The Fair Labor Standards Act (FLSA) exempts from overtime pay “any salesman, partsman, or mechanic primarily engaged in the selling or servicing of automobiles.” But does this apply to “service advisors” employed by an auto dealership? So went the engine of uncertainty driving the case of Navarro v. Encino Motorcars, LLC.

Action brought

Department of Labor (DOL) regulations define a car salesperson as “an employee who is employed for the purpose of and is primarily engaged in making sales or obtaining orders or contracts for sale of the automobiles... that the establishment is primarily engaged in selling.”

Meanwhile, the regulations define a partsman as “any employee employed for the purpose of and primarily engaged in requisitioning, stocking, and dispensing parts,” and a mechanic as “any employee primarily engaged in doing mechanical work... in the servicing of an automobile....”

The plaintiffs, who were service advisors for an automobile dealership, brought an FLSA action alleging they were entitled to overtime compensation. The trial court dismissed the action, finding that the employees were exempt from overtime. The plaintiffs appealed.

Steps followed

On that appeal, the employees argued that the court should defer to the DOL regulations and find that service advisors didn’t fall within the exemption. The employer conceded that these employees didn’t fit within any of the definitions noted but nonetheless asserted that the court shouldn’t defer to the DOL regs.

To make its determination, the U.S. Court of Appeals for the Ninth Circuit applied the two-step deference test established under McMaster v. United States. Step one of the inquiry was whether Congress had directly spoken to the precise question at issue. If so, the court would have to defer to the expressed intent of Congress.

If the statute was silent or ambiguous, the court would have to proceed to step two and decide which level of deference applied. If Chevron deference was applicable, rather than a lower standard of deference, the court would defer to the DOL’s interpretation as long as it was “based on a permissible construction of the statute.” (The higher standard refers to the U.S. Supreme Court’s 1984 decision in Chevron U.S.A., Inc. v. NRDC.)

Regarding step one, the appeals court stated that it was unclear from the statute’s text and canons of statutory interpretation whether Congress intended to include service advisors within the exemption. Therefore, Congress hadn’t directly spoken on the issue and the statute was ambiguous.

Next, the court needed to determine whether Chevron or a lower standard of deference applied. Because of the fact that the DOL regulations were implemented after a notice and comment period, the court held that the Chevron standard indeed applied.

Under this standard, if the DOL’s interpretation is a reasonable one based on a permissible construction of the statute, the court may not substitute its own construction of the statutory provision. The DOL’s interpretation doesn’t need to be the best construction, just a reasonable one.

The appeals court found that the DOL chose a narrow definition of “salesman,” which excluded service advisors. In the court’s view, this interpretation aligned with the presumption that these exemptions should be construed narrowly.

Further statements made

The court further noted that other courts — including the Fourth and Fifth Circuits — have held that service advisors are exempt because their duties and pay structure are functionally similar to those of exempt salespeople, partsmen and mechanics. But, the court said, nothing in the statute suggests that Congress meant to exempt employees with functionally similar job duties and pay structures, as the text only exempts certain salespeople, partsmen and mechanics.

Also, the court held that the DOL’s interpretation was reasonable because a reading of the statute indicates that Congress didn’t intend that both verb clauses (“selling” and “servicing”) would apply to all three subjects (salespeople, partsmen and mechanics). The court reasoned that Congress probably intended that employees in sales be connected only to selling and mechanics be connected only to servicing.

Last, the DOL’s interpretation wasn’t unreasonable because it didn’t make any term meaningless or superfluous. Moreover, the legislative history was inconclusive and none of the reports or hearings mentioned service advisors. The appeals court held that, even though there was more than one reasonable way to interpret the statute, the agency chose one interpretation. So the court needed to defer to that choice and, therefore, it held that the service advisors in this case didn’t fall within the FLSA overtime exemption.

Future uncertain

This decision hasn’t been met with universal agreement among other Circuits. Therefore, it’s uncertain how other courts may rule when faced with the same issue. Regardless, if your company employs positions that may fall within a gray area similar to that of the service advisors in this case, review your overtime pay practices and discuss the legal implications with your attorney. 

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