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25 Apr 2016

ENCINO, Calif. — Employees who work as service advisers for car dealerships aren’t eligible for overtime pay because they fall within a Fair Labor Standards Act exemption, according to a lawyer for a California auto dealership.

The U.S. Supreme Court heard oral arguments in mid-April in Encino Motorcars, LLC v. Navarro, where a private car dealership in California argued that employees who work as service advisers for car dealerships are not eligible for overtime pay because they fall within an exemption under the Fair Labor Standards Act (FLSA).

The case is on appeal to the Court because a court of appeals previously ruled that such employees fall outside the FLSA exemption, applying a 2011 Labor Department final rule that said service advisers are not covered by FLSA and, therefore, must receive overtime pay if they work more than 40 hours a week.

The argument focused on whether the court should defer to the DOL’s current regulation, which was issued after the DOL for 33 years had acquiesced in court decisions holding service advisers are exempt.

No Deference Owed to DOL, Dealer Says

Encino Motorcars argued that no judicial deference is owed to the DOL’s current interpretation.

Encino rejects DOL’s argument essentially saying that despite every court rejecting the agency’s 1970 interpretive regulation that service advisers aren’t exempt, the department in 2011 believed it still has the better view.

The 2011 rule also deleted an explanation regarding service advisers’ coverage under the act that the department had provided in 1970, he said. DOL acquiesced in court rulings that service advisers were exempt, particularly for employers located in areas covered by the federal appeals courts for the Fourth and Fifth Circuits, according to Encino.

Service Advisers

According to the employees, they are not exempt from FLSA because they do not sell or service cars. Instead, they “merely write up paperwork,” putting in fixed hours in customer-focused positions.

The Supreme Court asked why the exemption includes “partsmen” if Congress intended only to exclude those who sell or fix cars. In response, Encino stated that the parts employees work alongside mechanics and may be required to customize parts in certain circumstances. Parts employees typically engage in a “back and forth” with the mechanic, and it’s not a “customer-facing” job.

Encino further argued that the dictionary definition of “engaged in” servicing means “caring and maintaining” for the auto. The FLSA exemption’s use of “engaged in” doe no’t broaden the definition of “servicing” to include service advisers. Unlike mechanics, service advisers have a customer-facing role. They are not giving the customer a final diagnosis on what needs to be repaired. Many car dealership employees perform work that’s “part of the general process” of selling or servicing cars, but it’s insufficient to bring them under the FLSA exemption.

The Court asked the Encino how many service advisers would be affected by a ruling on the exemption. There’s a “wide range” of compensation methods for service advisers, with many earning less than 150% of the minimum wage, which is the threshold for coverage under the FLSA exemption for workers paid on commission, according to the employees. Some service advisers make as little as $22,000 a year. Additionally, Encino stated that dealership compensation structures vary for service advisers, and that “a significant number” of service advisers are not paid on commission, but instead receive a fixed salary. Those employees would not be eligible for the exemption, so it is important for car dealers and the employees to know if they are exempt under FLSA. About 45,000 service advisers work for 18,000 dealerships nationwide, earning an average $66,000 per year, according to the National Automobile Dealers Association.

Until the Supreme Court issues a final decision on this issue for the nation, different jurisdictions will have different interpretations of whether FLSA exempts auto service advisers. If you believe that you have been deprived of overtime because of a misapplied exemption, you should call  (855) 754-2795 or complete the Free Unpaid Overtime Case Review form on the top right of this page. Our wage lawyers will evaluate your situation and help you obtain the compensation that you are entitled to. Call our experienced attorneys today.

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