Car dealers won a major victory on June 20, 2016 as the U.S. Supreme Court tossed out a decision of the federal Ninth Circuit Court of Appeals, leaving the exempt status of service advisors in place.
Five employees of a dealer in California’s San Fernando Valley had sued Encino Motorcars LLC, claiming they were misclassified as exempt, and seeking back pay for working overtime. The case was dismissed by the district court, but the Ninth Circuit reversed, relying on a 2011 Department of Labor (DOL) regulation which stated that service advisors were not exempt. The dealer, with support from NADA and other business associations, appealed to the U.S. Supreme Court.
Noting that dealers had relied for decades on pre-2011 DOL regulations treating services advisors as exempt, the Supreme Court looked closely at the Fair Labor Standards Act, which provides, in part, that the overtime provisions do not apply to “any salesman. . .primarily engaged in. . .servicing automobiles. . .if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles. . .to ultimate purchasers.” Examining the basis for the DOL’s 2011 about-face regulation, the Court held that “The Department gave little explanation for its decision to abandon its decades-old practice of treating service advisors as exempt. . .” under this statutory language. The Court concluded that the DOL’s action was arbitrary and capricious and cannot carry the force of law.
The Supreme Court did not, however, reverse the Court of Appeals decision supporting the 2011 regulation. Rather, it sent the case back to the Ninth Circuit for further proceedings consistent with the Supreme Court’s opinion. In the meantime, however, the exempt status of service advisors remains intact.
A reminder: Under California’s IWC Order 7-2002, a service advisor must spend more than 50% of his or her time performing exempt work in order to remain exempt from overtime provisions of the law.
Arthur F. Silbergeld, Esq.
Thompson Coburn LLP