Employers under the federal Fair Labor Standards Act (FLSA) have to pay their workers for all time worked–except when you don’t. Wait. Employees can work and not be paid? Well, not exactly. Let’s do a quick review of the General Rule: You have to pay your workers for all hours they work. For hours 1-40 in any given week, you must pay either minimum wage or the employee’s regular rate, whichever is higher. For hours 41 and above in any given week, you must pay your employee 1.5 times the minimum wage or 1.5 times his/her regular hourly rate, again whichever is higher–except if the employee’s job is exempt from minimum wage and overtime requirements. Are salespeople exempt? Sometimes. Are car salespeople exempt? Generally, yes. What about auto services advisors? The US Supreme Court just said “yes”.
(image from mandataire-auto.com)
The case is Encino Motorcars LLC v Navarro No. 16-1362. Here are the facts and procedural history for anyone who’s interested: The plaintiffs were current and former service advisors for Encino Motorcars, a Mercedez-Benz dealership in California’s San Fernando Valley. The service advisors sued, alleging that Encino Motorcars, in violation of the FLSA, failed to pay them overtime. Encino Motorcars moved to dismiss, arguing that the auto service advisors were exempt from the FLSA’s overtime-pay requirement.
Specifically, Encino Motors relied upon 29 U. S. C. §213(b)(10)(A), which says that “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements” are overtime-exempt. The United States District Court agreed, and dismissed the case. The employees appealed, and the Ninth Circuit Court of Appeals reversed, finding the statute ambiguous, and relying on a 2011 Department of Labor ruling that excluded “salesman” from its definition of “service advisor”. The US Supreme Court vacated that ruling, finding the 2011 DOL ruling “procedurally defective”, sent the case back to the 9th Circuit to decide the issue without relying on the DOL ruling. The 9th Circuit again ruled that the exemption did not include service advisors and the auto dealership again appealed to the Supreme Court.
The central question was whether auto service advisors were “salesmen” “primarily engaged in “servicing automobiles”. The employees advised on and sold the repair services for the customers’ cars. Since they neither sold nor maintained nor repaired automobiles, they argued that they did not fit within that exemption category. Encino Motorcars pointed out that courts have routinely found for decades that the tasks performed by service advisors met the exemption criteria. The US Supreme Court ruled 5-4 that the service advisors were primarily engaged in servicing automobiles, because servicing can mean either maintaining or repairing automobiles or “the action of providing a service”. Justice Clarence Thomas, writing for the majority, ruled that these service advisors met both prongs, because they are integral to the servicing process, by performing their service sales functions, even if they themselves do not perform the actual repair services. Justice Thomas continued his explanation that “the ordinary meaning of salesman” is “someone who sells goods or services”, and pointed out that “service advisors sell customers services for their vehicles”.
Whether or not your establishment is an auto dealership, here are some takeaways for all employers:
- Whether or not a job meets an exemption category depends on its primary functions, not the title, and not whether the person is paid on an hourly or salaried basis;
- Make sure you have accurate, up-to-date descriptions as to any job’s primary functions; Courts will defer to your determination of primary functions, but not if you have no job description or posting or other documentation for reference. In other words, if you’re already in an argument with an employee about primary job functions and overtime exemptions, you can’t first determine the primary functions then.
- Remember that the general rule under the DOL that the presumption is that a position is not exempt and that the employee in that position is entitled to overtime. If your job description or other documentation of the primary job functions is not clear, the job could be classified by the DOL or a court as non-exempt. You will then need accurate records of hours worked, hourly wages, and wages actually paid or you could owe straight-time pay and overtime pay (1.5 times the regular pay). You will also have to pay liquidated damages equal to the amount of straight-time and overtime pay owed — basically double damages. That’s not all. As long as you are found to owe even one penny of wages, you are liable for the employee’s attorney fees. Are you seeing large dollar amounts yet? So follow the above two points so you can avoid such draconian consequences.
OK, that’s all I got for now. Until next week, Happy Trails!
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