing process.”5 In any event, concluding that service advisors are salesmen is much less of a stretch than finding that “detailers” for pharmaceutical companies, who promote drugs to doctors but do not actually make any sales, are nonetheless “outside salesmen” who are exempt from overtime under another FSLA exemption, as the majority held in Christopher v. SmithKline Beecham Corp.6
In her dissent in Encino Motorcars, Justice Ginsburg, joined by Justices Breyer, Sotomayor, and Kagan, all of whom also dissented in Christopher, concluded otherwise. To them, the exemption included three specific categories of employees—salesmen, partsmen, and mechanics—and service advisors fit none of those categories. To support their conclusion that Congress intended to limit this exemption to the three listed categories of employees, the dissenting Justices noted that, service advisors not only perform different functions from those categories of employees specifically listed, but were also (along with many other jobs) explicitly recognized under separate categories when the exemption was written. For those reasons, the dissent rejected what it concluded was, in effect, a forced reading of the exemption with no other basis to support it.
Most car owners, if asked to choose another word to describe a service advisor, would not think of the word “salesman.” That may be because most of us, including the undersigned, as well as many consumer advocates who work in the automobile field, were previously not aware of one important fact about the job of service advisor: many of them, including the employees in this case, get paid entirely through commissions based on the amount of service that they “sell” you when you bring in your car. Thus, if your skills at statutory interpretation, or your knowledge of exemptions to the FLSA, are not enhanced by this analysis, you will at least have learned that your friendly service advisors may not be providing neutral advice because every extra service item that is performed is likely to increase their take-home pay.
For those who prefer to go beyond parsing the words of the exemption to see what can be teased out of them, focusing on the respects in which service advisors are like the others who are plainly covered might be expected to shed some light on the question. Begin with car salesmen. The history of this overtime exemption shows that they were exempt both because, in order to make their sales, they had to work when customers were interested, not from nine to five, and they sometimes took cars to where the customers were and hence were out of the office and could not reasonably clock in and out. But as the dissent points out, the life of a service advisor is very different: “They work regular hours, 7 a.m. to 6 p.m., at least five days per week, on the dealership premises . . . . Their weekly minimum is 55 hours.”7 Thus, in terms of the purposes of the salesman exemption, service advisors fall way outside of them.
However, following that approach runs headlong into a problem with the other occupations expressly covered by the exemption. At least today, partsmen and mechanics work exclusively at the dealers’ premises, generally at regular hours. But when the exemption was created, Congress was directed to consider mechanics and partsmen who serviced farm equipment and who did have to go where the equipment was, at least from time to time, and so they got their exemption for that reason. The problem for the service advisors here was that the exemption was not limited to those who worked on farm equipment, but included the Los Angeles Mercedes Benz dealer at which respondents worked (where their annual wages, without overtime, generally exceeded $90,000 a year, a fact that surely did not help their cause or that of other service advisors who were less well paid).
Both opinions also pointed to other facts that they found supported their reading of the exemption. On the employer’s side, the Department of Labor, which has rulemaking and enforcement authority over the FSLA, had originally sided with the service advisors, but several courts of appeals disagreed, and eventually the Department went along in 1978.8 “From 1978 to 2011, Congress made no changes to the exemption, despite amending §213 nearly a dozen times. The Department also continued to acquiesce in the view that service advisors are exempt” until it reversed its position in 2011.9 The employer had also made much of the fact that it would be very unfair for it to now have to pay overtime on top of respondents’ already high commission earnings. The dissent’s rejoinder was that the FLSA has another exemption for commissioned employers in § 207(i), which would likely protect Encino Motorcars and other employers from paying overtime to already well-compensated employees, but not to those services advisors who were paid on an hourly basis, with presumably lower wages.
There is one other wrinkle to this case that is worth noting. As the discussion above should make clear, the exemption was hardly the model of clarity and hence was precisely the kind of provision for which the Department of Labor could have issued an interpretation to which the Courts would have given Chevron deference. Indeed, it did issue such a regulation, which was the subject of the Court’s first decision in this case,10 but the Court declined to give it any deference because the Department had failed to give a reasoned explanation as to why it was changing the position it had held for over thirty years, particularly in light of the industry’s reasonable reliance on that position. The Department had defended its position (and its regulation) the first time the case was in the Court, but this time, with no valid regulation and with a change of administration, the employees were left on their own. Had the Department written an explanation of its change in position, and if the Court had applied Chevron in a proper manner in reviewing such a rule, the employees might have prevailed.
Last, there is one final aspect of the Court’s ruling that may hurt employees far more than the result construing this uniquely worded exemption. The Ninth Circuit had ruled for respondents, in part relying on the maxim that exemptions to the FLSA should be construed narrowly, but the majority rejected that approach, opting instead for not giving an “exemption anything but a fair reading.”11 The dissent took on the majority on this point as well, pointing out that this general principle was well-established with respect to the FLSA specifically: “In a single paragraph, the Court ‘reject[s]’ this longstanding principle as applied to the FLSA . . . without even acknowledging that it unsettles more than half a century of our precedent.”12
To this observer, the one thing that is clear about this exemption is that Congress was not clear on whether it extended to service advisors. Neither side’s reading was wholly unsupportable, and the resort to the purposes behind the exemptions for those who are admittedly included gave little in the way of answers as to where service advisors fell under those largely inapplicable rationales. If there were ever a case in which a well-reasoned agency explanation for a change of position would have carried the day, this surely looks like such a case.
Alan B. Morrison is the Lerner Family Associate Dean for Public Interest & Public Service Law, George Washington University Law School, where he teaches civil procedure and constitutional law. The author did moot courts for counsel for the employees in this case as well as for their counsel when the case was previously before the Court in 2016.
1. No. 16-1362, slip op. (U.S. Apr. 2, 2018).
2. See 29 U.S.C. §§ 206–207 (2012).
3. § 213(b)(10)(A).
4. Encino Motorcars, slip op. at 1.
5. Id. at 6.
6. 567 U.S. 142 (2012).
7. Encino Motorcars, slip op. at 1 (Ginsburg. J., dissenting).
8. See id. at 2 (majority opinion).
9. Id.
10. See Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (2016).
11. Encino Motorcars, slip op. at 9.
12. Id. at 9 n.7 (Ginsburg, J., dissenting).
Recommended Citation
Alan B. Morrison, Response, Encino Motorcars, LLC v. Navarro: No Overtime Exemption for Dealership Service Advisors, Geo. Wash. L. Rev. On the Docket (Apr. 7, 2018), https://www.gwlr.org/encino-motorcars-llc-v-navarro.
