Service Advisors at Car Dealerships are Not Exempt from Overtime under the FLSA: Ninth Circuit | Practical Law

Service Advisors at Car Dealerships are Not Exempt from Overtime under the FLSA: Ninth Circuit | Practical Law

In Navarro v. Encino Motorcars, LLC, the US Court of Appeals for the Ninth Circuit, in a matter of first impression for the circuit, reversed the district court's dismissal of a Fair Labor Standards Act (FLSA) action and held that car dealership service advisors did not fall under the FLSA's provision that exempts "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles" from overtime pay. The Ninth Circuit's decision in Navarro creates a circuit split with the Fourth and Fifth Circuit.

Service Advisors at Car Dealerships are Not Exempt from Overtime under the FLSA: Ninth Circuit

by Practical Law Labor & Employment
Published on 30 Mar 2015 • USA (National/Federal)
In Navarro v. Encino Motorcars, LLC, the US Court of Appeals for the Ninth Circuit, in a matter of first impression for the circuit, reversed the district court's dismissal of a Fair Labor Standards Act (FLSA) action and held that car dealership service advisors did not fall under the FLSA's provision that exempts "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles" from overtime pay. The Ninth Circuit's decision in Navarro creates a circuit split with the Fourth and Fifth Circuit.
In Navarro v. Encino Motorcars, LLC, the US Court of Appeals for the Ninth Circuit, in a matter of first impression for the circuit, reversed the district court's dismissal of a Fair Labor Standards Act (FLSA) action and held that car dealership service advisors do not fall under the FLSA's provision that exempts "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles" from overtime pay. The Ninth Circuit's decision in Navarro created a circuit split with the Fourth and Fifth Circuit. (No. 13-55323, (9th Cir. Mar. 24, 2015).)

Background

Encino Motorcars LLC sells new and used Mercedes-Benz automobiles and provides services and repairs for the vehicles. The plaintiffs were employed by Encino as "service advisors." The service advisors' duties included meeting and greeting vehicle owners, evaluating service or repair needs, suggesting services to be conducted at Encino and through Encino's mechanics, and writing up estimates for the repairs and services. They also solicit supplemental services (at additional cost) beyond what is required or requested by the owner. The service advisors were paid only by commission and received no salary or hourly wage.
In 2012, the plaintiffs filed an action, alleging that Encino violated the FLSA by not paying them overtime wages. The district court dismissed the claim, finding that the service advisors fell under the FLSA exemption from overtime pay for "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles" (see 29 U.S.C. § 213 (b)(10)(A)). The plaintiffs appealed the decision to the Ninth Circuit.

Outcome

The Ninth Circuit held that the service advisors were not exempt from overtime pay under the FLSA's automotive exemption, noting that:
  • According to the DOL's 2011 regulatory definitions (relied on by the plaintiffs):
    • a salesman is an employee who makes sales or obtains contracts or orders for vehicle sales;
    • a partsman is an employee who engages in acquiring, stocking and distributing automotive parts; and
    • a mechanic is an employee who engages in mechanical work in the service of automotive vehicles.
    (See 29 C.F.R. §779.372 (c).)
  • The service advisors did not fall within any of the regulatory definitions. Encino conceded this, but argued that the court should not defer to the DOL regulation.
The court applied the following two-step inquiry for determining the appropriateness of deferring to an agency's interpretation of a statute:
Applying this inquiry to Navarro, the Ninth Circuit found that:
  • The text of the statute did not provide a clear answer about whether Congress intended for service advisors to be exempt from overtime pay.
  • The Chevron reasonableness standard applied to this ambiguous statute because:
    • the DOL's regulations have interpreted the statutory exemption narrowly for 45 years; and
    • in 2011, the DOL reaffirmed that interpretation after a formal notice-and-comment process.
  • The DOL's interpretation that service advisors are non-exempt under the FLSA is based on a permissible construction of the statute.
The Ninth Circuit's decision to uphold the DOL's interpretation of the exemption language created a split with the Fourth and Fifth Circuits. In addressing this split, the Ninth Circuit noted that:
  • The Fifth Circuit decision, holding that service advisors were exempt because their duties and pay were functionally similar to those of the workers expressly exempt by the statute, was pre-Chevron (Brennan v. Deel Motors, Inc., 475 F.2d 1095 (5th Cir. 1973)). The FLSA's plain language exempts certain workers and does not suggest that this exemption is intended to extend to other workers.
  • The Fourth Circuit held the DOL's interpretation unduly restrictive and therefore unreasonable (Walton v. Greenbrier Ford, Inc. 370 F.3d 446 (4th Cir. 2004)). It interpreted the exemption to extend to any salesman, mechanic or partsman that participates in either "selling" or "servicing" automobiles.
  • The Fourth Circuit's application of the two verbs to all three job titles (in Walton) is context-sensitive and not always applicable. It is a reasonable interpretation that Congress did not intend the verb clauses to apply to all three job titles, because some of the services are not likely to be performed by employees with each of the three job titles (for example, mechanics selling cars or salesmen servicing the cars).
  • The Fifth Circuit held in Deel Motors that a 1966 Senate Committee on Labor & Public Welfare report (regarding the exemption of dealership employees even if they work in separate buildings) shows the committee's intent to exempt all salesmen and mechanics. However, the passage was written before the phrase limiting the exemption to those salesmen, mechanics or partsmen "primarily engaged in selling or servicing automobiles." The Ninth Circuit took this to mean that the passage addressed the application of FLSA provisions to employees in other buildings, not the type of salesmen who are exempt.
The Ninth Circuit acknowledged that there are good arguments for both interpretations of the exemption clause, but that if an agency chooses one of two reasonable interpretations, the court must defer to that agency choice.

Practical Implications

While this case address a narrow, industry-specific FLSA exemption, the Navarro decision creates a conflict between the Ninth Circuit and the Fourth and Fifth Circuits regarding the scope of the exemption. Employers should take note of other circuits that may tackle the same issue. The Ninth Circuit also reiterated the importance of the Chevron standard of deference to an agency's reasonable interpretation of an ambiguous statute, a principle relevant beyond the limited direct application of this ruling.