While the Fair Labor Standards Act (FLSA) generally requires employers to pay its employees overtime for any hours worked in excess of 40 in a workweek, the law also provides that certain types of employees are exempt from – that is, ineligible for – overtime pay.

Up until now, courts across the country applied the general principle that exemptions to the FLSA should be “narrowly” construed. On April 2, 2018, the U.S. Supreme Court issued its 5-4 opinion in Encino Motorcars, LLC v. Navarro that eliminated this principle and now requires courts to simply give exemptions a “fair” interpretation.

Supreme Court alters course on exemption interpretation

Current and former service advisors for automobile company Encino Motorcars, LLC filed suit for backpay, alleging the company violated the FLSA by failing to pay them overtime. The company argued that the service advisors were exempt from the FLSA’s overtime pay requirement pursuant to a specific exemption that applies to “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.”

The service advisors in this case were employees at car dealerships who consulted with customers about their auto servicing needs and sold them servicing solutions. These service advisors met customers, listened to their concerns about their cars, suggested repair and maintenance services, sold new accessories or replacement parts, recorded service orders, followed up with customers on services performed, and explained the repair and maintenance work when customers return for their vehicles. At issue was whether they qualified for the exemption.

This case founds its way to the U.S. Supreme Court after the Ninth Circuit Court of Appeals reversed the lower court’s dismissal of the case. The Ninth Circuit did not consider the service advisors to be exempt for a number of reasons, and further supported its conclusion by referencing the principle that exemptions to the FLSA should be construed narrowly.

The U.S. Supreme Court disagreed. Under the best reading of the exemption, service advisors are salesman and they are engaged in servicing automobiles. The service advisors sold customers services for their vehicles, and were integral to the servicing process. The fact that the advisors did not spend the majority of their time physically repairing automobiles did not matter.

More importantly, however, the Supreme Court rejected the principle of narrowly construing FLSA exemptions, stating, “Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.’” The Court emphasized that the exemptions to the FLSA are as much a part of the FLSA’s purpose as the overtime pay requirement.

What this decision means for employers

This Supreme Court case is important for a couple of reasons. First, for non-manufacturing automobile establishments, it is now clear that service advisors are exempt from the FLSA’s overtime pay requirement. Second, the Court’s rejection of the narrow construction principle means that employers may have a better chance of obtaining application of exemption tests in FLSA cases. FLSA misclassification and overtime cases have been rampant over the past few years – as single-plaintiff, class and collective actions – exposing employers to significant liability, including attorneys’ fees. This Supreme Court decision may actually help to level the playing field.

Nevertheless, employers should always seek legal counsel when determining whether to classify an employee as exempt or non-exempt. Employers bear the burden in courts of proving proper classification, and experienced legal counsel will assist in reaching the right conclusion.

Encino Motorcars, LLC v. Navarro, 584 U.S. ___ (2018)