Patricia C. Collins, Antheil Maslow & MacMinn

The U.S. Supreme Court's decision in Encino Motorcars v. Navarro interprets a very specific exemption to the overtime rules imposed by the Fair Labor Standards Act, 29 U.S.C. 201, et seq. (FLSA), but the court's language and reasoning have game-changing ramifications. The court's rejection of the principle that courts should narrowly construe exemptions to the FLSA turns decades of FLSA case law on its head.

The facts of Encino Motorcars are deceptively narrow. Employees classified as “service advisors” for a car dealership challenged the car dealership's classification of the service advisors as exempt from the FLSA. The FLSA requires that employers must pay overtime to employees who work more than 40 hours in a week. The dealership claimed the exemption under a statutory exemption that applies to car dealerships. Specifically, the section in question exempts from overtime pay requirements: “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.”

The employees in question worked for a car dealership as service advisors, and their duties included meeting with customers, listening to their concerns about their vehicles, and then making suggestions for repairs or other services, repair parts or accessories. The employees challenged the classification based on a rule from the Department of Labor, issued in 2011, nothing that the word “salesman” did not include service advisors. The district court dismissed the claim, the U.S. Court of Appeals for the Ninth Circuit reversed, but the Supreme Court remanded, finding the Ninth Circuit's basis for reversal procedurally defective. On remand,  the Ninth Circuit held that the service advisors were exempt under the FLSA, pursuant to Section 213(b)(10)(A). The Ninth Circuit held that the application of the “distributive canon” required the conclusion that service advisors were not included in the exemption. Specifically, the court noted that the particular gerunds—“selling and servicing”—should be distributed to their appropriate subjects—salesman, partsman, or mechanic. Further, the Ninth Circuit noted that the exclusion of service advisors despite the reference to them in the applicable Occupational Outlook Handbook required the same conclusion. Finally, the Ninth Circuit relied on the principle that exemptions to the FLSA should be construed narrowly, that is, the statute does not say “service advisor” so service advisors are not exempt.

The Supreme Court rejected the Ninth Circuit's conclusion. The court noted that there was no dispute that the exemption applied to the car dealership, and that the service advisor is not a partsman or mechanic. Thus, the court stated the issue, perhaps burying the conclusion therein, as follows:  Whether service advisors are salespeople primarily engaged in servicing automobiles. The court broadly noted that a service advisor is “obviously” a salesperson, and that these service advisors were likewise engaged in “servicing” vehicles. In reversing the Ninth Circuit and concluding that service advisors are salespeople primarily engaged in servicing automobiles, the Supreme Court rejected the Ninth Circuit's use of the distributive canon. The court noted that “the entire exemption bespeaks breadth,” primarily in its use of the word “any.” The more “natural reading,” the court held, is that the exemption covers any combination of its nouns, gerunds and objects.

This rejection of the Ninth Circuit's use of the distributive canon is not the remarkable part of the court's decision. That part comes next. The Supreme Court noted the following: “The Ninth Circuit also invoked the principle that exemption of the FLSA should be construed narrowly …  We reject this principle as a useful guidepost for interpreting the FLSA.”

The court went further, noting: “The narrow-construction principle relies on the flawed premise that the FLSA 'pursues' its remedial purposes 'at all costs.'”

With these words, the Supreme Court ushered in a dramatic change in the interpretation of the FLSA's exemptions.

The Supreme Court rejected a well-settled principle that courts must narrowly construe exemptions to the FLSA in order to serve the act's remedial purposes, as in Auer v. Robbins, 519 U.S. 452, 463 (1997); Arnold v. Ben Kankowsky, 361 U.S. 388, 392 (1960); Phillips v. Walling, 324 U.S. 490, 493 (1945). Indeed, it is a generally accepted principle of statutory construction that courts must construe exceptions to remedial statutes narrowly in order to serve that remedial purpose. See, e.g., Phillips, 324 U.S. at 493 (“Any exemption from such humanitarian and remedial legislation must therefore be narrowly construed, giving due regard to the plain meaning of statutory language and the intent of Congress”). This Supreme Court now deems that principle “flawed.” This sweeping pronouncement may come as a shock to employment law attorneys who have assumed the application of the principle to FLSA and other compliance actions, as well as discrimination and accommodation cases.

The examples of lower courts applying this principle are too many too list. And, in practice, attorneys advising employers have, in turn, narrowly applied the exemptions to their clients' employees. Rejection of the narrow-construction principle will dramatically change the manner in which FLSA exemptions are construed, along with exemptions and exclusions in discrimination statutes such as the Americans with Disabilities Act. Indeed, the court's holding in Encino Motorcars may encourage some risk taking in the application of the FLSA exemptions, increasing flexibility for employers, but decreasing pay protections for employees. Employment law practitioners will have to balance the historical application of the exemptions with this extraordinary language from the Supreme Court.

Patricia C. Collins is a partner with Antheil Maslow & MacMinn, based in Doylestown. Her practice focuses primarily on employment, commercial litigation and health care law. To learn more about the firm or Collins, visit www.ammlaw.com.