Executive Summary: On January 9, 2017, the U.S. Ninth Circuit Court of Appeals ruled in Navarro v. Encino Motorcars, for the second time, that service advisors at automotive dealerships are not exempt from overtime. In 2015, the Ninth Circuit relied on U.S. Department of Labor regulations to hold that service advisors are not exempt. In June 2016, the U.S. Supreme Court reversed that ruling, finding that the regulations were not entitled to deference, and directed the Ninth Circuit to reconsider the issue without regard to the DOL regulations.

The exemption at issue involves “any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles.” 29 U.S.C. 213(b)(10). The Ninth Circuit ruled that based on a plain reading of statutory text, principles of statutory interpretation (narrow construction of FLSA exemptions), and legislative history, the exemption does not encompass service advisors.

The Ninth Circuit covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington. The ruling conflicts with decisions by several other circuit courts of appeals. Given those conflicts, this case may be headed back to the Supreme Court.

It is possible that depending on how the service advisor job is structured and compensated and applicable federal and state law, service advisors might be exempt from overtime using another exemption such as the 7(i) commissioned employee under the FLSA. 29 U.S.C. 207(i).

Employers’ Bottom Line:

This ruling is likely to lead to additional lawsuits against dealerships concerning overtime compensation for service advisors unless it is overruled. It is another example that widely accepted industry pay practices may be vulnerable to legal challenge. Despite the incoming Trump administration and anticipated changes at the Department of Labor, wage and hour litigation is likely to remain a major concern for employers.