U.S. Supreme Court to examine Ninth Circuit's overtime pay decision

By Karen Kidd | Feb 26, 2016

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WASHINGTON (Legal Newsline) – The issue of whether certain auto dealership employees deserve overtime pay hangs in the balance as the U.S. Supreme Court, now down one justice, prepares to hear a potentially precedent-setting case, a North Carolina attorney says.

The Supreme Court, in agreeing to hear the case Navarro v. Encino Motorcars, LLC, will settle a split of decisions by lower circuit courts over how the Fair Labor Standards Act and a Department of Labor regulation apply to automobile dealership "Service Advisors" and other workers.

"If the Ninth Circuit decision is overturned, this would give dealerships the ability to employ Service Advisors without the obligation to pay overtime," said Jonathan Crotty, a partner at Parker Poe in Charlotte, N.C.

Many automobile dealerships currently don't pay overtime to its commissioned employees based on an exemption in the Fair Labor Standards Act, specifically 29 U.S.C. § 213(b)(10)(A).

That provisions states that “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” is exempt from FLSA's overtime pay requirements.

However, last March the U.S. Court of Appeals for the Ninth Circuit ruled that Encino Motorcars LLC’s service advisors are eligible for overtime pay under a U.S. Department of Labor interpretive regulation.

In the opinion written by Judge Susan P. Graber, the Ninth Circuit overturned a district court's findings that Encino Motorcars Service Advisors fall under the FLSA’s exemption.

The DOL regulation relies on a strict reading of the statute, which only lists salespersons, mechanics and parts workers as exempt, Crotty said.

"They do not view Service Advisors as either salespersons or mechanics," he said.

However, Crotty also pointed out that the statutory exemption is old and many employee positions common in modern automobile dealerships did not exist when the exemption was enacted.

"A broader reading of the exemption would involve looking at the general functions of selling and repairing automobiles and determining which employees can fairly be deemed to participate in those functions," Crotty said.

"If Congress intended to exempt the dealership industry from overtime requirements, the argument is that the exemption should be read to take into account changes in the industry over time."

The case initially was filed in 2012 when Hector Navarro and other plaintiffs claimed, among other things, that Encino Motorcars was in violation of the FLSA for not paying overtime.

In overturning the District Court decision, the Ninth Circuit's opinion did not cast aspersions on the District Court's preferences about the FLSA exception.

"In sum, there are good arguments supporting both interpretations of the exemption," Graber wrote in the opinion. "But where there are two reasonable ways to read the statutory text, and the agency has chosen one interpretation, we must defer to that choice."

However, Encino Motorcars alleged in its petition to the U.S. Supreme Court, filed Sept. 30, that the Ninth Circuit's findings under the DOL regulation ignored relevant precedent in a Fifth Circuit ruling in 1973 and in the Fourth Circuit in 2004.

“The Ninth Circuit’s erroneous decision will have far-reaching implications for dealerships and will inject uncertainty into a previously-settled area of the law,” Encino Motorcars said in its petition.

“If allowed to stand, the Ninth Circuit’s decision would require a wholesale (and wholly unwarranted) restructuring of the way in which those employees are compensated and would force dealerships to divide their workforces into exempt and non-exempt categories in ways that are both divisive and contrary to Congress’ plain intent.”

The Supreme Court in January agreed to hear the case, thus setting the stage to determine whether the FLSA or DOL regulation should prevail.

There are a number of ways the high court could rule in this case, Crotty said.

"A favorable decision from the Court would provide dealerships with the flexibility to pay these workers on a salaried or hourly basis," he said.

"If the Court upholds the Ninth Circuit decision, this would require dealerships across the country to convert Service Advisors to commissioned employees or to begin paying overtime after 40 hours each workweek.

"A broad decision by the Supreme Court could also potentially apply to other dealership jobs not specifically mentioned under the exemption, specifically Finance and Insurance and Body Shop personnel."

Crotty would not speculate which way he thinks the high court might go. How likely is it that the exemption will be overturned?

"It’s tough to tell," he said. "Often, the Supreme Court accepts review of a lower court decision it considers to be decided incorrectly for the purpose or reversing it.

"Given the number of other federal court decisions that disagree with the Ninth Circuit, this may be the case here. In other circumstances, the Court accepts review of cases it views as carrying major public policy concerns, but this does not appear to fall into that category."

A tie vote is not outside the realm of possibility, Crotty said.

"Of course, with Justice Scalia’s death, the outcome of any pending decision before the court is in doubt," he said. "A 4-4 split among the Justices would result in the Ninth Circuit decision standing as is, but would not set a binding precedent for other federal appellate circuits."

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