For nearly 35 years, automobile dealers relied on the U.S. Department of Labor’s position that service advisors fell within the Fair Labor Standards Act’s exemption from overtime for “salesmen, partsmen, or mechanics primarily engaged in selling or servicing automobiles.” In 2011, the DOL “upended” this interpretation by issuing regulations specifying that the exemption did not apply to “sales personnel” unless they sell vehicles. Thus, service advisors were deemed non-exempt.
In June 2016, in Encino Motorcars, LLC v. Navarro, No. 15-415, 2016 WL 3369424 (2016), the Supreme Court held that the 2011 regulation was not entitled to deference because it was issued without the requisite reasoned explanation for a change. The Court did not decide whether service advisors are, or are not, exempt. The U.S. Supreme Court remanded the case to the U.S. Court of Appeals for the Ninth Circuit (which had decided the case below) with instructions that the appellate court not give any deference to the DOL’s regulations. In other words, the appellate court should review the duties of the position (the sale of repair and maintenance services) and decide if the duties fell within the statutory exemption.
On January 9, 2017, the Ninth Circuit issued its decision on remand (Case No. 13-55323, 2017 WL 74713 (9th Cir. 2017)). The Ninth Circuit concluded that Congress did not intend for the overtime exemption to include service advisors. According to the Ninth Circuit, service advisors are not “primarily engaged in” the selling or servicing of cars. Furthermore, while service advisors may be salesmen in a general sense, the court reasoned that they are not “primarily engaged in” automobile sales because they do not actually sell any cars. Following this same, plain-language logic, the court also concluded that the balance of the exemption (for partsmen or mechanics) did not apply, because a service advisor does not perform repairs or provide automobile maintenance. Instead, as the Ninth Circuit stated, a service advisor “wait[s] on customers who bring their automobiles in for maintenance and repairs.”
While this case is bad news for automobile dealers in California, Arizona and other far Western states within the Ninth Circuit, the U.S. Court of Appeals with jurisdiction over Maryland (as well as Virginia, West Virginia and the Carolinas) is the Fourth Circuit. The Fourth Circuit in Walton v. Greenbrier Ford, Inc., 370 F.3d 446 (4th Cir. 2004), determined that the service advisor “had a key role” in the automobile dealership’s service operations, which was sufficient to label the service advisor as a “salesman” under the FLSA exemption. The court specifically emphasized that at least half of the service advisor’s “specific job responsibilities” were “service and sales related functions.”
When there is a split among the Circuit Courts on a question of Federal law, the U.S. Supreme Court is the final arbiter of what “the law is” (subject to Congress’ right to legislate, with Presidential consent, if it thinks the highest court got it wrong). Therefore, we expect Encino Motorcars to petition, once again, for the Supreme Court to hear the case and decide which Circuit has it right. Auto dealers in all states will, therefore, need to “stay tuned.”