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What Does the Rejection of the “Narrow Construction” Rule for FLSA Exemptions Mean for Employers?

On April 2, 2018, the Supreme Court issued its highly anticipated ruling in Encino Motorcars, LLC v. Navarro, holding that service advisors at an automobile dealership are exempt from the FLSA’s overtime requirement.

In Encino Motorcars, five service advisors sued their employer, claiming the dealership failed to properly pay them overtime compensation. The service advisers alleged that they worked regular hours, 7 a.m. to 6 p.m., at least five days per week but were not paid overtime compensation for hours worked in excess 40 hours each week, as required by the FLSA for nonexempt positions.
The employer argued that the service advisors fit within the FLSA exemption for “any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles” at a covered dealership. In response, the service advisors, who sold repair services, argued that they did not fall within the exemption because they did not actually perform repairs; instead, they acted as a communications channel between customers and mechanics.

In a 5-4 decision, the Supreme Court decided that service advisors fit within the FLSA exemption, holding that “a service advisor is obviously a salesman.” The court also found that the service advisors were “primarily engaged in … servicing automobiles” in that they met with customers, listened to their concerns about their cars, suggested repair and maintenance services, sold new accessories or replacement parts, recorded service orders, followed up with customers, and explained the maintenance work when customers returned for their vehicles.
Importantly, the court also rejected the longstanding principle that FLSA exemptions should be construed narrowly. Specifically, the court rejected this principle “as a useful guidepost for interpreting the FLSA” because the statute provides “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.”

What does this decision means for employers? Obviously, the Supreme Court’s decision directly affects car dealerships with its holding that service advisors are exempt from the federal overtime requirement. However, the court’s decision will likely reach beyond this industry. For decades, courts have used the narrow construction rule to impose a strong presumption of non-exempt status upon employers. Prior to the ruling in Encino Motorcars, to rebut this presumption, an employer had to demonstrate that an exemption “plainly and unmistakably” applied. Now that the narrow construction rule is inapplicable, it may become easier to persuade courts that employees properly fall within statutory overtime exemptions. In other words, the court’s rejection of the principle that courts construe FLSA exemptions narrowly is likely to play a crucial role in many pending and future exemption cases.

While this case is undoubtedly a positive development, employers should continue to evaluate employees’ exempt status on a job-by-job basis to ensure that employees are properly classified.