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Service Advisors Ruled Not Exempt Under Fair Labor Act

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Car dealership service advisors, in contrast to car dealership mechanics and salespeople, are not exempt under the Fair Labor Standards Act (FLSA), according to the 9th U.S. Circuit Court of Appeals. Significantly, the 9th Circuit's decision stands in direct conflict with the position taken by both the 4th and 5th circuits.

Service advisors at a California Mercedes-Benz location sued the dealership in 2012 and alleged that they had been improperly characterized as exempt employees and should have been paid overtime compensation. The district court disagreed with the plaintiffs and in January 2013 dismissed the plaintiffs' overtime claims.

On appeal, the 9th Circuit in March 2015 reversed the district court's decision regarding the plaintiffs' overtime claims because prior U.S. Department of Labor (DOL) guidance and regulations issued by the DOL in 2011 supported a finding that service advisors are not covered by the exemption for mechanics and salespeople (Navarro v. Encino Motorcars LLC, 780 F.3d 1267 (9th Cir. 2015)). The dealership appealed the 9th Circuit's decision to the U.S. Supreme Court, which agreed to take the case.

Although many observers believed that the U.S. Supreme Court had agreed to review the 9th Circuit's decision to resolve the disagreement between the position taken by the 9th Circuit and the conflicting position taken by the 4th and 5th circuits, the U.S. Supreme Court, instead, ruled that the DOL's 2011 regulation on which the 9th Circuit had relied was not entitled to deference.

The U.S. Supreme Court simply vacated the decision and sent the case back to the 9th Circuit with instructions to interpret the statute without regard to the DOL's 2011 regulation, which the U.S. Supreme Court said had been issued without adequate explanation (Encino Motorcars LLC v. Navarro, 136 S. Ct. 2117 (2016)). The DOL has changed its stance on this issue over the years, and the U.S. Supreme Court determined that the DOL's 2011 change in its position on this issue had not been reasonably explained by the DOL. This action by the U.S. Supreme Court did not resolve the split among the appellate courts.

After the case was sent back to the 9th Circuit, the appeals court once again held that car dealership service advisors are not exempt under the FLSA. The 9th Circuit, in accordance with the U.S. Supreme Court's ruling, did not rely on the DOL's 2011 regulation in reaching its decision. Instead, the 9th Circuit engaged in a detailed analysis of the wording of the exemption and looked to the legislative history from 1966 when Congress voted to repeal the blanket exemption for all auto dealership employees that existed at that time, replacing the blanket exemption with one limited to mechanics and salespeople. The 9th Circuit found particularly persuasive the absence of references to or discussions about service advisors in the legislative history surrounding the exemption.

Note that rulings by the 9th Circuit apply to Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington. Rulings by the 4th Circuit apply to South Carolina, North Carolina, Virginia, West Virginia and Maryland. Rulings by the 5th Circuit apply to Texas, Louisiana and Mississippi.


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