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Car, Boat, and Farm Equipment Dealership Service Advisors Exemption in Peril

By J. Stan Hill

Car, boat, and farm equipment dealerships that pay their service advisors on a salaried or commission basis should take note of a recent Ninth Circuit case holding that service advisors may not be exempt from overtime compensation under the Fair Labor Standards Act, potentially entitling those service advisors to overtime pay for all time worked beyond 40 hours in a week.  Employers can expect to see an uptick in FLSA and state wage claims nationwide seeking to apply a narrow reading of the FLSA Dealership Exemption from overtime compensation.

The FLSA Dealership Exemption exempts from overtime “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.”  While the Dealership Exemption clearly exempts vehicle salespersons and mechanics from overtime pay, it does not directly address whether it applies to service advisors and other employees who solicit repairs, warranties, supplemental services, and parts.

Several court rulings and a United States Department of Labor Opinion Letter from the 1970s applied the Dealership Exemption to service advisors.  In 2011, the United States Department of Labor issued regulations defining the words “salesman,” “partsman,” and “mechanic” as used in the Dealership Exemption.

On March 24, 2015, the United States Court of Appeals for the Ninth Circuit ruled in Navarro v. Encino Motorcars, LLC that service advisors were not covered by the exemption under these Department of Labor definitions interpreting the Dealership Exemption.  The Court reasoned that because the Department of Labor’s regulations were a reasonable interpretation of an ambiguous statute, the Court was required to apply the Department of Labor’s regulations strictly as written, to exclude any employee not expressly described therein.  Although the Ninth Circuit’s ruling on Navarro only applies to states within that judicial circuit (e.g., California, Oregon, Washington, Nevada, Montana, Idaho, Wyoming, Arizona, Hawaii, Alaska), the reasoning in Navarro may be adopted by courts nationwide addressing this issue for the first time.  In addition, the Navarro opinion may inform courts interpreting state wage payment laws, which often apply the same or similar exemptions as the federal FLSA.

Going forward, the Navarro ruling may be extended to dealership employees other than service advisors, who are not primarily engaged to sell vehicles, repair vehicles, or requisition, stock or dispense parts. Dealerships that pay such employees or service advisors on a salary or commission basis should consult with experienced employment attorneys to assess the effect of the Navarro ruling on their businesses and what steps may be taken to reduce the risk of future claims or potentially qualify such employees for other overtime exemptions.