Federal Employment Law Update – April 2018

Supreme Court Rules Auto-Service Advisors Exempt from FLSA Overtime Requirement and Rejects Narrow Construction of Exemptions

On April 2, 2018, the U.S. Supreme Court ruled in Encino Motorcars v. Navarro that auto-service advisors are exempt from the federal Fair Labor Standards Act (FLSA) overtime requirements. According to the court, because service advisors at car dealerships are “salesmen who are primarily engaged in servicing automobiles,” they are exempt from the FLSA’s overtime-pay requirement. Per the FLSA at 29 U.S.C. § 213(b)(10)(A), any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements is exempt from overtime pay.

In Encino, the service advisors argued that they did not sell cars or perform repairs as a part of their job or job description; therefore, they were not exempt from overtime compensation. However, the majority found that their activity selling services makes them salesmen in the ordinary meaning of the term, and in pointing to the broad range of tasks they perform, service advisors “are integral to the servicing process.” The majority acknowledges that “service advisors do not spend most of their time physically repairing automobiles,” but emphasizes that the same is true of partsmen. For example, according to the court opinion, “[p]artsmen, like service advisors, do not spend most of their time under the hood. Instead, they obtain the vehicle parts and provide those parts to the mechanics. 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.”

The court also rejected the service advisors’ argument in reliance of the principle that exemptions to the FLSA should be narrowly construed. Rather, Justice Thomas stated, “the narrow-construction principles rely on the flawed premise that the FLSA ‘pursues its remedial purpose at all costs.’” Because the exemptions “are as much a part of the FLSA’s purpose as the overtime-pay requirement,” Thomas holds that the court has “no license to give the exemption anything but a fair reading.” This is notable as the court rejects the principle that the FLSA exemptions should be narrowly construed and instead essentially holds that the exceptions are often the price of FLSA passage.

Read the SCOTUSblog coverage and the opinion

FLSA Amendments to Tip Sharing Provisions

On March 23, 2018, President Trump signed legislation (H.R. 1625) amending the federal Fair Labor Standards Act (FLSA) by prohibiting employers from keeping tips received by employees for any purpose. This includes prohibiting managers or supervisors from keeping any portion of employees’ tips, regardless of whether the employer takes a tip credit. Employers in violation of these protections are liable to the affected employee(s) for the sum of any tip credit taken, and all tips unlawfully kept, in addition to an equal amount as liquidated damages. Regarding willful violations of the employment of minors provisions (at 29 U.S.C. § 216(c)), any person in violation of the law will be subject to a civil penalty of up to $1,100 for each violation and will be liable to the affected employee(s) for all tips unlawfully kept and an additional equal amount as liquidated damages.

The law is currently effective.

Read US H.R. 1625