Supreme Court Finds Service Advisors to Be Exempt from Overtime

On April 2, 2018, the U.S. Supreme Court issued its decision in Encino Motorcars, LLC v. Navarro,  holding that auto service advisors are exempt from the requirement to pay overtime under the Fair Labor Standards Act.

The Supreme Court held that service advisors, who are “employees at car dealerships who consult with customers about their servicing needs and sell them servicing solutions,” fall under the FLSA exemption applicable to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements.”

The Supreme Court first found that service advisors are clearly “salesmen” within the ordinary meaning of the term, as they “sell [customers] services for their vehicles.” It further found that service advisors are also “integral to the servicing process.” Specifically, they are “primarily engaged in . . . servicing automobiles” as their responsibilities include “meeting customers; listening to their concerns about their cars; suggesting repair and maintenance services; selling new accessories or replacement parts; recording service orders; following up with customers as the services are performed (for instance, if new problems are discovered); and explaining the repair and maintenance work when customers return for their vehicles.” Accordingly, the Supreme Court stated, the service advisors are “salesm[e]n . . . primarily engaged in . . . servicing automobiles” and therefore subject to the overtime exemption.

This case had a long history. For decades, the Department of Labor held that service advisors were exempt. In 2011, however, the DOL abruptly reversed its position and issued a regulation stating that service advisors were not exempt. In reliance upon that regulation, employees at Encino Motorcars sued for back overtime pay. The federal district court dismissed the case, but the U.S. Court of Appeals for the Ninth Circuit reversed, deferring to the DOL’s new regulation. In 2016, the Supreme Court reversed the Ninth Circuit’s ruling, finding that the regulation was procedurally defective and directing the Ninth Circuit to reconsider the service advisor exemption issue without reference to the regulation. The Ninth Circuit, on remand, once again found service advisors to be non-exempt. This decision has now been reversed by the Supreme Court.

Note that this decision does not change the law in the Fourth Circuit, which is the federal court of appeals with jurisdiction over Maryland, as well as Virginia, West Virginia and the Carolinas. In the 2004 case of Walton v. Greenbrier Ford, Inc., the Fourth Circuit determined that service advisors were exempt.