Monday, April 2, 2018

Divided Supreme Court Rules That FLSA Exemptions Should Not Be Construed Narrowly


This morning, a divided 5-4 Supreme Court rejected an Obama-era FLSA regulation and found that automobile service advisors were exempt under the FLSA.    Encino Motorcars LLC v. Navarro, No. 16-1362 (4-2-2018).    Section 213(b)(10)(A) of the FLSA exempts  “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” and “if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers” at a covered dealership.  The question presented was whether this exemption covered service advisors—employees at car dealerships who consult with customers about their servicing needs and sell them servicing solutions.  After decades of this exemption covering services advisors, the Obama Administration determined in 2011 that it did not.  Notably, the Court explicitly rejected the rule that FLSA exemptions are to be construed narrowly. “Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.’”

The Court observed that when the FLSA was enacted in 1938, all car dealership employees were exempt.  That exemption was narrowed over the years until the current version was enacted in 1974.  A number of courts found this exemption to cover service advisors and the DOL agreed in an opinion letter in 1978.   In 2011, the Obama DOL reversed course and issued a formal regulation finding that service advisors were not exempt under the FLSA.  The plaintiffs filed suit for unpaid overtime over the prior three years.  The Ninth Circuit found the statute to be ambiguous and deferred to the Obama 2011 regulation.  The Supreme Court previously reversed this decision on the grounds that the regulation was procedurally defective by changing decades of reliance on the prior determinations without a reasoned explanation.  The Court remanded the matter to determine whether service advisors were covered under the statute.  Although it found that service advisors were “salesmen” engaging primarily ‘in servicing automobiles,” the Ninth Circuit again determined that they were not covered by the statutory exemption because they did not actually service the cars themselves.  A divided Supreme Court again reversed.

The parties agreed that if the service advisors were covered, it was as salesmen (i.e., someone who sells goods or services).   They also agreed that service advisors were not engaged in the selling of automobiles.  The only question was whether they were primarily engaged in the servicing of automobiles when they never actually repaired or serviced the automobiles themselves.    The Court found that the service advisors sold customers services for their automobiles.  The Court also found that the service advisors were involved in servicing the automobiles even if they never repaired the vehicles because they met and listen to the customer, suggested repair and maintenance services,  and explained the work.  That the advisors did not physically repair the cars was not important when partsmen were similarly exempt even though they spent little time under the hood.

In other words, the phrase “primarily engaged in . . . servicing automobiles” must include some individuals who do not physically repair automobiles themselves but who are integrally involved in the servicing process. That description applies to partsmen and service advisors alike.

This conclusion was reinforced by the statutory language:

The text of the exemption covers “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements.” §213(b)(10)(A). The exemption uses the word “or” to connect all of its nouns and gerunds, and “or” is “almost always disjunctive.” United States v. Woods, 571 U. S. 31, 45 (2013). Thus, the use of “or” to join “selling” and “servicing” suggests that the exemption covers a salesman primarily engaged in either activity.

Unsurprisingly, statutory context can overcome the ordinary, disjunctive meaning of “or.”  The distributive canon, for example, recognizes that sometimes “[w]here a sentence contains several antecedents and several consequents,” courts should “read them distributively and apply the words to the subjects which, by context, they seem most properly to relate.”  2A N. Singer & S. Singer, Sutherland Statutes and Statutory Construction §47:26, p. 448 (rev. 7th ed. 2014).

But here, context favors the ordinary disjunctive meaning of “or” for at least three reasons.  First, the distributive canon has the most force when the statute allows for one-to-one matching.  But here, the distributive canon would mix and match some of three nouns—“salesman, partsman, or mechanic”—with one of two gerunds— “selling or servicing.”  §213(b)(10)(A).  We doubt that a legislative drafter would leave it to the reader to figure out the precise combinations. Second, the distributive canon has the most force when an ordinary, disjunctive reading is linguistically impossible.   . . .But as explained above, the phrase “salesman . . . primarily engaged in . . . servicing automobiles” not only makes sense; it is an apt description of a service advisor.  Third, a narrow distributive phrasing is an unnatural fit here because the entire exemption bespeaks breadth.  It begins with the word “any.”  . . .   And it uses the disjunctive word “or” three times. In fact, all agree that the third list in the exemption—“automobiles, trucks, or farm implements”— modifies every other noun and gerund.  But it would be odd to read the exemption as starting with a distributive phrasing and then, halfway through and without warning, switching to a disjunctive phrasing—all the while using the same word (“or”) to signal both meanings.

The Court also rejected the Ninth Circuit’s opinion on the grounds that FLSA exemptions should be construed narrowly:

We reject this principle as a useful guidepost for interpreting the FLSA.  Because the FLSA gives no “textual indication” that its exemptions should be construed narrowly, “there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.”  Scalia, Reading Law, at 363.  The narrow construction principle relies on the flawed premise that the FLSA “‘pursues’” its remedial purpose “‘at all costs.’”   . . .  But the FLSA has over two dozen exemptions in §213(b) alone, including the one at issue here.  Those exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement.  . . . .(“Legislation is, after all, the art of compromise, the limitations expressed in statutory terms often the price of passage”).  We thus have no license to give the exemption anything but a fair reading.

The Court also rejected the Ninth Circuit’s reliance on legislative history, which that court had initially found to be inconclusive, because the legislative history never specifically noted the existence of “service advisors.”   As would be true with respect to “sex” in Title VII, the silence of legislative history cannot overcome clear statutory language:

Even for those Members of this Court who consider legislative history, silence in the legislative history, “no matter how ‘clanging,’” cannot defeat the better reading of the text and statutory context. If the text is clear, it needs no repetition in the legislative history; and if the text is ambiguous, silence in the legislative history cannot lend any clarity.   . . . Even if Congress did not foresee all of the applications of the statute, that is no reason not to give the statutory text a fair reading.   . . .

The dissent found that only three automobile employees were exempt: salesmen, partsmen and mechanics.  It refused to create a fourth category for service advisors.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.