Automobile dealers have long treated service advisors as ineligible for overtime pay based on the federal overtime exemption for individuals employed as a “salesman, partsman or mechanic primarily engaged in selling or servicing automobiles.” According to a Ninth Circuit Court of Appeals decision in the case of Navarro v. Encino Motorcars LLC, however, service advisors are not covered by this exemption.

The Ninth Circuit has jurisdiction over nine Western states, including California, so the decision affects thousands of dealerships. This case has already had one trip to the U.S. Supreme Court and may now see a second one.

Service Advisors and ‘Salesmen’

The exemption from overtime under the Fair Labor Standards Act was enacted in 1966. The government’s interpretation of it has not been consistent. In 1970, the U.S. Department of Labor (DOL) found service advisors were not covered by the exemption because, although service advisors are “salesmen,” they sell services, not automobiles.

But in 1978, the DOL changed course after the Fifth Circuit Court of Appeals held the exemption applied to salesmen who sold services. In 1987, the DOL reaffirmed that position and stated it would formally amend the regulations “as soon as practicable.”

Twenty-one years later, under the Bush administration, the DOL finally issued proposed regulations confirming service advisors were covered by the exemption. But those regulations were not finalized before Bush left office, and in 2011, the Obama administration changed course and reinstated the DOL’s original position from 1970, creating uncertainty for dealers.

Service advisors employed at a Los Angeles Mercedes-Benz automobile dealership who had not received overtime pay sued based on the 2011 regulations. In 2015, the Ninth Circuit found the DOL had the authority to change its position and concluded it was required to defer to the agency’s 2011 regulation as a reasonable interpretation of the statute.

The dealer, challenging the 2011 regulation, appealed to the Supreme Court, which accepted the case due to a conflict among the courts on whether the exemption applies to service advisors. The Supreme Court reversed the Ninth Circuit. It held that, because the DOL provided no reasoned explanation for the 2011 change in position and the industry had relied on the earlier determination for more than 30 years, the Ninth Circuit improperly deferred to the DOL’s interpretation. The Supreme Court returned the case to the Ninth Circuit with instructions to give no weight to the DOL’s view, but to independently analyze the law.

The Ninth Circuit reached the same result as before: Service advisors are not covered by the exemption. If Congress intended to apply the exemption to service advisors (a title that existed in 1966), “it could have included ‘service advisors’ in the statutory list,” the court found.

As a result, lower courts remain divided. As this conflict was the reason the Supreme Court originally accepted the case for review in the first place, the Supremes may once again take the case and resolve the conflict once and for all.

The Trump administration, however, also could affect the outcome. The DOL could issue new regulations providing service advisors are covered by the exemption (giving clearly articulated and explained reasons) or a new Congress could resolve the issue by amending the exemption to add, by name, service advisors to the list of exempt positions.

What Should Dealers Do?

Currently, service advisors in the nine Western states governed by the Ninth Circuit are not covered by the exemption and must be paid overtime unless another exemption applies. Service advisors employed in states covered by the Fourth Circuit (Maryland, North Carolina, South Carolina, Virginia and West Virginia) and Fifth Circuit (Louisiana, Mississippi and Texas) are covered by the exemption under decisions from these circuit courts.

For service advisors employed elsewhere, there is no definitive circuit authority, so it remains uncertain. Dealers located outside the Ninth Circuit’s jurisdiction should assess whether service advisors qualify for a different exemption or exclusion or under state law, e.g. commissioned employees of retail or service establishment.

Because employees may seek retroactive overtime payments if the Supreme Court reverses the Ninth Circuit, dealerships should also review timekeeping practices and record the hours worked by service advisors to reduce the chance for service advisors to inflate the hours previously worked. Alternatively, employers can consider limiting service advisors to 40 hours until this uncertainty is resolved or reclassifying employees as overtime-eligible pending a final court decision.

Finally, please note that no part of this article is intended to serve as legal advice. However you plan to proceed, remember that only your own attorney can give you proper counsel.

Jeffrey W. Brecher Esq. is a principal at Jackson Lewis PC and head of the firm’s Wage & Hour Practice Group. Contact him at [email protected].