Earlier today (April 2, 2018), the U.S. Supreme Court ruled that auto service advisers (also commonly referred to as “service writers”) are exempt from overtime under the Fair Labor Standards Act (“FLSA”). Today’s ruling in Encino Motorcars LLC v. Navarro et. al. has affirmatively answered the long-standing question as to whether auto service advisers are covered by the FLSA’s “salesman” overtime exemption, which includes “any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles.” The Court’s decision overturned the Ninth Circuit Court of Appeals ruling that service advisors do not fall under the exemption, and followed rulings in both the Fourth and Fifth Circuit Court of Appeals holding that they were exempt from overtime.
As we have previously communicated, this is the second time the Supreme Court was asked to decide this issue. In June 2016, the Court declined to decide the ultimate issue as to whether service advisers were exempt, and instead remanded the case back to the Ninth Circuit for reconsideration without giving weight to the regulations issued by the U.S. Department of Labor in 2011 (those DOL regulations provided that service advisers were no longer exempt from overtime pay). On remand, the Ninth Circuit disregarded the DOL’s regulations and focused solely on the language and intent of the FLSA, but again found that service advisers do not fall within the meaning of the terms “salesman, partsman, or mechanic,” and therefore were not exempt from overtime pay.
Encino then appealed the Ninth Circuit’s newest ruling, and the Supreme Court agreed to hear the case for a second time. Oral argument took place in January. In today’s opinion, the Court focused on the meaning of term salesman – someone who sells goods or services – and noted that service advisors sell services to customers for their vehicles. The Court therefore concluded that service advisors do in fact typically operate as a salesman primarily engaged in the sale of services for automobiles, thus falling within the salesman overtime exemption.
This is a big win for auto dealerships. While the Court’s opinion covers any claims under the FLSA, auto dealerships should keep in mind that state law might be different from federal law and should be consulted. For example, in Illinois, we continue to advise dealerships to structure their service adviser pay plans to comply with the 7(i) sales exemption, which is expressly included in the Illinois Minimum Wage Law.