US Supreme Court Decides Dealership Service Advisors Exempt from FLSA Overtime Requirements
Navarro v. Encino Motorcars, LLC, No. 16-1362 (U.S., Apr. 2, 2018)
In what could be the final chapter of the long-running saga known as Navarro v. Encino Motorcars, LLC (“Encino Motors”), the United States Supreme Court this week decided, 5-4, that “service advisors” (also known as service writers) working at automobile, truck, or farm implement dealerships, are exempt from overtime pay requirements under the federal Fair Labor Standards Act (“FLSA”). The FLSA generally requires that employers pay overtime wages to covered employees who work more than 40 hours in a workweek, but expressly exempts many categories of employees, including, as relevant in Encino Motors, “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements….”
This decision resolves a split of authority on this issue within the lower Federal courts. Although the issue was never addressed by the Seventh Circuit Court of Appeals (covering Wisconsin), the Supreme Court decision clears up this critical question of the applicability of the federal FLSA for automobile, truck, and farm implement dealerships doing business in Wisconsin and throughout the U.S. As we noted in previous posts on Encino Motors, Wisconsin State wage and hour laws expressly exempt “service writers” from State overtime requirements.
What Dealers Need to Know
It is important to note that Encino Motors directly addresses only service advisors “primarily engaged in selling or servicing automobiles, trucks, or farm implements,…employed by a nonmanufacturing establishment [i.e., dealership] primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.” (Emphasis added.) In determining the impact of this decision on individual dealership operations, dealers should consult knowledgeable legal counsel regarding their specific circumstances, especially if dealership employees with service advisor duties—meeting service customers; suggesting possible repairs, maintenance, new accessories/replacement parts; following up with customers on service work; explaining service work to customers upon return—have additional work responsibilities outside of “salesman, partsman, or mechanic” duties. Dealers should also consider whether or not their business is primarily engaged in selling “automobiles, trucks, or farm implements” to ultimate purchasers, especially if they carry only limited farm implement lines, have significant power sports, marine, or non-covered product lines, or have other significant business lines that are outside of traditional auto, truck, or farm implement dealer operations.
Dealers who have been paying overtime to service advisors should carefully consider their obligations if they decide to discontinue overtime pay. Employees who have already worked overtime hours with the understanding that the employer would pay a premium for such work very likely have contractual and statutory rights for such amounts for hours already worked. Wisconsin law strictly limits the circumstances under which employers can deduct pay from wages due and earned by any employee, and statutes expressly provide for recovery of twice the amount of any deduction taken that is prohibited by law. Likewise, dealers currently paying overtime premiums should review any applicable pay-plans or other documents setting forth terms of employment, and consult knowledgeable legal counsel, in order to determine the appropriate announcement or other notice that should be given prior to enacting any change to its wage and overtime practices.
Finally, although this decision does not affect the FLSA status of other dealership employees, the Court’s decision could impact future disputes over whether other classes of employees are covered by other FLSA exemptions. Justice Thomas, writing for the majority, rejected earlier precedents suggesting a narrow construction of exemptions to the FLSA, stating instead that the Court “ha[s] no license to give [FLSA exemptions] anything but a fair reading,” and further noted that “the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly.” Undoubtedly, we will be seeing this language cited in future litigation over FLSA exemptions.