On June 20, 2016, the U.S. Supreme Court declined to provide a definitive opinion on a pay issue that has concerned automobile dealerships for years. The question involves whether dealership service advisors fall under the Fair Labor Standards Act’s industry overtime exemption for salespersons and mechanics. Service advisors act as a liaison between the customer and the mechanic, providing repair quotes, and dealing with service scheduling, loaner car arrangements, etc.

In 2011, the Department of Labor announced that it had reversed its longstanding position that service advisors fell under the automobile dealership exemption and therefore should begin receiving overtime pay. Encino Motorcars, LLC v. Navarro involved an appeal of a Ninth Circuit Court of Appeals decision upholding the new DOL interpretation, and finding the dealership liable for failure to pay overtime to its service advisors. Dealership advocates hoped that the Court would set binding precedent in favor of the prior interpretation.

Instead, the Supreme Court gave the dealerships only a partial victory. The Court agreed that the 2011 DOL interpretation reversal was arbitrary and capricious because the agency did not provide an adequate explanation of its reasons for the change in opinion. However, instead of issuing a determinative interpretation of the underlying statutory exemption, the Supreme Court remanded the case to the Ninth Circuit for a decision on this basis.

This decision means that until and unless the Court accepts review of the Ninth Circuit’s or another court’s interpretation of the exemption, service advisors’ FLSA exempt status depends on where the dealership is located. While most courts outside of the Ninth Circuit that have considered this issue have sided with the dealerships, the lack of a final Supreme Court decision issue leaves open questions over compliance with overtime rules in many parts of the U.S. Dealerships uncomfortable with this uncertainty continue to have the option of paying service advisors on a commissioned basis and using the applicable Section 7(i) FLSA overtime exemption.