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California Mercedes-Benz Dealership Reinterprets FLSA

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Most business owners and HR professionals are very familiar with the “white-collar” exemptions under the FLSA. However, there are dozens of other specific exemptions to overtime. If you work in the auto business, you’ll know about the dealership exemption. This exemption applies to a “salesman, partsman or mechanic” employed at a business that sells “automobiles, trailers, trucks, farm implements or aircraft.” In other words, a mechanic who works at the local car dealership’s service department is exempt from overtime, but the mechanic who works at the corner repair shop is eligible for overtime. The dealership’s parts department employee is exempt, but the employee who works at the local auto parts store is eligible for overtime. 

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On April 2, 2018, the U.S. Supreme Court issued its decision in 
Encino Motorcars, LLC v. Navarro, 584 U.S. ___ (2018). The case, on its facts, is narrow. It concerned a dispute regarding whether service advisors employed at an Encino, California Mercedes-Benz dealership were covered by the dealership exemption.
The case was filed in 2012 after the U.S. Department of Labor issued a new interpretation of the exemption in 2011. This Obama-era interpretation reversed the DOL’s long-held position dating back to 1975 regarding the dealership exemption. The district court originally dismissed the case, finding the overtime exemption still applied to service advisors. The Ninth Circuit Court of Appeals reversed the decision, finding the DOL’s change in the interpretation was entitled to deference by the court. Encino Motorcars then appealed the ruling to the Supreme Court. The Supreme Court found the DOL’s flip-flop on its interpretation could not be given deference, as auto dealers had relied on the DOL’s position, and the DOL had not sufficiently explained why it had changed its mind. The Supreme Court then sent the case back to the Ninth Circuit to make the determination whether service advisors should be included in the dealership exemption.
Predictably, the Ninth Circuit worked hard to justify its earlier decision, and it found a way to make the service advisors eligible for overtime. It accomplished this by doing grammatical gymnastics, including digging up a rule of interpretation called “distributive phrasing.” It then ended its analysis by applying the 
long-standing view that FLSA exemptions should be construed narrowly, as the FLSA is a remedial statute. According to the history of decisions related to the FLSA, any close calls have been decided in favor of the employee. The DOL and employee advocates have used it as the FLSA’s equivalent of a tiebreaker.
Encino Motorcars again appealed to the Supreme Court. The Supreme Court then critically analyzed the Ninth Circuit’s decision regarding the exemption, finding that the service advisors are exempt from overtime, as they are the service department’s salespersons for service within the dealership. 
In a separate section of its opinion, the Supreme Court completely gutted the “narrow” construction rule regarding exemptions. The Court stated in regards to this rule:
We reject this principle as a useful guidepost for interpreting the FLSA. 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 further stated the narrow-construction principle relies on the flawed premise that the FLSA “pursues” its remedial purpose “at all costs.” Concluding the analysis, the Court closed by stating it had “no license to give the exemption anything but a fair reading.”
So, what does this all mean? 
For starters, it means that in an exemption case, close calls no longer default in favor of the employee. It also means lower courts are required to give the exemptions just as much consideration as any other provision in the FLSA, such as the provisions related to overtime or the minimum wage. Employers also no longer have to demonstrate that an exemption “plainly and unmistakably” applies.
This case is a positive development for employers in FLSA cases. 
Encino Motorcars finds the narrow-construction rule no longer has any place in interpreting FLSA exemptions. This makes it much easier for employers to demonstrate the applicability of an exemption, particularly when the job in question is consistent with the ordinary meaning of the law, including the “white-collar” managers, supervisors and administrative employees.

For more information, contact Paul Bittner, Tami Earnhart or another member of our Labor, Employment and Immigration Team.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

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