Supreme Court Rules Car Service Advisers Can’t Get Overtime

• Employees generally eligible for overtime unless exemption applies • Car service advisers qualify for exemption for employees ‘primarily engaged’ in selling or servicing cars • Supreme Court rejects long-standing principle of interpreting exemptions in employees’ favor

Car service advisers aren’t entitled to federal overtime pay when they work more than 40 hours in a week, the U.S. Supreme Court ruled 5-4.

An employee generally is eligible for time-and-a-half pay under the Fair Labor Standards Act unless an exemption applies. Encino Motorcars LLC and current and former service advisers for the dealership disputed whether the FLSA’s exemption for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements” applies to the employees. Service advisers sell service packages provided by technicians.

The April 2 decision means the service advisers at the Mercedes-Benz dealership can’t go ahead with a lawsuit saying they worked overtime hours but weren’t paid overtime wages.

“It’s fair to say that today’s ruling at least substantially changes the prism through which courts will look at FLSA exemptions going forward,” Paul DeCamp of Epstein Becker & Green P.C. in Washington told Bloomberg Law.

The service advisers had argued to the justices that they should be eligible for overtime wages because they don’t sell automobiles and don’t engage in the manual labor of maintaining or repairing automobiles. Encino Motorcars said the words “primarily engaged in” expand the class of employees exempt from overtime to those whose duties involve selling or servicing vehicles, even if they don’t perform either of these tasks themselves.

It was the case’s second visit to the Supreme Court. The justices in 2016 sent the case back to the U.S. Court of Appeals for the Ninth Circuit after finding the appeals court shouldn’t have deferred to a faulty Labor Department regulation that said advisers were eligible for overtime. The Ninth Circuit again found that service advisers can earn overtime. The Ninth Circuit didn’t rely on the DOL regulation in the second go-round. It based its decision on the FLSA’s text and history, splitting from decisions by the Fourth and Fifth circuits.

There are 45,000 service advisers and 18,000 franchised motor vehicle dealerships in the U.S., the National Automobile Dealers Association and several state associations said in an amicus brief supporting Encino Motocars. Long-Standing Principle Rejected

The court rejected a longstanding approach to interpreting exemptions from overtime eligibility. Known as narrow construction, the approach provides that exemptions should be construed in a way that provides the greatest possible benefit to a worker.

“We reject this principle as a useful guidepost for interpreting the FLSA,” Justice Clarence Thomas wrote for the court. Exemptions in the law are entitled to “a fair reading,” he wrote. Chief Justice John Roberts and Justices Anthony Kennedy, Samuel Alito, and Neil Gorsuch joined the opinion.

Justice Ruth Bader Ginsburg wrote a dissent in which Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan joined.

Courts have been applying narrow construction to FLSA exemptions since the 1940s, and the Supreme Court adopted it as a general rule in the 1960s, DeCamp said. “Today’s ruling is a sharp departure from that longstanding principle,” DeCamp said April 2.

DeCamp served as administrator of the Labor Department’s Wage and Hour Division during the George W. Bush administration. The agency administers the FLSA, but it didn’t participate in the case the second time it came to the high court.

Jim Feldman, a Washington-based University of Pennsylvania Law School professor who argued for the advisers, declined to comment.

Paul Clement, an attorney with Kirkland & Ellis LLP in Washington who argued for Encino Motorcars, didn’t immediately respond to a request for comment April 2.

The case is Encino Motorcars LLC v. Navarro, U.S., No. 16-1362, 4/2/18.

(Updated with additional reporting.)

To contact the reporter on this story: Jon Steingart in Washington at jsteingart@bloomberglaw.com

To contact the editor responsible for this story: Terence Hyland at thyland@bloomberglaw.com