The Supreme Court ruled on June 20, 2016, that the U.S. Department of Labor’s (“DOL”) 2011 regulation removing a long-standing exemption to overtime pay for auto service advisors was “procedurally defective.” In a 6-2 opinion, the Court stated the DOL failed to follow the correct procedures in issuing a regulation by not giving adequate reasons for its decision.
The Court punted the case back to the Ninth Circuit for a decision that does not take into account the DOL’s 2011 regulations which removed the overtime exemption under the Fair Labor Standards Act (“FLSA”) for the service advisors, who sell auto maintenance and repair services, but not vehicles. The Court reasoned that auto dealerships had relied on the position that auto service workers were exempted from overtime pay requirements since 1978, and had negotiated and structured compensation plans based on this understanding. In light of the dealership’s reliance, the Court stated the DOL needed a more reasoned explanation for its decision to depart from its existing policy.
Although the decision is a win for automobile dealers that have used the overtime exemption for their service advisors, it is uncertain how the Ninth Circuit will rule when it revisits the issue. As Justice Ginsburg stated in her concurring opinion, the appellate court has suggested that automobile service advisors may not be exempt from overtime because they do not service or sell automobiles.
In addition, this decision may question other aspects of the DOL’s 2011 regulations that may be considered arbitrary and capricious. These regulations include rules related to the use of tips where an employer does not take a tip credit and fluctuating workweek methodology. We will keep you advised of continuing developments. If you should have any questions related to overtime, we encourage you to consult labor and employment counsel.
The case may be found at Encino Motorcars LLC., v. Navarro, No. 15-415 (2006) http://www.supremecourt.gov/opinions/15pdf/15-415_mlho.pdf
Larae N. Cunningham is an attorney in Obermayer’s Labor Relations and Employment Law Department. Her practice focuses on counseling management in all aspects of labor relations and employment law including discipline, termination, reductions-in-force, document retention, family and medical leave, reasonable accommodation under the ADA, NLRB compliance and wage and hour issues. She can be reached at 215-665-3092 or firstname.lastname@example.org.