In Encino Motorcars LLC v. Navarro, 2018 WL 1568026 (Apr. 2, 2018) (“Encino Motorcars II”), the Supreme Court recently concluded that “service advisors” in a car dealership were not entitled to overtime pay under the Fair Labor Standards Act (FLSA) because of a statutory exemption for certain “salesmen” in the auto industry. It was the second time the Court had addressed the case on successive reviews of Ninth Circuit decisions reviving the matter after a California federal district court had originally dismissed it. See original decision (“Encino Motorcars I”) at 136 S. Ct. 2117 (2016).
Encino Motorcars II’s interpretation of the relevant FLSA exemption -- one of many under the statute -- is not of broad interest outside the car dealership industry. The case resembles an iceberg, however, with matters of major importance lurking below the tip of its principal holding.
The Specific Statutory Issue. Encino Motorcars’ “service advisors” provided the customer interface for the dealership’s service department. The advisors took service orders from incoming vehicle owners, sold them repair and maintenance services, as well as accessories and replacement parts, and provided customer support throughout the servicing process. Several of the advisors sued in 2012 for overtime pay allegedly due to them.
The Court ultimately determined that the advisors were covered under § 213(b)(10)(A) of the FLSA, exempting “any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles . . . ” in a dealership. The Court read the exemption broadly and flexibly to cover the advisors as “salesmen . . . primarily engaged in servicing automobiles.” It reasoned that the advisors were “salesmen” in the ordinary sense of the term and that their selling included “services.” It rejected the Ninth Circuit’s constricted construction of the exemption language, which had applied the so-called “distributive canon.” Consistent with that principle, that court had interpreted each identified job title referenced in the statute as being linked respectively to one subsequently-specified work function, thus limiting any exemption for “servicing vehicles” only to “partsmen” and “mechanics” and extending the exemption to “salesmen” only insofar as they “engaged in selling . . . automobiles.” The Supreme Court also rejected other bases for the Ninth Circuit’s reading of the statute, including (1) that the lack of any specific reference to “service advisors” in the exemption had been meant as an intentional restriction of its scope and (2) that the term “servicing” connoted the activity of “repair and maintenance” personnel rather than of “sales” staff.
The Court’s interpretation of the exemption rested on two more significant rulings. One had been made earlier in Encino Motorcars I and one was new in Encino Motorcars II.
The Regulatory Issue. In initially reversing the Ninth Circuit in Encino Motorcars I, the Court had determined that no deference was due to a Department of Labor (DOL) regulation excluding “service advisors” from the exemption. That regulation, adopted during the Obama administration, had reversed an earlier DOL regulation to the contrary from the preceding administration. The Court concluded that broad deference typically afforded to regulations under the doctrine of Chevron USA v. Natural Resources Defense Council was not appropriate because the DOL had failed to provide a sufficiently reasoned explanation justifying its changed position. The invalidation of the DOL’s regulation left the Court with broad leeway to make its own interpretation of the exemption in Encino Motorcars II. It serves as a warning to agencies that they do not have carte blanche to switch positions as administrations come and go without reasoned justification. While decided in 2016, this aspect of the Court’s Encino rulings bears reemphasis currently, given the Trump administration’s zealousness in seeking to reverse regulations from the Obama administration.
The Burden-Changing Bombshell. Even more significant in the new Encino Motorcars II opinion, however, was the Court’s rejection of an interpretive rule long rankling employers - that exemptions to the FLSA were to be narrowly construed. For decades that rule had stood as an axiom in FLSA litigation, resulting in grudging, pro-employee readings of the scope of exemptions under the FLSA. See, e.g., Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960) (“We have held that these exemptions are to be narrowly construed against the employers seeking to assert them and their application limited to those establishments plainly and unmistakably within their terms and spirit.”) The Encino Motorcars II majority rejected the “narrow construction” rule as having no textual foundation in the FLSA. The conservative wing of the Court had signaled in two earlier decisions that the rule had fallen from favor, and Justice Thomas had condemned it as a “made-up” canon in his dissenting opinion in Encino Motorcars I. 136 S. Ct. at 2131. Not surprisingly, the petitioner and several amici had seized upon the opportunity to rally against it in the second appeal. Writing for the majority in Encino Motorcars II, Justice Thomas obliged. In dissenting, Justice Ginsberg, joined by three others, was particularly incensed by this new development, stating that it dispatched the old rule ““[i]n a single paragraph . . . without even acknowledging that it unsettles more than half a century of our precedent.” 2018 WL 1568025 at * 12 n.7.
The jettisoning of the “narrow construction” rule, while seismic enough in the FLSA context, possibly has even broader implications. Interpreting exceptions in remedial statutes narrowly is a rule of general statutory construction. N. J. Singer, 3 Sutherland Statutory Construction § 60.01 (Sands 7th ed. 2007). How far the courts will now go in finding no textual support for it in other settings is an open question. The inspiration for challenging the rule can be traced to a law review article by Justice Scalia, cited by Justice Thomas in his Encino Motorcars I dissent. See Scalia, Assorted Canards of Contemporary Legal Analysis, 40 Case W. Res. L. Rev. 581 (1990). The article listed Justice Scalia’s pet peeves concerning maxims often cited to the Court. While he did not specifically focus on the rule of narrowly reading statutory exemptions, he condemned the corollary canon of construing “remedial” legislation “broadly,” which he thought both unjustified and often meaningless as a guidepost to legislative intent. That “broad construction” rule probably now will also expressly come under attack in future Court decisions, particularly if another conservative justice is appointed.
In sum, the Encino Motorcars decisions can be summarized as a tale of two flip-flops. The first, by the DOL in reversing its prior interpretation of the exemption, proved ineffectual because it lacked a reasoned explanation. The second, by the Court itself in scrapping a long-standing rule of statutory construction, will broadly affect future interpretation of the FLSA as well, perhaps, of other federal statutes.
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