The Supreme Court on Monday issued a narrow decision in Encino Motorcars, LLC v. Navarro rejecting a U.S. Department of Labor interpretation of the scope of the overtime exemption for auto dealership sales employees.  But the Court left open the possibility that the DoL could issue a new rule determining service advisors to be entitled to the protections of the Fair Labor Standards Act.

Section 213(b)(10)(A) of the Fair Labor Standards Act exempts certain auto dealership employees from legally mandated premium pay for work in excess of 40 hours a week.  The exemption is for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks or farm implements.”  In 1970, DoL issued an interpretive regulation defining a “salesman” to be one who sells vehicles, and specifically said that service managers, service advisors or others whose job is to recommend necessary service and assign and supervise mechanics are not exempt from the overtime protection.  Some courts rejected the DoL regulation, and in 1978 DoL issued an opinion letter concluding that service advisors are exempt from the overtime requirement, acknowledging that the new interpretation departed from its 1970 regulation but noting that courts had rejected the DoL’s 1970 regulation.  At the end of the Bush Administration in 2008, DoL sought public comment on a proposed rule stating service advisors were exempt from overtime, again noting that courts had determined service advisors to be exempt.  But DoL did not promulgate the proposed rule, and in 2011 it issued a final rule stating that service advisors are not exempt, defining the exemption for “salesman” to include only employees who sell vehicles.

Five service advisors at a Mercedes Benz dealership sued to recover unpaid overtime, alleging they were required to work from 7 a.m. to 6 p.m. five days a week.  The district court dismissed on the ground that the section 213(b)(10)(A) exempts auto sales employees. The Ninth Circuit reversed, finding that the 2011 regulation was entitled to deference under Chevron USA Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

The Supreme Court, 6-2, in an opinion by Justice Kennedy, reversed the Ninth Circuit.  But the Court did not determine itself whether service advisors are exempt from the overtime protections.  Rather, the Court found that the DoL had failed adequately to explain in 2011 why it departed from the interpretation it had followed since 1978.  Absent a reasoned explanation for its new interpretation, the Court said, the DoL regulation was not entitled to judicial deference under Chevron.  Because the Ninth Circuit had decided the case based on Chevron deference, the Court remanded the case back to the court of appeals “to interpret the statute in the first instance.”

Two things could happen at this point.  The court of appeals could decide the meaning of the statute itself.  If it did so, it should decide that the statute unambiguously requires that service advisors be covered by overtime protection because the plain language of the statute exempts only a “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” and service advisors are none of those three.  Prior to 1966, section 213 exempted all employees of auto dealerships.  In 1966, however, Congress narrowed the exemption to apply only to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.”  It rejected a broader exemption for “any salesman or mechanic employed by an establishment which is primarily engaged in the business of selling automobiles ….”  Thus, the language makes clear that only sales employees primarily engaged in selling cars or partsmen or mechanics primarily engaged in servicing them are exempt.  In dissent, Justice Thomas, joined by Justice Alito, asserted that the statute unambiguously requires that service advisors be exempt because they are within the statutory term “salesman” as they sell repair and maintenance services rather than cars.  But that reading of the language is foreclosed by the history of the statute.

The more sensible alternative, however, is for the court of appeals to wait for the Department of Labor to clear up the situation by reissuing the rule and this time giving reasons for it.  A majority of the Court apparently could not agree that the plain language of the statute dictates either that services advisors are or are not exempt.  As Justice Kennedy’s opinion pointed out, in the 2011 rulemaking, some public comments supported the exemption for service advisors and others supported the current DoL view that service advisors should not be exempt.  The DoL is, as a matter of administrative law, entitled to interpret the statute in the first instance and is free to change its interpretation so long as it gives reasons for doing so.

There are good reasons to conclude that service advisors should be paid overtime.  Auto dealership service departments are open long hours to accommodate the work schedules of customers, and the work that service advisors do could easily be shared among employees so that some start early and others work late.  Congress originally required premium pay for overtime to provide a financial incentive for employers to spread employment among employees where the work could be shared.  Congress’s twin goals of reducing unemployment through work-sharing and protecting families from the hardships of parents working long hours remain as important today as ever.

Disclosure: I was one of four amici curiae law professors on whose behalf a brief was filed in this case supporting the respondent service advisors.