Show me the money: on whether car dealership service advisors are entitled to or exempt from overtime pay under the FLSA.

• Author: Yarkony, Seth Andrew
• Position: Fair Labor Standards Act

INTRODUCTION

Mercedes-Benz of Encino ("MB Encino") has served the San Fernando Valley region of greater Los Angeles since 1964. (1) The swanky, community-focused dealership invites individuals to stop by and enjoy a cup of coffee while browsing its showroom and gift boutique, (2) and proudly shares on Instagram images of social events and customers enjoying its luxury automobiles. (3) An interactive enterprise, MB Encino also uses social media to feature friendly photos of employees and depicts employee portraits on its website. (4)

While MB Encino and its employees have joined forces to bring together individuals in the San Fernando Valley community, a recent dispute involving the dealership and a subset of its employees--this time as adverse parties--has caused a rift in the legal community. In Navarro v. Encino Motorcars, LLC, (5) Hector Navarro, Mike Shirinian, Anthony Pinkins, Kevin Malone, and Reuben Castro, all "service advisors" at MB Encino, sued the dealership alleging it had violated the Fair Labor Standards Act (6) (FLSA) by failing to pay time and one-half overtime wages. (7) To determine MB Encino's liability, the United States Court of Appeals for the Ninth Circuit had to weigh the reasonableness of a Department of Labor (DOL) regulation that effectively entitles service advisors to time and one-half overtime pay.

The FLSA overtime-pay requirement "mandat[es] that all hours worked in excess of 40 hours [in a seven-day work week] be paid at one and one-half (150%) of the employee's normal hourly rate." (8) However, the overtime requirement does not apply to a host of exempted employees across various industries. (9) As set forth in 29 U.S.C. [section] 213(b)(10)(A) (the "Dealership Employee Exemption" or the "Exemption"), one such employee that is not entitled to time and one-half overtime pay is, "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers." (10)

Administration of the FLSA, and thus interpretation of its exemptions, is carried out by the DOL's Wage and Hour Division, which the Act created. (11) The DOL's interpretation of the Dealership Employee Exemption, as set forth in 29 C.F.R. [section] 779.372 (the "DOL Dealership Regulation" or the "Regulation"), has always considered service advisors, who are broadly defined as dealership employees responsible for diagnosing and soliciting repair and maintenance services for vehicles, (12) as outside the definition of "salesm[e]n ... primarily engaged in selling or servicing automobiles," and therefore entitled to time and one-half overtime pay. (13)

Agency regulations duly promulgated after a notice-and-comment period, such as the DOL Dealership Regulation, (14) are subject to the deferential standard of review set forth in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (15) Under this standard, commonly known as Chevron deference, "legislative regulations are given controlling weight" (16) if a two-part test is satisfied. First, the court must determine that "the statute [interpreted by the regulation] is silent or ambiguous with respect to the specific issue." (17) Second, the regulation must be reasonable in that it is not "arbitrary, capricious, or manifestly contrary to the statute." (18) In addition to the standard set forth in Chevron, the Supreme Court has dictated that "[FLSA] exemptions are to be narrowly construed against the employers seeking to assert them and their application limited to those [contexts] plainly and unmistakably within their terms and spirit." (19)

Accordingly, in Encino Motorcars, the Ninth Circuit had to determine whether the DOL Dealership Regulation should be afforded Chevron deference. (20) The Ninth Circuit panel unanimously held that it should (21)--i.e., that the DOL Dealership Regulation, which excludes service advisors from the Exemption's definition of "salesman," is a reasonable interpretation of the Dealership Employee Exemption. As a result, MB Encino (and other car dealerships in the Ninth Circuit) may not rely on the Dealership Employee Exemption to refuse time and one-half overtime pay to service advisors.

The Ninth Circuit's decision in Encino Motorcars directly conflicts with prior decisions in the Fourth and Fifth Circuits--resulting in a circuit split. (22) In Brennan v. Deel Motors, Inc., (23) the Fifth Circuit rejected the DOL Dealership Regulation, reasoning "a common sense interpretation and application of [the Dealership Employee Exemption] mandates inclusion of service [advisors] within its scope." (24) Similarly, in Walton v. Greenbrier Ford, Inc., (25) the Fourth Circuit concluded "the [DOL Dealership Regulation] is flady contrary to the [Dealership Employee Exemption's] text." (26) In holding the opposite, the Encino Motorcars court found that "there are two reasonable ways to read the [Dealership Employee Exemption]." (27) Focusing on the "primarily engaged in" language of the Exemption, the Encino court found reasonable the DOL's determination that service advisors are not "salesm[e]n" because "[i]t is hard to imagine, in ordinary speech, a 'salesman ... primarily engaged in ... servicing automobiles.'" (28)

On January 15, 2016, the Supreme Court granted certiorari to MB Encino's appeal of the Ninth Circuit's judgment. (29) This is not the first time the Court has been presented a circuit split over an FLSA exemption for employees categorized as "salesmen." In its 2012 decision in Christopher v. SmithKline Beecham Corp., (30) the Court resolved a split between the Second and Ninth Circuits over the FLSA's "outside salesman" exemption. (31) In a 5-4 vote, a divided Court held "pharmaceutical sales representatives whose primary duty is to obtain nonbinding commitments from physicians to prescribe their employer's prescription drugs" qualify as outside salesmen exempt from time and one-half overtime pay. (32)

This decision had significant repercussions. The Christopher majority recognized the "more than 90,000 [pharmaceutical sales representatives] nationwide" to which its holding denied time and one-half overtime compensation. (33) Supreme Court resolution of the disagreed-upon exemption for service advisors will have similar consequences: in its petition for writ of certiorari, MB Encino estimated nearly 45,000 service advisors are employed by 18,000 car dealerships nationwide. (34)

This Note analyzes the merits of the Encino Motorcars, Deel Motors, and Greenbrier Ford decisions in light of the text and legislative history of the Dealership Employee Exemption and Christopher v. SmithKline Beecham Corp. Part I summarizes the Exemption, the DOL Dealership Regulation interpreting the Exemption, and the decisions whether to defer to the DOL Dealership Regulation by the Encino Motorcars, Deel Motors, and Greenbrier Ford courts. Part II analyzes the text and legislative history of the Exemption, and concludes that the DOL Dealership Regulation should not be afforded Chevron deference because it is manifestly contrary to the Exemption. Part III considers the Exemption in light of the Supreme Court's decision in Christopher, and advances additional reasons for why the Court, when deciding Encino Motorcars, should side with the interpretation of the Dealership Employee Exemption advanced by the Fourth and Fifth Circuits.

1. THE EXEMPTION, DOL REGULATION, AND THE CIRCUIT SPLIT

   Although the FLSA was enacted in 1938, the Dealership Employee Exemption came about nearly thirty years later as part of the Fair Labor Standards Amendments of 1966. (35) The Exemption was codified in 29 U.S.C. [section] 215(b)(10)(A).

   An employee is understood to be ineligible for overtime under the Exemption if he or she satisfies two requirements. First--the noncontroversial aspect of the Exemption--the employee must be "employed by a non-manufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers." (36) The DOL Dealership Regulation interpreting this requirement has long held that an employer sat- isfies this definition if "over half of the [employer's] annual dollar volume of sales made or business done [comes] from sales of the enumerated vehicles." (37) Courts nationwide, without reference to the DOL Dealership Regulation, commonly agree that most car dealerships (as nonmanufacturing establishments that are primarily engaged in selling vehicles to the ultimate purchaser) are employers that meet this requirement. (38)

   The second--highly controversial (in the interpretive sense)--requirement of the Exemption is that the employee of the car dealership must be a "salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles." (39) The way in which this phrase is interpreted is decisive in the determination of whether service advisors are included within the scope of the Exemption. (40) This Part analyzes how the DOL has historically interpreted this requirement and the conflicting decisions of federal appellate courts regarding whether to afford deference to the DOL Dealership Regulation.

   A. DOL Regulation of the Exemption

   Since the 1966 enactment of the Dealership Employee Exemption, the DOL has gone back-and-forth in its opinion whether service advisors are included as exempt salesmen. (41) The DOL's formal regulatory position set forth in the Code of Federal Regulations, however, has always reflected the belief that service advisors are not exempt salesmen, and therefore may not be denied time and one-half overtime pay. (42)

   The DOL's initial interpretation of the Dealership Employee Exemption, which came in a July 1967 opinion letter from the Administrator of the Wage and Hour Division, concluded that service advisors are exempt employees. (43) However, in August 1967, less than one...