The U.S. Supreme Court held yesterday that auto service advisors, employees at car dealerships who consult with customers about their servicing needs and sell them servicing solutions, are exempt under the Fair Labor Standards Act (FLSA). The court rendered its decision by a 5-4 vote in Encino Motorcars LLC v. Navarro et al.

The FLSA generally requires employers to pay overtime to employees who work more than 40 hours a week, but the FLSA contains many categories of employees that are exempt from these requirements. One of these exemption categories is "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers." 29 U.S.C. § 213(b)(10)(A). From its enactment in 1974 to 2011, the exemption was understood by several courts and the Department of Labor (DOL) to cover auto service advisors. However, in 2011 the DOL issued a rule that interpreted "salesman" to exclude service advisors. See 29 C.F.R. § 779.372(c).

In Encino Motorcars, current and former service advisors sued a Mercedes-Benz dealership in California for failing to pay overtime in violation of the FLSA according to the DOL's 2011 rule. The District Court dismissed the complaint, but the Ninth Circuit reversed on the ground that under the Chevron principle, it must defer to the DOL’s 2011 rule because of inclusive legislative history. In 2016, the U.S. Supreme Court (6-2) vacated and remanded the case instructing the Ninth Circuit to reconsider the service advisor exemption issue without giving weight to the 2011 DOL rule because it was "procedurally defective." On remand, the Ninth Circuit again held the FLSA exemption does not include service advisors.

Reversing the Ninth Circuit decision, the U.S. Supreme Court held service advisors are in fact "salesmen" within the meaning of the FLSA's exemption in 29 U.S.C. § 213(b)(10)(A). Central to the court’s decision were its conclusions that service advisors are "integral" to servicing automobiles and that the statutory language is not constrained to include only employees who spend their time physically repairing automobiles. The court further held the use of "or" to join "selling" and "servicing" in the statute suggests that the exemption covers a salesperson primarily engaged in either activity and does not require the employee be engaged in both activities.

As a result of this decision, employers in the automobile industry should re-evaluate their job classifications and work with employment law counsel to determine whether they are required by contract or by state law to pay employees overtime.