For our auto dealership clients, this April 2018 U.S. Supreme Court ruling provides clarity on a confusing situation involving salesmen, service advisors and overtime pay.
Overview: For years, the Department of Labor viewed service advisors as salesmen, exempting them from overtime pay under the Fair Labor Standards Act (FLSA). Then in 2011, the Department of Labor reversed course. It issued a rule that interpreted “salesman” to exclude service advisors. 76 Fed. Reg. 18832, 18859 (2011) (codified at 29 CFR §779.372(c)). That regulation prompted current and former service advisers in 2012 to sue their employer, a California-based Mercedes-Benz dealership, for backpay. Plaintiffs alleged the dealership had violated the FLSA by failing to pay them overtime. The dealership moved to dismiss the complaint, arguing that service advisors are exempt under §213(b)(10)(A). The District Court agreed with the dealership, but the Court of Appeals for the Ninth Circuit reversed. The U.S. Supreme Court vacated the Ninth Circuit’s judgment and remanded the issue for the Ninth Circuit to address. Once again, the Ninth Circuit held that the exemption does not include service advisors. The U.S. Supreme Court reversed, ruling in a 5-4 decision that service advisors are salesmen. Furthermore, they are exempt from the overtime-pay requirement of the FLSA because they are “"salesm[e]n . . . primarily engaged in . . . servicing automobiles," 29 U. S. C. §213(b)(10)(A).
Impact: For the 18,000 car dealerships in the U.S. or other businesses employing large groups of sales and service professionals, this ruling is a significant win. For dealerships, it brings FLSA law back to where it was prior to 2011 thereby reducing the number of potential employees subject to overtime rules.
To view the complete ruling, please click here.