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U.S. SC rejects deference to DOL rule

By Rebecca Campbell | Jul 18, 2016

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WASHINGTON (Legal Newsline) – The U.S. Supreme Court has issued its latest decision over a decades-old question as to whether auto dealership “service advisers” are excluded under a specific Fair Labor Standards Act overtime exemption.

Congress enacted an exemption in 1966 stating that “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” at a covered dealership was exempt from the overtime compensation requirement.

In 1970, the Department of Labor (DOL) defined “salesman” to mean “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 vehicles…which the establishment is primarily engaged in selling.” The regulation excluded service advisers.

Over the years, however, the DOL has gone backward and forward on this issue until 2011, when it issued a formal regulation stating that service advisers did not qualify under the exemption. 

The U.S. Court of Appeals for the Ninth Circuit held that the DOL’s 2011 rule was entitled to substantial deference and sided with the DOL on the issue; however, the Supreme Court rejected the Ninth Circuit’s analysis because the DOL failed to provide a meaningful explanation for its decision change.

According to John Doran, a member at Sherman & Howard LLC who spoke to Legal Newsline, the court in Encino Motorcars LLC v. Navarro that a federal agency is required to provide some justification for a rule change after years of reliance on the DOL’s prior interpretation of the exemption with the new rule producing a 180-degree turnabout on its previous clarification.

“The court held that the DOL failed to provide even a slender reed of an explanation for its about-face, and therefore the DOL’s new interpretation was not entitled to any deference,” Doran said.

The Ninth Circuit had relied on the DOL’s new rule, basing its decision in large part on the substantial deference a court usually owes to an agency’s rules.

“Stripped of that deference, the 9th Circuit will now have to analyze the exemption, the legislative history of the exemption, and the facts of the case to determine whether, in fact, Congress intended to cover service advisers under the exemption,” Doran said.

Not only that, but the DOL will now have to determine what, if anything, it will do. However, it is thought that the DOL will continue to enforce the new rule until a court orders it not to. 

Or, it could conceivably go back to square one and begin the process of re-enacting the new rule supported by reasons for its new interpretation of the exemption. Doran, however, believes this to be clumsy and unlikely.

This case is not likely to reach an agreement anytime soon and is likely to still take years before a final resolution has been reached by both sides.

“The Ninth Circuit process itself could take another 12 to 18 months,” Doran said. “Should the case again make it to the Supreme Court, we are looking at another 12 to 18 months on top of that.”

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