Supreme Court: No Deference to the DOL's 2011 FLSA Regulations As Applied to Service Advisors at Car Dealerships | Practical Law

Supreme Court: No Deference to the DOL's 2011 FLSA Regulations As Applied to Service Advisors at Car Dealerships | Practical Law

In Encino Motorcars, LLC v. Navarro, the US Supreme Court vacated a decision by the US Court of Appeals for the Ninth Circuit (Ninth Circuit) that found car dealership service advisors to be nonexempt under the Fair Labor Standards Act (FLSA). The Supreme Court held that the Ninth Circuit erred in giving Chevron deference to the Department of Labor (DOL)'s regulations concerning the exempt status of service advisors because the DOL did not provide a reasoned explanation for how it reached its interpretation of Section 213 (b)(10)(A) of the FLSA.

Supreme Court: No Deference to the DOL's 2011 FLSA Regulations As Applied to Service Advisors at Car Dealerships

by Practical Law Labor & Employment
Published on 21 Jun 2016 • USA (National/Federal)
In Encino Motorcars, LLC v. Navarro, the US Supreme Court vacated a decision by the US Court of Appeals for the Ninth Circuit (Ninth Circuit) that found car dealership service advisors to be nonexempt under the Fair Labor Standards Act (FLSA). The Supreme Court held that the Ninth Circuit erred in giving Chevron deference to the Department of Labor (DOL)'s regulations concerning the exempt status of service advisors because the DOL did not provide a reasoned explanation for how it reached its interpretation of Section 213 (b)(10)(A) of the FLSA.
On June 20, 2016, in Encino Motorcars, LLC v. Navarro, the US Supreme Court vacated a decision by the US Court of Appeals for the Ninth Circuit (Ninth Circuit) that found car dealership service advisors to be nonexempt under the FLSA. The Supreme Court held that the Ninth Circuit erred in giving Chevron deference to the DOL's regulations concerning the exempt status of service advisors because the DOL did not provide a reasoned explanation for how it reached its interpretation of Section 213 (b)(10)(A) of the FLSA. The Supreme Court did not resolve the circuit split that exists on the issue and remanded the matter back to the Ninth Circuit ( (U.S. June 20, 2016).)

Background

In March 2015, the Ninth Circuit, in a matter of first impression for the circuit, reversed the district court's dismissal of an 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 (see 29 U.S.C. § 213 (b)(10)(A)).
The Ninth Circuit:
  • Held that service advisors were not exempt under the FLSA.
  • Noted that according to the DOL's 2011 regulatory definitions:
    • 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).)
  • Found that the DOL's regulations treated service advisors as nonexempt under the FLSA.
  • Reiterated the importance of the Chevron standard of deference to an agency's reasonable interpretation of an ambiguous statute (Chevron, USA, Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984)).
  • Created a circuit split with the Fourth and Fifth Circuit.
(For more information on the Ninth Circuit decision, see Legal Update, Service Advisors at Car Dealerships are Not Exempt from Overtime under the FLSA: Ninth Circuit.)
The US Supreme Court granted certiorari to address the issue of whether service advisors are covered under the Section 213 (b)(10)(A) of the FLSA.

Outcome

The US Supreme Court:
  • Vacated the judgment of the Ninth Circuit and remanded the case back to the appeals court.
  • Noted that:
  • Found that the DOL's 2011 regulation was issued without necessary explanation in light of the fact that:
    • the agency was abandoning its decades-old practice of treating service advisors as exempt, a policy that had generated significant industry reliance;
    • the agency had changed its position from a 2008 notice of proposed rulemaking (service advisors were exempt) to the 2011 final rule (service advisors were not exempt); and
    • every court that had considered the question had held that service advisors were exempt under § 213 (b)(10)(A).
  • Held that:
    • since the DOL provided no reasoned explanation for its regulation being inconsistent with its earlier position, the rule could not carry the force of law; and
    • the 2011 DOL regulation did not receive Chevron deference in the interpretation of Section 213 (b)(10)(A) of the FLSA, so the provision must be construed without giving controlling weight to the regulation (29 U.S.C. § 213 (b)(10)(A)).

Practical Implications

Employers of service advisors should note the Supreme Court's decision in Navarro when evaluating how they treat service advisor employees and may consider this case as part of a defense strategy if engaged in wage and hour litigation with service advisor employees. This decision does not completely resolve the circuit split that exists concerning the exemption status of service advisors, but commands the Ninth Circuit to further clarify the issue.
Courts must be thorough when assessing whether deference to an agency decision is warranted, and cannot simply rely on Chevron deference to assume that the agency's interpretation is correct. Employers should appeal court assessments that give deference to any agency decisions that are not adequately explained or are arbitrary and capricious.