January 2018 Preview | Encino Motorcars v. Navarro

Case No. 16-1362 | 9th Cir. Decision

Encino Motorcars is back after being remanded to the Ninth Circuit. In April 2016, the Court heard arguments on whether “service advisors” were exempt from the Fair Labor Standards Act’s provisions on overtime. The FLSA requires employers to pay overtime to hourly employees who work more than forty hours a week, but includes exemptions for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” In a subsequent interpretive rule, the Department of Labor stated that service advisors were not included within the exemption.

What is a service advisor? Dean Morrison put it best in his response to the Court’s prior decision:

Suppose, for example, your car is there for a regular 30,000-mile checkup and the mechanic notices that the frapdazzle is on its last legs and should be replaced. He tells the service advisor, who calls you at work to get your permission to replace it. You ask him what he thinks, and he says something like, “well, you might be able to get another six months out of it, but if it goes, your car will stop running on the spot and it could be a lot more to fix it then than now, when the mechanic is already working on car.” How much you ask, and he quotes a price of $603.89 (including tax). You gulp and say, “I guess I should do it now” since you have no way of knowing whether the advice is correct and you can’t even go online to try to find out, let alone ask another shop for its opinion. The one thing that the service advisor has not told you is that he gets a commission for “selling” the extra $603.89 service. And it is that sales commission that gives rise to the employer’s claim that the service advisor is an exempt employee under the salesman provision quoted above.

In the prior case, the Ninth Circuit held that the language of the salesman, partsman, or mechanic exemption was ambiguous and that the Department of Labor’s interpretation of the exemption was reasonable. Thus, it found that Navarro was not exempt by deferring to the Department of Labor interpretive rule. The Supreme Court vacated and remanded the case back to the Ninth Circuit with direction to disregard the Department of Labor’s interpretive rule because the Department had not provided any reasoned explanation for why service advisors were not included in the exemption. On remand, the Ninth Circuit again ruled that Navarro was non-exempt, even though two other Circuits, the Fourth and the Fifth, have held otherwise.

The question presented this time around is the same as last: the Court must decide what the salesman, partsman, or mechanic exemption encompasses. It may decide that the statute clearly lists all the positions that the exemption includes. However, the Court may also hold that the statute itself is ambiguous and merits a Chevron analysis. If that is the case, the Court will then determine if the Department of Labor’s interpretation is reasonable and deserving of deference or is unreasonable. Whichever way the Court decides will have major ramifications for the automobile dealership industry. If the Court holds that service advisors are exempt from overtime requirements, dealerships can work service advisors as many hours a week as they are able and will not have to pay overtime. Going the other way, this could cost dealerships more money in wages in the future, and could also make them liable for heavy damages in back pay to any service advisors who have previously worked overtime and were not compensated. The only surety is that service advisors will finally get an answer from the high court.