Supreme Court Rejects “Narrow Construction” Principle for FLSA Exemptions

On April 2, 2018, the U.S. Supreme Court issued its ruling in Encino Motorcars, LLC v. Navarro, in which it specifically rejected the longstanding principle that exemptions under the Fair Labor Standards Act (FLSA) should be “narrowly construed.” 584 U.S. ___ (2018).

Pursuant to the FLSA, the law exempts from the overtime requirement “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers[.]” Id.; 29 U.S.C. §213(b)(10)(A). For some time, the language of the statute was understood to cover service advisors as well. Id. However, in 2011, the U.S. Department of Labor (DOL) issued a regulation stating that service advisors were not “salesmen” and thus did not fall within the scope of the overtime exemption. Based upon the DOL’s position, service advisors brought a lawsuit against a Los Angeles car dealership and asserted they were nonexempt and entitled to overtime. The Supreme Court ruled that the DOL’s 2011 regulation was invalid and remanded the case to the Ninth Circuit for further consideration. On remand, the Ninth Circuit held that the service advisors were nonexempt and entitled to overtime. The car dealership appealed, and the case went back to the Supreme Court.

In the Supreme Court’s most recent opinion, it held that “[b]ecause service advisors are ‘salesm[e]n . . . primarily engaged in . . . servicing automobiles,’ they are exempt from the FLSA’s overtime-pay requirement.” The Court rejected the longstanding “narrow construction” principle for FLSA exemptions finding:

               The Ninth Circuit … invoked the principle that exemptions to the FLSA should be construed narrowly. [Citation omitted]. 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 [the exemptions] anything other than a fair (rather than a ‘narrow’) interpretation.” Id.       

Although the decision involved service advisors at car dealerships, the Court’s holding may not be so limited and the opinion may have a significant impact for all employers covered by the FLSA. The Court’s rejection of the “narrow construction” principle and adoption of the “fair reading” rule likely will result in a lesser burden for all employers to claim that an exemption applies.