Ninth Circuit Defers to DOL View that Automobile Service Advisors Have No Industry Overtime Exemption
- April 03, 2015
When taking in your car to the dealership for repairs, you are usually greeted by a service advisor. Service advisors compile information needed for the mechanic to diagnose and repair the vehicle. They also provide cost estimates and answer questions or concerns about the repairs. For dealerships and repair facilities, overtime eligibility for service advisors has recently been a source of legal uncertainly.
Prior to 2011, employers and the Department of Labor generally agreed that service advisors fell within the FLSA’s Section 13(b)(10)(A) exemption applicable to automobile salespersons and mechanics. That year, DOL decided not to issue regulations that would have codified this position, instead agreeing with labor unions’ argument that service advisors are neither salespersons nor mechanics, and therefore are entitled to overtime pay.
Federal courts overwhelmingly rejected this position, continuing to define service advisors within the Section 13(b) industry exemption. Both the Fourth (which includes North Carolina and South Carolina) and Fifth Circuits directly disagreed with DOL, concluding that service advisors sell automobile services, and are part of the mechanics’ service business. Many dealerships outside of these two circuits relied on this reasoning in continuing to classify their service advisors as exempt from the FLSA’s overtime requirements.
Last week, the Ninth Circuit Court of Appeals threw a mechanic’s wrench into this strategy, calling into question the validity of these classification decisions. In Navarro v. Encino Motorcars, LLC, the court deferred to DOL’s 2011 interpretation of the exemption, concluding that it followed a natural reading of the statute by limiting it to only salespersons and mechanics. While conceding that the other appellate courts’ interpretations of the exemption are plausible, the Ninth Circuit deferred to DOL’s judgment on the issue.
This decision may be appealed to the U.S. Supreme Court, but given the limited number of affected persons, the Court may not agree to review the decision. If the Supreme Court denies an appeal, dealerships would be faced with different exemption rules for service advisors depending on where they are located. Having tasted success in the Ninth Circuit, DOL may feel emboldened to litigate this issue in other appellate circuits that have not reviewed this issue.
A number of dealerships reacted to DOL’s 2011 decision by essentially abandoning their attempts to avoid overtime pay for service advisors under the Section 13(b) exemption. Instead, many employers reworked service advisors’ compensation plans to convert them to commissioned salespersons. If the service advisors earn a sufficient portion of their income from sales commissions, they would qualify for a different FLSA overtime exemption. Other dealerships may contend that their service advisors fall under the executive or administrative overtime exemptions, but these decisions run the risk of claims that the employees’ job duties fail to meet the requirements for those exemptions.
Automobile dealerships and other businesses employing service advisors should review their pay plans to make sure they take into account the legal risks presented by this new development.