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June 21, 2016

Supreme Court Punts on Decision, but in Doing So, Maintains Decades-Old Inclusion of Service Advisors under the FLSA's "Salesman, Partsman, or Mechanic" Exemption

On Monday, June 20, 2016, the Supreme Court issued a decision regarding whether Service Advisors can be treated as exempt employees under the “salesman, partsman, or mechanic” exemption set forth in the Fair Labor Standards Act.  For decades, based on court decisions and opinion letters from the United States Department of Labor (“DOL”), car dealerships have treated Service Advisors as exempt from the FLSA’s overtime provisions.  But in 2011, the DOL changed course and issued a new regulation that narrowed the exemption, and in 2015, the 9th Circuit Court of Appeals decided that Service Advisors do not fall under the “salesman, partsman, or mechanic” exemption (and therefore would be entitled to overtime) based in part on the DOL’s 2011 regulation.  On Monday, in Encino Motorcars LLC v. Navarro, the Supreme Court vacated the 9thCircuit’s decision in a 6-2 vote.

In addition to vacating the 9th Circuit’s decision, the Supreme Court also determined that the DOL’s 2011 regulation is unenforceable.  As a result, the Supreme Court remanded the case back to the 9th Circuit to interpret the “salesman, partsman, or mechanic” exemption “without placing controlling weight on the Department’s 2011 regulation.”

In sending the case back to the 9th Circuit, the Supreme Court did not affirmatively reach the issue of whether Service Advisors are exempt under the “salesman, partsman, or mechanic” exemption.  Instead, the Supreme Court decided that the DOL’s new rule was not developed correctly, and that the 9th Circuit therefore should not have relied on it.  But by vacating the 9th Circuit’s decision and determining that the DOL’s 2011 regulation is unenforceable, the Supreme Court has returned the state of the law to where it was before the DOL’s 2011 regulation and before the 9th Circuit’s 2015 decision: Service Advisors are exempt under the “salesman, partsman and mechanic” exemption.

Please note, however, that there is a chance that the DOL will go back to the drawing board in order to formulate an enforceable regulation; it also will be interesting to see how the 9th Circuit decides the question without relying on the 2011 DOL regulation.  And as for the Supreme Court, if and when this issue is presented again, although Justices Kennedy (who wrote the opinion), Thomas and Alito would find that Service Advisors are exempt (with Justices Thomas and Alito urging such a determination in their dissent), Justices Ginsburg and Sotomayor indicated in a concurring opinion that it’s possible to interpret the “salesman, partsman, or mechanic” exemption as not including Service Advisors.  In the meantime, however, as a result of the Supreme Court’s decision on Monday, car dealerships are able to treat Service Advisors as exempt employees under the “salesman, partsman, or mechanic” exemption. 

Also, please be aware, that, although New York allows car dealerships to apply the FLSA’s “salesman, partsman, or mechanic” exemption, New York also requires that these employees (including Service Advisors) be paid at least time-and-one-half of New York’s minimum wage which is currently $9/hour (to be increased on 12/1/16) for all hours worked over 40 in a workweek.  As a result, as long as an employee falling under the “salesman, partsman, or mechanic” exemption receives weekly pay (salary plus non-discretionary bonuses/commissions) equaling at least $13.50/hour for all hours worked, then the employee is not entitled to additional compensation for hours worked over 40.  Also, unlike the FLSA’s white collar exemptions, exempt “salesmen, partsmen, or mechanics” are not subject to the FLSA’s salary level requirement of $455/week (to be increased on 12/1/16 to $913/week,) in order to maintain the exemption.

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