Last week the Supreme Court heard – for the second time – oral argument in Encino Motorcars, LLC v. Navarro. At issue is whether “service advisors” at dealerships are covered by what’s known as the “automobile dealer” exemption set forth in Section 213(b)(10)(A) of the FLSA. That exemption excludes from overtime any “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” Salesmen who sell cars are covered, as are the mechanics who service them. But are service advisors (those who sell services and act as the liaison between the customer and mechanic) “primarily engaged in” selling or servicing automobiles?
A little history first. The 213(b)(10)(A) exemption was enacted in 1966. In 1970, the DOL issued a regulation stating service advisers were not covered by the exemption and, therefore, were eligible for overtime pay. Several courts, including the Fifth Circuit Court of Appeals and a number of district courts, however, disagreed and refused to follow the DOL regulation. As a result, in 1978 the DOL abandoned the regulation in an opinion letter and stated that service advisors are covered by the exemption. Both the DOL and the courts applied the exemption to service advisors for more than 30 years. In 2011, however, when a Bush-era regulation finally codifying the exemption was proposed, the DOL, now under the Obama Administration, reversed course, issuing a final rule returning to its 1970 position that service advisors are not covered by the exemption and thus are eligible for overtime pay. Despite the fact that the final rule offered little explanation for the dramatic change in position, the Ninth Circuit Court of Appeals deferred to the DOL’s final rule when the issue first came before it in Encino Motors in 2015.
In 2016, the Supreme Court reversed the Ninth Circuit’s decision, concluding that the Court of Appeals erred in deferring to the DOL regulation because the DOL provided no reasoned explanation for its change in position. The Supreme Court did not resolve, however, the merits of the issue. Rather, the Court remanded the case to the Ninth Circuit for it to determine in the first instance whether the exemption applied to service advisors, without reference to the DOL’s regulation. On remand, the Ninth Circuit reached the same result (service advisors are not exempt), albeit relying instead on a detailed examination of the statutory text and legislative history of the exemption. So, the case came back to the Supreme Court to review that decision: whether service advisors are exempt under the 213(b)(10)(A) exemption.
The defendant automobile dealership argues that service advisors are “salesmen” primarily “engaged in servicing” automobiles because the definition of “servicing” or “engaged in” is broad enough to cover not only those doing the actual repair work but those involved in providing the overall service. Plaintiffs argue this is a stretch and that interpreting the statute this way leads to an unnatural reading of the statute.
So what did the recent oral argument reveal? That it’s probably a close decision, along the usual philosophical lines. While Justices Kagan, Breyer, Ginsburg and Sotomayor appear to be against extending the exemption to service advisors, Chief Justice Roberts seemed to accept the notion that service advisors can be “engaged in” the servicing of automobiles even though they do not perform the actual repairs. Justices Alito and Thomas previously asserted, in their dissents in the Court’s 2016 remand opinion, that service advisors satisfied the exemption. That means the decision may come down to Justice Kennedy (as it often does in close decisions) and newly-arrived Justice Gorsuch.
The decision may require a lengthy lesson on grammar to answer the precise question (the statute was not well drafted) and even grammarians might disagree. But the case could have broader implications if the Court addresses another issue dangling on the periphery of the case: the viability of the so-called “narrow construction” principle, i.e. the assertion that exemptions should be narrowly construed against the employer and applied only when they do so plainly and unmistakably. The Ninth Circuit historically has relied on this canon and did so again on remand in ruling in favor of the employees. But the defendants have asked the Court to cast this so-called rule of construction aside, a canon it has not cited in its last few cases addressing the FLSA. And if the Court does address it, the decision could have positive, wide-ranging implications for employers when courts subsequently analyze other exemptions under the FLSA. Only Justice Gorsuch mentioned the canon during the oral argument.