Encino Motorcars, LLC v. Navarro

Issues 

Are service advisors at car dealerships exempt from the Fair Labor Standard Act’s overtime-pay requirements under 29 U.S.C. § 213(b)(10)(A)?

Oral argument: 
January 17, 2018

The issue in this case involves whether the Fair Labor Standards Act’s (“FLSA”) overtime-pay exemption for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles,” contained in 29 U.S.C. § 213(b)(10)(A), also exempts service advisors. Encino Motorcars argues that the plain language and structure of § 213(b)(10)(A) unambiguously exempt service advisors from the FLSA’s overtime requirements. Navarro argues that the plain language and structure of § 213(b)(10)(A) clearly do not exempt service advisors from the FLSA’s overtime requirements and that Congress’s intent in enacting the exemption and the FLSA as a whole support this interpretation. From a policy perspective, this case is significant because a decision favoring Navarro could force dealerships across the United States to alter their payment systems for service advisors, of which there are around 100,000. Such an outcome could also expose dealerships to retroactive liability and back-pay in order to settle FLSA claims concerning overtime. 

Questions as Framed for the Court by the Parties 

Whether service advisors at car dealerships are exempt under 29 U.S.C. § 213(b)(10)(A) from the Fair Labor Standards Act's overtime-pay requirements.

Facts 

In 2012, a group of five individuals employed as service advisors (collectively “Navarro”) at Encino Motorcars (“Encino”) filed suit against Encino for violating the Fair Labor Standards Act (“FLSA”) by, among other things, failing to pay them overtime wages. Navarro v. Mercedes Benz of Encino, 2013 U.S. Dist. LEXIS 188961 *1 (2013). The district court dismissed the claim because it concluded that service advisors fell within an exemption to the overtime requirement found in 29 U.S.C. § 213(b)(10)(A), a section that exempts “salesman, partsman, or mechanics primarily engaged in selling or servicing automobiles.” Id. at *6. Though the district court’s interpretation of the exemption was consistent with the interpretation of the exemption offered by the Fifth and Fourth Circuits, it conflicted with the interpretation offered by the Department of Labor (“DOL”) through a regulatory definition it had issued in 2011. Id. at *5. The district court recognized the conflict, but found that the DOL interpretation was “unreasonable,” and afforded it no deference or controlling weight. Id. at *7–9. Thus, according to the district court, businesses were not required to pay their service advisors overtime wages.          

On appeal, the Ninth Circuit overturned the ruling, relying on the same regulatory definition issued by the DOL. Navarro v. Encino Motorcars, LLC, 780 F.3d 1267. According to the Ninth Circuit, the DOL’s interpretation of the exemption was in fact reasonable, and under this interpretation, the exemption clearly did not include service advisors. Id. at 1270–1271. Thus, the Ninth Circuit held that businesses were required to follow the FLSA requirements for paying overtime to their service advisors.  Id. at 1277. After losing at the Ninth Circuit, Encino appealed to the Supreme Court, which granted certiorari to hear the case. Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (2016). There, the Court held that the DOL regulatory interpretation lacked a reasoned explanation and therefore was not entitled to deference or controlling weight. Id. at 2127. The Court then sent the case back to the Ninth Circuit so that the court there could interpret the FLSA exemption without reference to the DOL interpretation. Id.

On rehearing, the Ninth Circuit reexamined the case in light of the Supreme Court’s instructions. Navarro v. Encino Motorcars, LLC 845 F.3d 925. Even without reference to the DOL’s interpretation of the FLSA overtime exemption, the court again found that the exemption did not include service advisors, and thus businesses were still required to pay their service advisors overtime. Id. at 940. In so finding, the Ninth Circuit relied on rules of statutory construction and the legislative history of the FLSA and the relevant exemption. Id. at 930–939. After losing again at the Ninth Circuit, Encino petitioned the Supreme Court for certiorari, which the Court granted.

Analysis 

PLAIN MEANING AND STATUTORY STRUCTURE

Encino Motorcars (“Encino”) argues that the plain text of § 213(b)(10)(A) of the Fair Labor Standards Act (“FLSA”) exempts service advisors from the FLSA’s overtime requirements. Brief for Petitioner, Encinco Motorcars, LLC (“Encino Motorcars”) at 25. Encino contends that service advisors are clearly salesmen based on their duties and that service advisors spend a majority of their time assisting with servicing vehicles at dealerships. Id. at 25–26. Additionally, Encino asserts that many grammatical and textual indicators support its interpretation. Id. at 26. For example, Encino maintains that grammar rules require that the terms “selling” and “servicing” be interpreted broadly because, given their plain meaning, both reasonably apply to the term “salesman”—some salesmen sell cars, while others are involved in the servicing process by selling services. Id. at 26–28. Thus, Encino argues that service advisors are encompassed within the phrase “salesman engaged in servicing automobiles.” Id. at 28–29. Alternatively, Encino contends that the entire phrase “primarily engaged in selling or servicing automobiles” encompasses service advisors because service advisors sell the servicing of vehicles and the exemption includes both selling and servicing. Id. at 29. Encino further maintains that Congress’s use of the phrase “engaged in” indicates that the exemption should be interpreted broadly because Congress has defined statutory phrases that include the words “engaged in” more broadly than identical phrases without the words “engaged in.” Id. at 30. Encino also asserts that Congress’ use of the word “any” further supports a broad interpretation and is consistent with precedent interpreting the word “any” to have an expansive meaning. Id. at 30–31. 

Additionally, Encino argues that construing § 213(b)(10)(A) to exempt service advisors is consistent with the FLSA’s broader scheme. Id. at 32. Encino contends that other sections of the FLSA exclude people working in sales or on commission—similar to the job descriptions of service advisors—from the FLSA’s overtime requirements. Id. at 32–33. Further, Encino maintains that the Ninth Circuit incorrectly interpreted the phrase “primarily engaged in” to mean that only people who “actually” or “personally” sell or service vehicles are exempt when neither requirement appears in the statute. Id. at 39–40. Moreover, Encino asserts that the Ninth Circuit’s interpretation makes the word “partsmen” superfluous because partsmen do not actually or personally service vehicles. Id. at 40–41. But Encino argues that service advisors still meet the “actually” or “personally” requirement based on how the Ninth Circuit interpreted it to cover partsmen. Id. at 41. Encino also contends that although a literal interpretation creates two distinct categories of employees that do not exist in reality, that does not mean that Congress did not intend to pair “salesman” with “servicing.” Id. at 43–44. Rather, Encino asserts that the non-existent categories should be ignored and that the Court should read the statute literally, which would include service advisors in the exemption. Id. at 44–45. Finally, Encino maintains that, contrary to the Ninth Circuit’s reasoning, exemptions to the FLSA’s overtime requirements should not be interpreted narrowly. Id. at 48. Encino notes that it has been many decades since the Supreme Court has employed the interpretative rule requiring narrow construction of the exemptions and argues that the Court should eliminate the rule entirely, favoring a literal interpretation instead. Id. at 48–50.           

Navarro counters that the text of § 213(b)(10)(A) does not exempt service advisors from the FLSA’s overtime requirements. Brief for Respondents, Hector Navarro et al. (“Navarro”) at 11. Navarro argues that the exemption covers only salesmen, partsmen, and mechanics—Congress chose to not exempt service advisors, and the Court interprets exemptions to the FLSA’s overtime requirements narrowly. Id. at 12–14, 16. Because Congress explicitly listed three occupations as exempt, Navarro contends that the expression unius canon of statutory interpretation prevents any additional exceptions from being implied. Id. at 13–14. Additionally, Navarro asserts that service advisors do not qualify as salesmen because they do not routinely make sales; rather, they chiefly advise customers and convey information between the service department and customers. Id. at 14–15. Navarro maintains that Encino has the burden of proving that FLSA exemptions apply—that service advisors are salesmen—and has failed to overcome the numerous National Labor Relations Board and industry authorities stating that service advisors are not salesman. Id. at 14–15. Further, Navarro argues that Encino’s interpretation renders the word “salesmen” unnecessary because it would effectively exempt anyone who mainly engages in selling or servicing vehicles at a dealership regardless of occupation title. Id. at 15–16. Navarro also asserts that the expression unius canon also prevents Encino from exempting service providers by analogizing them to salesman in other industries who are exempt because they are paid on commission. Id. at 17. Navarro maintains that exempting service advisors by analogy to these salesmen would interfere with the limits and requirements of those exemptions and that many commission-based occupations are not exempt from FLSA’s overtime requirement. Id. at 17–18.

Additionally, Navarro argues that the word “any” does not expand the exemption to include service advisors because the exemption reaches only persons employed as salesmen, not anyone who makes sales. Id. at 18. Further, Navarro contends that the phrase “engaged in” does not expand the meaning of “servicing” but instead requires actually servicing vehicles regularly, not just involvement in the servicing process. Id. at 19–20, 24–26. Navarro asserts that service advisors do not maintain or repair vehicles and that selling services to customers does not equate to servicing because service advisors do not perform the services they sell. Id. at 21–22. Navarro also maintains that the word “primarily” limits the FLSA exemption to employees who mainly sell or service vehicles, whereas service advisors do not mainly do either and thus do not fall within the exemption. Id. at 27–30. Moreover, Navarro argues that the exemption does not cover service advisors based on standard English usage and the reddendo singular singulis canon of statutory interpretation. Id. at 31. Navarro asserts that it is normal for certain nouns to pair with certain verbs but not others in the English language and that Congress uses this method often in writing statutes—here, “salesman” naturally pairs with “selling” but not “servicing,” while “partsman” and “mechanic” naturally pair with “servicing” but not “selling.” Id. at 31–36. Navarro also maintains that Encino does not cite any authority to support the alleged rules of grammar it uses to support its interpretation. Id. at 36–39.

CONGRESSIONAL INTENT AND ENACTMENT HISTORY

Encino argues that the Ninth Circuit erred by looking to the 1966–67 Occupational Outlook Handbook (“OOH”) created by the Department of Labor when attempting to determine congressional intent. Brief for Petitioner at 36. Encino asserts that the OOH is not a relevant or reliable indicator of congressional intent because it is written by staffers in the executive department, the Supreme Court has never relied on it, and there is no evidence that Congress looked to the OOH when it enacted or amended the FLSA. Id. at 36–37. Moreover, Encino maintains that Congress used different and broader language than the OOH in enacting and amending the FLSA. Id. Regardless, Encino argues that there is no need to consider the OOH or other outside sources because the statutory text is unambiguous. Id. at 38. Additionally, Encino contends that the legislative history is inconclusive at best regarding whether § 213(b)(10)(A) encompasses service advisors. Id. at 45. Encino asserts that the only pertinent discussion on the legislative record did not address service advisors and that this silence cannot be construed to mean that service advisors are not encompassed within the exemption. Id. at 46. Further, Encino maintains that the Ninth Circuit’s use of the legislative history related to the 1974 FLSA Amendments is a poor indicator of congressional intent at the time the FLSA was originally enacted. Id. at 47. Encino argues that this legislative history is even less persuasive because it only consists of two summaries on the revised exemption—likely prepared by legislative staffers—and statements from witnesses at subcommittee hearings that did not result in legislation. Id. at 47–48.   

Navarro counters that the structure of the 1974 FLSA Amendments indicates that Congress intended “salesman” to pair with “selling.” Brief for Respondents at 39. Navarro asserts that this is demonstrated by Congress’ omission of the word “servicing” in a new subsection applicable only to salesmen, and that the same must be true when interpreting § 213(b)(10)(A). Id. at 39–40. Navarro also argues that a summary of the bill enacting the Amendments distributed on the day of the final floor vote explicitly stated that the bill provided an overtime exemption for salesman selling certain vehicles; servicing was not mentioned in connection with salesmen. Id. at 40–41. Further, Navarro contends that Congress did not intend to implicitly include service advisors within the exemption by including partsman because partsmen are different than service advisors in that they actually perform automotive manual labor—servicing—in the form of testing parts, repairing parts, and using their knowledge to select the correct parts. Id. at 41–44. Additionally, Navarro maintains that partsmen were only added to the exemption after witness testimony at congressional hearings stressed their critical role in servicing farm implements. Id. at 44–45. Finally, Navarro argues that the congressional record demonstrates that salesmen, partsmen, and mechanics were exempted because they often work irregular and unpredictable hours. Id. at 46–47. Navarro also contends that the congressional record shows that salesmen and mechanics were also exempted because they occasionally work off-site, creating difficulties in tracking the hours that they work. Id. at 47. Navarro asserts that neither rationale is applicable to service advisors because they work regular hours on-site—exactly the type of occupation Congress wanted to protect under the FLSA’s overtime provisions. Id. at 47–48.

Discussion 

RELIANCE INTEREST AND PRACTICAL DIFFICULTIES

Encino argues that when considering this case, the Court should be wary of disrupting decades-long reliance by automobile companies on their understanding of the Fair Labor Standards Act (“FLSA”) overtime requirements. Brief for Petitioner, Encino Motorcars, LLC at 51. Encino points out that there are 18,000 franchised car and truck dealerships, and around 100,000 employed service advisors. Id. By endorsing the Ninth Circuit interpretation of the overtime exemption, Encino argues, the Court would be hurting dealerships who structured their compensation system around their reasonable interpretation of the overtime requirement, while also hurting those workers who focused more on commissions and perhaps did not want to be paid hourly with overtime. Id. at 51–52. Additionally, Encino contends that there is a practical difficulty inherent in paying certain employees, like service advisors, overtime wages. Id. at 53. This is largely because car dealerships have not had an incentive to accurately track the hours of service advisors given the dealerships’ understanding of the overtime exemption. Id. According to Encino, this creates evidentiary difficulties and the prospect of a windfall for service advisors because they would be able to secure overtime pay while other exempted workers with similar jobs would not. Id.

Navarro responds that Encino’s concerns of an overhaul to the compensation system are overblown. Brief for Respondent, Hector Navarro et al. at 19. This is because, according to Navarro, many service advisors can already be categorized as commission-based employees, a designation that is often itself exempt from overtime requirements under § 207(i). Id. Thus, although § 207(i) does not cover all commission-based employees, as there are certain payment structures that must be complied with, Navarro argues that this additional exemption defeats the claim by Encino that the Ninth Circuit understanding of the overtime exemption in 29 U.S.C. § 213(b)(10)(A) would cause a major disruption in the car dealership compensation system. Id. A brief from a group of law professors (“Law Professors”), in support of Navarro, agrees and further argues that Encino is incorrect in its assertion that there is a practical difficulty in paying “commissioned” employees overtime wages anyways. Brief of Amicus Curiae Law Professors, in Support of Respondent at 12. The Law Professors point out that the Department of Labor (“DOL”) provides clear, straightforward instructions on calculating overtime wages for employees who are fully or partially commissioned. Id. at 14. Additionally, the Law Professors argue that companies should be keeping track of their employees’ hours regardless of whether they are commissioned because the FLSA requires it. Id. at 15–16. Lastly, the Law Professors maintain that so called “long-standing practices” do not ultimately matter for FLSA purposes. Id. at 18. This is because the FLSA was not meant to codify existing industry customs and standards, but rather guarantee compensation and protection to workers within its ambit. Id. Thus, according to the Law Professors, the reliance argument cannot be used to quash the goals of the FLSA. Id.

UNCERTAINTY AND UNANTICIPATED LIABILITY

The National Automobile Dealers Association, together with certain State Automobile Dealers Associations, (“NADA”), arguing in support of Encino, maintains that if the Court does not resolve this issue in Encino’s favor, this will spawn litigation and unanticipated liability for car companies across the United States. Brief of Amicus Curiae National Automobile Dealers Association and State Automobile Dealers Associations for Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington State, in Support of Petitioner at 13. NADA points out that the average workweek for service advisors is 45 hours, which would qualify many for overtime under the Ninth Circuit’s conception. Id. at 14. A ruling in favor of Navarro, NADA notes, would subject car dealerships to back-pay claims and other kinds of liability, including overtime, interest, and attorney fees. Id. According to NADA, this amount could reach the hundreds of millions of dollars. Id.  NADA further argues that car dealerships do not have many good options for combatting the prospect of such liability. Id. at 15. NADA maintains that many companies will not be able to reclassify their service advisors as purely commission-based in accordance with § 207(i), because that exemption from overtime is narrow and only applicable to certain types of businesses. Id. Moreover, even if companies could reclassify their service advisors to comply with § 207(i), NADA contends that this may disadvantage employees who would rather work under an hourly regime so that, during slow sales seasons or leaner economic times, their wages are more secure. Id. at 16. Ultimately, NADA argues, the Ninth Circuit’s understanding of the overtime exemption creates uncertainty for both employers and employees.

Navarro counters that it is unlikely that a Court ruling in its favor would produce the kind of liability that Encino and amici predict. Brief for Respondent at 20. Navarro explains that this is largely because each case will likely have to be addressed individually, rather than on a collective, class action basis. Id. Moreover, Navarro points to the fact that the Ninth Circuit decided in its favor two years ago, and yet Encino and amici have not cited any dire consequences that have occurred as a result. Id. at 21. The Law Professors similarly argue that the fears concerning high amounts of unanticipated liability brought up by NADA are exaggerated. Brief of Law Professors at 19. This is because, according to the Law Professors, employers are protected by the Portal to Portal Act, which prevents application of the FLSA to actions taken in good faith reliance on prior interpretative statements by administrative agencies. Id. at 23. Additionally, the Law Professors argue that dealerships have been on notice for decades that their compensation systems—as applied to service advisors—may not be lawful. Id. at 20. This was made evident, the Law Professors maintain, by industry trade publications, DOL opinion letters, and DOL regulations. Id. at 21–22. The final nail in the coffin, according to the Law Professors, was the 2011 DOL regulation, which explicitly excluded service advisors from the overtime exemption in 29 U.S.C. § 213(b)(10)(A), as explained to dealerships shortly after it was published. Id. at 23.

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