Ninth Circuit Finds “Service Advisors” Not Exempt from FLSA OT

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The Ninth Circuit recently considered whether “Service Advisors” who work at car dealerships are exempt from the Fair Labor Standards Act’s (FLSA) overtime requirements. In answering in the negative, the Ninth Circuit parted ways with the Fourth and Fifth Circuits and the Montana Supreme Court. See Navarro v. Encino Motorcars, LLC, No. 13-55323 (9th Cir. March 24, 2015) (slip opinion available here).

Service Advisors greet car owners, evaluate customers’ complaints about their cars, and suggest services to customers beyond what is necessary to remedy their complaints. Slip op. at 4. The plaintiffs were paid solely in commissions and sued for—among other claims—failure to pay overtime as required by the FLSA (29 U.S.C. § 207(a)(1)). See id. at 5. The defendant argued that Service Advisors are exempt from the overtime rule under § 213(b)(10)(A), which provides that the overtime provisions “shall not apply with respect to . . . any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” Id.

The plaintiffs urged the Ninth Circuit to follow the United States Department of Labor’s 2011 regulatory definitions of “salesman,” “partsman,” or “mechanic,” which “limit[] the exemption to salesmen who sell vehicles and partsmen and mechanics who service vehicles.” Id. at 6 (citing 76 Fed. Reg. at 18,838). It was undisputed that the Service Advisors do not meet these regulatory definitions, but the defendant argued that the court should not defer to them. Id. at 7.

The court therefore conducted a Chevron analysis to determine whether to follow the regulatory definitions. Under Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984), a court first determines “whether Congress has directly spoken to the precise question at issue.” Chevron at 842. If so, the court will implement the unambiguous intent of Congress. If not, the court must then determine what level of deference to apply to the statute. If Chevron deference applies, the court must defer to the agency’s interpretation if that interpretation is reasonable. Id. at 842-843.

Under the first step of the Chevron analysis, the Navarro court found the exemption to be ambiguous. Slip op. at 8. The statute does not define the terms salesman, partsman, or mechanic, and these terms can be interpreted broadly (salesmen involved in the general business of the servicing of cars) or narrowly (only salesmen who themselves sell cars). Id. The court therefore could not conclude that Service Advisors “plainly and unmistakably [fall within the FLSA’s] terms and spirit.” Id. (citing Solis v. Washington, 656 F.3d 1079, 1083).

Because the statute is ambiguous, the court then turned to whether Chevron deference is appropriate, concluding that “[b]ecause we consider here a regulation duly promulgated after a notice-and-comment period, Chevron’s ‘reasonableness’ standard applies.” Slip op. at 9. The court noted that the original 1970 version of the regulations contained the same narrow definitions of salesman, partsman, and mechanic as exist today and that those definitions have not changed in any relevant way since then. Id. at 10. The court further noted that the agency had specifically considered broadening the terms in a way that would encompass Service Advisors, but after considering comments and analyses from the public, the agency concluded that the statute should continue to use the narrow definition. Id. at 11.

The court then found the agency’s regulatory interpretation to be reasonable, while acknowledging that its decision to uphold the agency’s narrow interpretation of “salesman, partsman, or mechanic” conflicts with that of the Fourth Circuit (Walton v. Greenbrier Ford, Inc., 370 F.3d 446 (4th Cir. 2004)), the Fifth Circuit (Brennan v. Deel Motors, Inc., 475 F.2d 1095 (5th Cir. 1973)), and the Supreme Court of Montana (Thompson v. J.C. Billion, Inc., 294 P.3d 397 (Mont. 2013)), in addition to a number of federal district courts. Slip op. at 12-13.

In deferring to the agency’s regulatory definitions, the Ninth Circuit distinguished the Fifth Circuit case and district court opinions following it on the basis that they pre-date Chevron and the modern framework for analyzing whether deference is appropriate. See id. at 13. The Fifth Circuit did not look at whether the agency’s interpretation was reasonable, but whether there was a better interpretation—an analysis Chevron prohibits. Id.

In contrast, the Fourth Circuit and Montana found the agency’s interpretation to be unduly restrictive and thus unreasonable. See id. at 13-14. Those courts held that Service Advisors are salesmen because their job is to sell services for cars. Id. And because they sell services for cars, they are also involved in the general business of servicing automobiles. Id. While the Ninth Circuit acknowledged that there are good reasons for adopting the interpretation that the Fourth Circuit and the Montana Supreme Court accepted—in particular, grammatical arguments and non-textual indicators of congressional intent—the agency’s interpretation is nonetheless reasonable as well: while Service Advisors are salesmen in a generic sense, they do not personally sell or service cars and, therefore, are outside the statutory definition. Id. at 14-19. Indeed, there are other employees at dealerships who are involved in servicing cars in a very general sense—for example, receptionists and bookkeepers—who indisputably are not exempt. Id. at 9. As long as the agency’s interpretation is reasonable—it need not be the best or only interpretation—then it would be improper for the court to impose an alternate interpretation. Id. at 19 (citing Chevron, 467 U.S. at 844).

Authored by: 
Katherine Kehr, Senior Counsel