Issues
Are individuals who are employed as “service advisors” at car dealerships subject to federal law governing over-time pay?
This case asks the Supreme Court to clarify whether automotive “service advisors” qualify for the Fair Labor Standards Act’s (“FLSA”) mandatory overtime pay requirements. Encino Motorcars, LLC, a Mercedes-Benz dealership in California, contends that these employees are primarily “servicem[e]n . . . engaged in . . . servicing automobiles” and thus they are clearly captured within the law’s exceptions. Similarly, Encino argues that even if the statute is sufficiently ambiguous on the matter, the Department of Labor’s interpretation of the statute is unreasonable and unentitled to judicial deference. Hector Navarro and other employees assert that construing the statute’s exception to include service advisors would violate the text, spirit, and purpose of the FLSA. Relatedly, they maintain that the Department’s interpretation is entirely reasonable and thereby warrants deference from the Court. The Supreme Court’s resolution of this case could affect the terms of employment between America’s 45,000 service advisors and their employers.
Questions as Framed for the Court by the Parties
Are “service advisors” at car dealerships exempt under 29 U.S.C. § 213(b)(10)(A) from the FLSA’s overtime-pay requirements?
Facts
Congress enacted the Fair Labor Standards Act (“FLSA”) in 1938, seeking to remedy perceived shortcomings in the national labor market and to provide a minimum standard of acceptable working conditions for all employees. One provision of the FLSA requires “employers to pay overtime compensation at a rate of one-and-a-half times an employee’s regular rate of pay for all hours worked in excess of 40 in a week.” However, recognizing that a “one-size-fits-all” arrangement overlooks important business and employment realities, the FLSA includes several exemptions to its overtime-pay requirement. One such exemption, 29 U.S.C. § 213(b)(10)(A), applies to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles . . . if he is employed by” a car or truck dealership.
In 1970, the Department of Labor (“DOL”) issued an interpretation of that exception which excluded “service advisors” from its coverage. Several courts subsequently rejected that conclusion, holding DOL’s interpretation contrary to the plain meaning of the statutory text and to the purpose of the FLSA. Over the next several decades, DOL issued internal administrative guidelines seemingly conforming with these judicial precedents, and in 2008, it initiated procedures to formally establish the status quo. After notice-and-comment, however, DOL promulgated a new rule that returned to its original interpretation from 1970.
Encino Motorcars, LLC (“Encino”) both sells and services Mercedes-Benz automobiles in California. Hector Navarro and other Respondents (“Navarro”) comprise a group of “service advisors” who held employment with Encino. Encino pays its “service advisors on a commission basis only” without any other form of hourly or salary compensation. In 2012, Navarro filed suit in the United States District Court for the Central District of California alleging that Encino had “violated the FLSA by failing to pay overtime wages.”
Finding the FLSA’s exception for service advisors to be textually plain and well-established, the district court held that the exception clearly applied to Navarro. While acknowledging DOL’s recent interpretation of the statute, the district court “refused to defer to DOL’s interpretation . . . because it was [an] objectively unreasonable . . .” and “impermissibly restrictive construction of the statute.” Consequently, the court dismissed Navarro’s case for failure to state a claim.
Navarro timely appealed, and the United States of Appeals for the Ninth Circuit reversed the lower court’s decision. After “[e]xamining the statutory text and applying canons of statutory interpretation,” the court held that service advisors do not “plainly and unmistakable [fall] within [the FLSA’s] terms and spirit.” Finding that neither textualist nor purposive analysis could produce a clear indication of Congressional intent, the court agreed that the DOL interpretation was entitled to a Chevron standard of deference. On that point, the court openly disagreed with the Fourth and Fifth Circuits, concluding that the 2011 interpretation was neither unreasonable nor unduly restrictive. Consequently, it upheld the DOL interpretation as a valid clarification of an ambiguous statute.
The Ninth Circuit denied rehearing on June 1, 2015, and the Supreme Court granted certiorari on January 15, 2016.
Analysis
In this case, the Supreme Court will decide whether “service advisors” are excepted from receiving overtime compensation under the Fair Labor Standards Act (“FLSA”). Encino Motorcars, LLC (“Encino”) argues that the plain language of the law removes such employees from the FLSA’s coverage. Even if the statute were ambiguous, Encino argues that the Department of Labor’s reading of the statute is unreasonable. Moreover, Encino contends that granting service advisors overtime compensation would not further the FLSA’s primary goal of protecting employees from unjustifiably low wages. Conversely, Navarro argues that the plain language of the law clearly shows that service advisors are not exempt because they neither service nor sell vehicles. Moreover, Navarro notes that many service advisors already fall within other exemptions.
IS THE PLAIN LANGUAGE OF 29 U.S.C. 213(B)(10)(A) UNAMBIGUOUS?
Encino argues that the plain language of section 213(b)(10)(A) excludes service advisors from receiving overtime compensation. That section excludes “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, . . . if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles . . . to ultimate purchasers.” Encino points out that service advisors sell the dealership’s service offerings and aid in the servicing of the vehicles to customers. Accordingly, Encino maintains that service advisors are “salesmen who are primarily engaged in . . . servicing automobiles[,]” and thus unambiguously fall within 213(b)(10)(A). Additionally, Encino argues that the use of the word or in “selling or servicing automobiles” operates disjunctively, thus extending the reach of the exemption broadly. Moreover, Encino disputes the Ninth Circuit’s finding of ambiguity in the exemption. They contest the Ninth Circuit’s requirement that service advisors personally service the vehicle as mistaken. Relatedly, Encino points out that “partsman” do not personally service vehicles and yet they are explicitly excluded. Accordingly, Encino argues that reading in a “personally service” requirement to section 213(b)(10)(A) would render the exclusion of partsmen superfluous. Consequently, Encino asserts that service advisors are unambiguously exempted from overtime compensation.
Navarro, on the other hand, agrees that the statute is unambiguous, but in the opposite direction. He argues that Congress explicitly limited the exemption to only “salesmen, partsmen, or mechanics[]” in order to narrow the reach of section 213(b)(10)(A). Thus, Navarro maintains that service advisors clearly do not fall under this category. He asserts that although service advisors might sell services, the exemption only covers those who are primarily engaging in selling vehicles. Navarro argues that in order to “primarily engage” in selling vehicles, service advisors would need to spend more than half their time selling vehicles—which they do not. Similarly, Navarro notes that service advisors do not service vehicles in the manner that Congress has defined that term: as “automotive manual labor.” He posits that if service advisors were servicing vehicles, then paradoxically they would be constrained by the same training and certification requirements as the mechanics who actual perform it. Finally, Navarro adds that any other reading of the law would upset the overall structure of the exemption. He notes that Congress intended to exempt these three types of employees because of their irregular work hours. Because service advisors do not present any of the characteristics that Congress considered when deciding to carve-out certain employees from the FLSA, Navarro maintains that they unambiguously are not exempt from qualified overtime compensation.
CHEVRON ANALYSIS AND DEFERENCE TO THE DEPARTMENT OF LABOR
Fundamentally, Encino alleges that Congress never “explicitly delegate[d]” the authority of statutory interpretation to the Department of Labor (“DOL”). Thus, the Court should interpret the statute de novo. Even if DOL has such authority, Encino maintains that the statute is not sufficiently ambiguous enough to warrant an examination into DOL’s interpretation. Instead, they assert that the plain language of the law is clearly unambiguous for the reasons stated above. However, should the Court find that the law is ambiguous, Encino believes that DOL’s interpretation is too unreasonable to deserve any deference under a Chevron analysis. They contend that DOL unduly restricted the word “salesman” to selling only vehicles, rather than including those salesmen who sell vehicle services. Furthermore, Encino argues that the FLSA exceptions are designed to exclude employees who are compensated on an irregular, non-hourly basis. Because service advisors are rewarded for their “success at selling” rather than their labor time, DOL’s interpretation does not conform with the statutory intent. Consequently, Encino concludes that DOL’s understanding of the law falls outside the spectrum of reasonable views that deserve judicial deference.
On the other hand, Navarro contends that DOL received a proper delegation of rulemaking authority from Congress, and that the agency followed appropriate procedures when promulgating its interpretation. He believes that the statutory text is unambiguously in favor of granting service advisors overtime compensation; however, should the Court find sufficient ambiguity, he argues that DOL’s interpretation of the law deserves Chevron deference. Navarro maintains that DOL considered a wide swath of competing opinions, addressed potential reliance concerns, assessed the statutory text, and carefully evaluated the law’s legislative purpose. Thus, given its thorough deliberation of the circumstances, he concludes that DOL’s interpretation stands well within the boundaries of reasonable outcomes. Furthermore, he refutes the theory that DOL’s prior acquiescence to competing interpretations somehow waived or altered its policymaking authority. Consequently, Navarro holds that the Court is bound under standard doctrines of administrative law to affirm DOL’s interpretation that service advisors are not exempt from the FLSA’s mandatory overtime pay requirement.
Discussion
The Supreme Court's decision will determine whether automotive “service advisors” qualify for the Fair Labor Standards Act’s (“FLSA”) mandatory overtime pay requirements. Encino Motorcars, LLC (“Encino”) contends that these employees are “salesm[e]n . . . primarily engaged in . . . servicing automobiles” and thus they are clearly captured within the law’s exceptions. Hector Navarro and other employees (“Navarro”) assert that a construction of the statute’s exception that includes service advisors would violate the text, spirit, and purpose of the FLSA. The Supreme Court’s resolution of this case could affect the terms of employment between America’s 45,000 service advisors and their employers.
EMPLOYMENT ECONOMICS
Encino and amici argue that the Ninth Circuit’s construction of the FLSA’s exemptions would impose undue hardship on long-established industry practices. They point out that most service advisors are paid on the basis of personal performance and in a manner that rewards them for initiative. Shifting to an hourly-based model, they contend, would misalign employees’ incentives with those of the industry structure. Similarly, Encino and the National Automobile Dealers Association (“NADA”) suggest that a reclassification of service dealers would create an “anomalous” partition of their workforces that is “divisive” and unmanageable. Furthermore, NADA fears that Navarro’s interpretation would not only “upend . . . longstanding understandings,” but also expose employers to “widespread[,] unanticipated” and “substantial retrospective liability.” Consequently, exempting service advisors from the FLSA “would impose significant and unnecessary burdens . . . on dealerships and service advisors alike.” In short, Encino and amici view the exemption’s reinterpretation as “a burdensome ‘solution’ in search of a non-existent ‘problem.’”
On the other hand, Navarro contends that no undue hardship would result from treating service advisors as non-exempt. He points out that most service advisors work predictable, steady hours, unlike the irregular, variable schedules of those employees who Congress intended to exempt from the FLSA. Thus, hourly-based compensation would not cause a misalignment of incentives with their employers. Additionally, Navarro disputes any possibility of administrative disruption that would result from “dividing” dealerships’ workforces. He notes that they are already required to do so with other employees like accountants and secretaries. Furthermore, most dealerships already pay service advisors in a manner that would qualify for other exemptions as well. He discounts the possibility that his interpretation would confront dealerships with retroactive liability. Consequently, he posits that simply exempting service advisors would plainly frustrate the founding spirit of the FLSA’s enactment. Put simply, Navarro suggests that an exemption for service advisors is an attempt to “[e]vade the FLSA’s [p]rotections [for employees].”
The Supreme Court's decision will determine whether automotive “service advisors” qualify for the Fair Labor Standards Act’s (“FLSA”) mandatory overtime pay requirements. Encino Motorcars, LLC (“Encino”) contends that these employees are “salesm[e]n . . . primarily engaged in . . . servicing automobiles” and thus they are clearly captured within the law’s exceptions. Hector Navarro and other employees (“Navarro”) assert that a construction of the statute’s exception that includes service advisors would violate the text, spirit, and purpose of the FLSA. The Supreme Court’s resolution of this case could affect the terms of employment between America’s 45,000 service advisors and their employers.
EMPLOYMENT ECONOMICS
Encino and amici argue that the Ninth Circuit’s construction of the FLSA’s exemptions would impose undue hardship on long-established industry practices. They point out that most service advisors are paid on the basis of personal performance and in a manner that rewards them for initiative. Shifting to an hourly-based model, they contend, would misalign employees’ incentives with those of the industry structure. Similarly, Encino and the National Automobile Dealers Association (“NADA”) suggest that a reclassification of service dealers would create an “anomalous” partition of their workforces that is “divisive” and unmanageable. Furthermore, NADA fears that Navarro’s interpretation would not only “upend . . . longstanding understandings,” but also expose employers to “widespread[,] unanticipated” and “substantial retrospective liability.” Consequently, exempting service advisors from the FLSA “would impose significant and unnecessary burdens . . . on dealerships and service advisors alike.” In short, Encino and amici view the exemption’s reinterpretation as “a burdensome ‘solution’ in search of a non-existent ‘problem.’”
On the other hand, Navarro contends that no undue hardship would result from treating service advisors as non-exempt. He points out that most service advisors work predictable, steady hours, unlike the irregular, variable schedules of those employees who Congress intended to exempt from the FLSA. Thus, hourly-based compensation would not cause a misalignment of incentives with their employers. Additionally, Navarro disputes any possibility of administrative disruption that would result from “dividing” dealerships’ workforces. He notes that they are already required to do so with other employees like accountants and secretaries. Furthermore, most dealerships already pay service advisors in a manner that would qualify for other exemptions as well. He discounts the possibility that his interpretation would confront dealerships with retroactive liability. Consequently, he posits that simply exempting service advisors would plainly frustrate the founding spirit of the FLSA’s enactment. Put simply, Navarro suggests that an exemption for service advisors is an attempt to “[e]vade the FLSA’s [p]rotections [for employees].”
Conclusion
This case asks the Supreme Court to decide whether 29 U.S.C. § 213(b)(10)(A) exempts “service advisors” from the Fair Labor Standards Act’s overtime-pay requirements. Encino Motorcars, LLC (“Encino”) contends that these employees are primarily “servicem[e]n . . . engaged in . . . servicing automobiles” and thus they are clearly captured within the plain language of the law’s exceptions. Similarly, even if the statute is sufficiently ambiguous on the matter, Encino argues that the Department of Labor’s interpretation of the statute is unreasonable and unentitled to judicial deference. Alternatively, Hector Navarro and other employees (“Navarro”) argue that the plain language of the statute clearly supports the conclusion that service advisors are not exempt because they neither service nor sell vehicles. Relatedly, they maintain that the Department’s interpretation is entirely reasonable and thereby warrants deference from the Court. The Supreme Court’s resolution of this case could impact tens-of-thousands of service advisors employed at dealerships across the nation.