CMCP Diversity Matters - May/June 2018

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SCOTUS Erosion of Precedent re Statutory Construction of FLSA Exemptions? BY JONATHAN M. TURNER, PARTNER MITCHELL SILBERBERG & KNUPP LLP In Encino Motorcars, LLC v. Navarro, 200 U.S. 321 (April 2, 2018) the United States Supreme Court issued a decision under the Fair Labor Standards Act (“FLSA”) that has significance beyond the Court’s specific holding in that case. While the case addressed the application of the FLSA’s overtime exemption for car dealership employees who work as salesmen, the broader impact of the decision has to do with the Court’s pronouncement for how exemptions under the FLSA should generally be construed. The Court’s ruling on this latter issue reverses precedent regarding a presumption favoring FLSA coverage and disfavoring the application of an exemption under the statute. The FLSA is the primary federal law regulating wage and hour laws on a national level. Essentially, the FLSA requires employers to pay a minimum hourly wage, and overtime premium pay at one and a half times the hourly wage for covered employees who work more than forty hours in a week. However, the FLSA provides for a number of exemptions from all or portions of its application, depending on the industry involved or the specific type of work performed. Throughout most of the FLSA’s history, which dates to 1935, the Court has held that, as a “protective statute,” the FLSA should be construed broadly in favor of employee coverage, while exemptions under the statute should be narrowly construed. One such exemption excludes from the overtime pay requirement “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” at a covered dealership. In Encino Motorcars, the Court granted review of a Ninth Circuit decision in which it was held that this exemption did not apply to “service advisors -- employees at car dealerships who consult with customers about their servicing needs and sell them servicing solutions.” 30 | California Minority Counsel Program
In deciding that the exemption did not apply to service advisors, the Ninth Circuit agreed that a service advisor is a “salesman” in a “generic sense,” and is “primarily engaged in …servicing automobiles… in a general sense.” However, the Ninth Circuit defined “servicing automobiles” within the context of the FLSA to mean “only those who are actually occupied in the repair and maintenance of cars.” From this definition the Ninth Circuit concluded that service advisors, even though admittedly “salesmen,” were not “primarily engaged in servicing” i.e., they were not primarily repairing or maintaining cars. Those functions instead were performed by mechanics and other workers whose tasks involved or were closely associated with car repair and maintenance. Hence, the Ninth Circuit, relying in part on Supreme Court precedent establishing that FLSA coverage should be construed broadly and FLSA exemptions interpreted narrowly, held that service advisors did not come within the exemption for salesmen working at car dealerships, and therefore were entitled to overtime pay under the FLSA. The Supreme Court rejected the Ninth Circuit’s interpretation of the text of the FLSA exemption at issue. Starting first from the premise that service advisors, as acknowledged by the Ninth Circuit, were “salesmen” (since they sold car repair and maintenance services to customers), the Supreme Court focused on whether service advisors were “primarily engaged in the servicing of automobiles.” (Notably, there was no dispute that service advisors were not “primarily engaged in the selling of automobiles,” which also would have satisfied the exemption). While service advisors do not spend most of their time “physically repairing automobiles,” the Court observed that “the statutory language is not so constrained,” and that since service advisors, like partsmen, are “integrally involved in the servicing process[,]” they satisfy the conditions for the exemption. As noted, the more significant aspect of the Court’s decision is the Court’s disavowing of precedent that has historically been followed, and that the Ninth Circuit applied, when construing FLSA coverage. The Court rejected the Ninth Circuit’s application of the “narrow-construction principle” for interpreting FLSA exemptions, and instead adopted what it characterized as a “fair reading” standard for construing such exemptions: The Ninth Circuit also invoked the principle that exemptions to the FLSA should be construed narrowly. We reject this principle as a useful guidepost for interpreting the FLSA. Because the FLSA gives no “textual indication” that its exemptions should be construed narrowly, “there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.” [citation] The narrow-construction principle relies on the flawed premise that the FLSA “pursues” its remedial purposes “at all costs.” [citation] But the FLSA has over two dozen exemptions …alone, including the one at issue here. Those exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement. [citation] We thus have no license to give the exemption anything other than a fair reading. While Encino Motorcars undoubtedly will be cited regularly in FLSA cases where one or more of the statute’s several exemptions are at issue, the case will have relatively little impact in California. This is because California’s wage and hours laws are generally considered to afford more protections to covered employees than those provided under the FLSA. May/June 2018 | 31
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CMCP Diversity Matters - May/June 2018

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