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SCOTUS Expands the FLSA Exemptions

May 3, 2018

On April 2, 2018, the United States Supreme Court issued an opinion that could potentially have a significant impact on overtime requirements under the Fair Labor Standards Act (FLSA).  The case, Encino Motorcars, LLC. v. Navarro, stemmed from a dispute between a California Mercedes Benz dealership and their service advisors about the FLSA’s requirement that employers pay a higher salary level, known as “time and a half,” for eligible employees for any hours worked in excess of 40 hours.  Specifically, despite the broad overtime requirement, the FLSA also exempts large swaths of jobs and job duties from being eligible for higher overtime pay. 

Under Section 213(b)(10)(A) of the FLSA, “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” is exempted from the Act’s overtime requirement.  Thus, in the case, the Court set out to decide whether or not the service advisors were exempted employees based on Section 213(b)(10)(A) of the FLSA.  In reversing the 9th Circuit decision, the Court, per Justice Clarence Thomas, held that service advisors were exempt from the overtime requirement.  More importantly for employers, the Court disagreed with the 9th Circuit’s reasoning that FLSA exclusions should be read narrowly, and thereby limited to their express terms, in favor of a more expansive “fair reading” of FLSA exemptions. 

The more expansive “fair reading test” is potentially very beneficial for employers who face high overtime costs, as new categories of jobs and job duties that were previously thought to be within the FLSA’s overtime requirement could now be excluded based on new interpretations of their meaning pursuant to the new “fair reading” test.  While the Encino Motorcars, LLC. opinion focused exclusively on Section 213(b)(10(A), and service advisors at automobile dealerships, the “fair reading” test could be applied to virtually all other excluded jobs and job categories as well. 

Right now, as a business owner, you should be analyzing whether the new exemption for service advisor employees applies to your business, and whether you can revise your FLSA-compliant pay plans for employees who have been treated as non-exempt, but who no longer will be.    

If you have any questions about these new regulations or how they might affect your company, please contact David McCombChair of Zarwin Baum's Employment Practice Group. 

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