Service Advisors Are Not Exempt Under the FLSA
Creating a dramatic change for many auto-related businesses in California, the Federal Appeals Court for the Ninth Circuit ruled last week that service advisors working at an auto dealership are not exempt under the Fair Labor Standards Act (FLSA). See Navarro v. Encino Motorcars (13-44323)(9th Cir. 3/24/2015) The FLSA includes an overtime pay exemption for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.” 29 U.S.C. § 213(b)(10)(A). Over the decades, the Department of Labor (DOL) has put forth inconsistent guidance on whether or not the exemption encompasses service advisors—those employees identify a customer’s service and/or repair needs. In 1978, the DOL issued an opinion letter which defined service advisors as falling under the term “salesman.” And, when the agency amended its Field Operations Handbook in 1987 it took a similar position. However, the actual regulations issued by the DOL, which were most recently updated in 2011, have never included this broader definition. Instead, the regulations defines a “salesman” as “an employee who is employed for the purpose of and is primarily engaged in making sales or obtaining orders or contracts for sale of the automobiles . . .”, whereas the partsman and mechanics are those employees who service the vehicle. 29 C.F.R. § 779.372(c); see also Updating Regulations Issued under the Fair Labor Standards Act, 76 Fed. Reg. 18832-01 (April 5, 2011). According to the DOL’s most recent position, a service advisor does not fall within any of these definitions and is, therefore, not exempt. Until the Navarro case, the federal courts have not agreed with the DOL regulations on this point. The Fourth and Fifth Circuits, along with a number of district courts have held that service advisors who are functionally equivalent to salesmen and mechanics and are similarly responsible for the “selling and servicing” of automobiles may be properly classified as exempt. See, e.g., Walton v. Greenbrier Ford, Inc., 370 F.3d 446 (4th Cir. 2004); Brennan v. Deel Motors, Inc., 475 F.2d 1095 (5th Cir. 1973). These courts have found that the DOL’s interpretation of the exemption was an unreasonably restrictive construction of the FLSA and for that reason should be disregarded. The Ninth Circuit in Navarro went the other direction when addressing the issue for the first time last week. It overturned the District Court for the Central District of California which had dismissed the overtime claims of a service advisor. The lower court had followed the rationale and precedent set by the prior courts who had considered the issue. The Ninth Circuit, relying on overly technical arguments regarding the grammatical construction of the statute and the courts’ role in reviewing DOL regulations, held that the DOL’s narrow interpretation of the exemption was reasonable, and therefore, enforceable. It may be that the Ninth Circuit’s decision will be appealed to the Supreme Court and eventually reversed, in favor of the positions taken by the other appellate and district courts who have considered the issue. However, for now, any dealerships or other auto-related businesses that employ service advisors should proceed with caution and pay those employees overtime. http://cdn.ca9.uscourts.gov/datastore/opinions/2015/03/24/13-55323.pdf