Supreme Court Rules on an FLSA Exemption and Charts New Course, but to Where?

By on April 24, 2018

On April 2, the Supreme Court of the United States rendered its opinion in Encino Motorcars, LLC v. Navarro, 200 L. Ed. 2d 433 (2018). The case involved Hector Navarro, a service advisor at a Mercedes-Benz dealership, who alleged that his employer failed to pay him overtime under the Fair Labor Standards Act (FLSA). Encino Motorcars moved to dismiss the suit on the basis that the service advisor position fell within an exemption from the FLSA such that he was not entitled to overtime.

After a series of rulings by the district and Ninth Circuit Court of Appeals, in a 5-4 decision, the Supreme Court held that the exemption covered service advisors such that they were not entitled to overtime under the FLSA. The Court’s holding is narrow and mainly applies to vehicle dealerships. This case is important, however, because it appears to reflect a change in the high court’s course with respect to the FLSA. In reversing the Ninth Circuit’s decision to find the specific exemption inapplicable to service advisors, the Supreme Court attacked the often-invoked principle that FLSA exemptions should be construed narrowly. “We reject this principle as a useful guidepost for interpreting the FLSA.” Encino Motorcars, at 442. Quoting Justice Scalia, the Court opined that “[b]ecause the FLSA gives no textual indication that its exemption should be construed narrowly, there is no reason to give [them] anything other than a fair (rather than narrow) interpretation.” Id. (Emphasis added) (internal citations omitted). The Court added that “[t]he narrow-construction principle relies on the flawed premise that the FLSA pursues its remedial purpose at all costs.” Id. (Internal citations omitted). Citing the fact that legislation is often the result of compromise, the Court reasoned that the “FLSA has over two dozen exemptions in § 213(b) alone, including the one at issue here. Those exemptions are just as much a part of the FLSA’s purpose as the overtime-pay requirement.” Id.

This single paragraph in part D of the majority opinion is a drastic departure from the maxim of “narrow construction against the employer” that most courts (including the Supreme Court) have announced, and that practitioners have understood when analyzing and applying FLSA exemptions. But, practically speaking, what does “a fair (rather than narrow) interpretation” mean to employers? Does it mean exemptions will be broadly interpreted so that more positions would be considered exempt? Not necessarily. Will it mean that more plaintiffs’ cases will be resolved against employees and in favor of employers on motions to dismiss or summary judgment? Probably not. Instead, this likely means that in close cases, the tie no longer goes to the runner (i.e. to the employee in favor of receiving overtime). Time will tell.

In the meantime, lower courts and practitioners will have to wrestle with these questions in deciding these cases and advising clients. A couple of takeaways are clear: Encino Motors will weaken plaintiffs’ FLSA misclassification cases to some degree, and management-side counsel are sure to cite this opinion when defending such cases.

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