Employment Law Daily Justices scrutinize dealership's service advisor job under FLSA exemption
Friday, April 22, 2016

Justices scrutinize dealership's service advisor job under FLSA exemption

By Pamela Wolf, J.D. The Supreme Court heard arguments on April 20 in a case that will resolve a circuit split on the question of whether an auto dealership’s service advisors are exempt under 29 U.S.C. §213(b)(10)(A) from the FLSA’s overtime-pay requirements. Below, the Ninth Circuit concluded that the dealership’s service advisors did not fall within the FLSA’s exemption for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” The appeals court relied on Department of Labor interpretive guidance to reach its determination and created a circuit split along the way. The High Court granted the petition for certiorari in Encino Motorcars, LLC v. Navarro on January 15. Much of the argument centered on the nature of the service advisor position and whether the Labor Department was entitled to deference as to its interpretation. The regulation. The Labor Department has flip-flopped over the years, but in its 2011 rulemaking, it explained that the auto dealership exemption regulation at issue here, 29 C.F.R. Sec. 779.372(c), applied only “to salesmen who sell vehicles, and partsmen and mechanics who service vehicles.” Under the DOL’s interpretation, the service advisors didn’t meet either of those definitions and thus were not exempt. To determine if the DOL interpretation was controlling, the Ninth Circuit applied the two-step Chevron analysis, noting at the threshold that the FLSA is to be read liberally in favor of employees, and consequently, exemptions are to be narrowly construed. In reaching its conclusion that the service advisors were not exempt, the Ninth Circuit departed from the approach taken by the Fourth and Fifth Circuits, granting Chevron deference to the DOL’s regulatory definitions in the face of statutory ambiguity and reversing the district court’s dismissal of the service advisors’ FLSA and state-law overtime claims. “[There are good arguments supporting both interpretations of the exemption,” the appeals court wrote. “But where there are two reasonable ways to read the statutory text, and the agency has chosen one interpretation, we must defer to that choice.” At oral argument, Paul D. Clement, arguing on behalf of Encino Motorcars, said that “service advisors” are both salespeople and principally engaged in the servicing of automobiles, and that they are exempt under the “plain and literal terms” of the statutory overtime exemption, which exempts any “salesperson, mechanic, or partsman who are primarily engaged in selling or servicing an automobile, a truck, or a farm implement.” Is the distinction of consequence? Justice Ginsburg queried whether Clement’s position has any real consequences, given the exemption for individuals paid on commission. Clement said that while the “archetypical” service provider is paid on commission, a substantial number are paid on a salary basis. Responding to a question posed by Justice Breyer about the historical thinking around the exemption, Clement noted that today, everyone on the service team—mechanics, partsmen, and service advisors—need the exemption because they start a little earlier than most people, work a little bit later, and are also on the job on Saturdays. They all work 46 or 50 hours a week and are paid at least partially on commission. He said it would be disruptive to single out service advisors, who are an integral part of the team, and also the most well-paid on average, and make them alone not exempt from the overtime rules. The DOL flip-flop. Clement also asserted that the industry has understandably reached these arrangements during the 30-plus years that the Labor Department acquiesced to the arrangement. He also noted that the Wage and Hour Division had not convinced a single federal court that its interpretation was correct. On that point, however, Justice Sotomayor clarified that these were pre-Chevron cases, so deference did not apply. Returning to the point later in the colloquy, Clement pointed out that two cases in which courts disagreed with the DOL’s interpretation were post-Chevron cases. Justice Ginsburg observed that the DOL, when it took another look at the regulations in 2011, decided that they were correct the first time and that these people were not exempt from overtime requirements. That decision was made in the Chevron era, in which courts must defer to the expert—the DOL in this case. Is there anything to defer to? Clement argued that while the DOL wants deference, examining what the agency did in 2011, there is nothing to defer to. Until 2011, the interpretive [rules] dating back to 1970 had a specific provision that addressed service advisors and explained why there were not exempt. He didn’t think it was persuasive to courts, but at least it was there. Then in its 2011 notice-and-comment rulemaking, the DOL took it away. Now the agency is relying only on language in (c)(1) that addresses salesmen, saying a salesman is somebody who sells a car, which Clement called an “incomplete recognition of what the statute actually says.” Moreover, the Labor Department is not entitled to take something out of the regulations and then assert that because it was taken out in a notice-and-comment rulemaking it now gets Chevron deference where it previously might not have, asserted Clement. Justice Kagan disagreed, saying that’s exactly what Chevron deference is—the DOL effected that judgment within notice-and-comment rulemaking. In response, Clement noted that if the statute is clear, you don’t get to the issue of Chevron deference. Additionally, he said he would agree with Justice Kagan if the DOL had at the end of notice-and-comment rulemaking come up with a new definition that informed why the agency reached the decision they did, but that’s not what occurred. The DOL reached a decision that took away a provision addressing service advisors, and nothing really addresses it anymore other than a single paragraph in the preamble that basically says we’re doing this because we don’t think the statute covers it. That, according to Clement, is not the sort of explanation should get the DOL something other than what the statute means. But Justice Kagan said the DOL went further, not just parroting the statute; rather, saying it [the DOL] reads that statute in a manner that is better than another way. Selling services not the same as servicing. Stephanos Bibas, arguing for the employees, had a very different take on the exemption. He said “selling services is not the same thing as servicing. Petitioner's argument is an end­-run around the statute's three direct objects of selling: Cars, trucks, and farm implements. Selling services is not listed.” Distinguishing between positions named in the exemption and the employees in this case, Bibas said the important difference between “service advisor,” not named in the exemption, and “partsmen,” which is named in the exemption, is that the service advisor is a customer-facing role that advises the customer, not the mechanic. Justice Ginsburg asked Bibas to describe what the service advisor does if he’s not engaged in selling and he’s not engaged in servicing. Bibas noted there are at least 20 categories of employees in the servicing department, not just three or four, as the petitioner implied. Change not explained. Getting back to the rulemaking, Justice Breyer stressed an administrative rule contained in one of his earlier opinions, that when an agency changes its mind, it should explain it. The Justice said he agreed with Clement that the DOL’s reason was “The Fourth Circuit says the opposite, but we think not,” adding that although the DOL did not use those words, he would not call that or its equivalent a “reason.” Later Breyer called the DOL’s change in interpretation “extreme, 30 years, manuals, noting explicitly that it's a change of position. I mean, it's not just one part of the agency can't always be consistent with every other part … .”

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