Supreme Court Turns Overtime Analysis Upside Down

The Fair Labor Standards Act (“FLSA”) generally requires employers to pay overtime compensation – for over 40 hours worked per week – to covered employees.

However, the law specifies 30 exceptions where overtime is not required to be paid to employees performing certain types of duties.

One exception is for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles…if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles…to ultimate purchasers.”

Because this exception is unique, a court decision discussing it should have little effect on most employers, right?

Think again.

In April, 2018, the U.S. Supreme Court, in a case involving the salesman exception, changed the way that all FLSA overtime exemptions will be analyzed going forward.

In Encino Motorcars, LLC v. Navarro, an employer presumed that automobile service advisors were exempt employees under the salesman exception, and chose not to pay them overtime for service provided over 40 hours per week.

The service advisors sued their employer, claiming that they did not fall within the exception and were therefore due payment of overtime wages.

Before the April, 2018 Supreme Court decision, courts had interpreted FLSA overtime exemptions narrowly, and service advisors had not been considered salesmen, therefore entitling them to overtime pay.

However, in Encino Motorcars, the Supreme Court held that automobile service providers do fall within the exception, and their employers, therefore, are not required to pay them overtime wages.

The important, and far reaching, distinction that was drawn by the Supreme Court in this decision is that the Court rejected the idea that FLSA overtime exceptions should be construed narrowly.

The Court instead required  exemptions to be interpreted “fair(ly).”

This opens a whole new can of worms, so to speak, with the Supreme Court writing, in part, “there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.”

The immediate impact of the ruling, of course, prevents automobile service advisors from receiving overtime pay.

More important, however, is the precedent set by this ruling as to how FLSA overtime exemptions are to be interpreted  going forward.

The required “fair” rather than narrow interpretation will surely affect future FLSA overtime exemption disputes.

The contours and limits of the new standards will have to be  more specifically defined in future FLSA cases.