On March 24, 2015, in Navarro v. Encino Motorcars, LLC, the Ninth Circuit Court of Appeals ruled that “service advisors” are not exempt from the Fair Labor Standards Act (FLSA) overtime requirements under section 213(b)(10)(A). While Ninth Circuit rulings are not binding in Michigan, this ruling increases the potential that this issue may be taken up by the U.S. Supreme Court as there is now a split between the Circuit Courts of Appeal.
The FLSA provides that an employer shall pay an employee who works longer than 40 hours in a workweek overtime in the amount of one and one-half times the regular rate of pay. However, the FLSA exempts “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 Fourth and Fifth Circuits, the Montana Supreme Court, and certain U.S. District Courts, including the Eastern District of Michigan, have found that service advisors are exempt from the FLSA overtime pay requirement. These courts reasoned that service advisors are included in the exemption where their duties and pay structure are functionally similar to that of a salesman, partsman, or mechanic.
The Ninth Circuit recognized the above rulings, but disagreed, relying on a narrow interpretation of the Department of Labor’s definitions of “salesman,” “partsman,” and “mechanic.”
As mentioned above, the Ninth Circuit’s recent ruling is not binding in Michigan. It is also important to note that this ruling did not address that many service advisors will fall under another exemption from the FLSA’s overtime requirement: the exemption for commissioned employees. That Section 213(b)(7)(i) exemption provides that an employee is exempt from overtime pay so long as:
(1) The employee is employed by a retail or services establishment, and
(2) The employee’s regular rate of pay exceeds one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked, and
(3) More than half the employee’s total earnings in a representative period must consist of commissions.
While the Circuits are split on whether “service advisors” are exempt under section 213(b)(10)(A), the current rule in Michigan is that service advisors are exempt, and further, that they may be exempt under 213(b)(7)(i). The Circuit split further means that the issue may soon be decided by the U.S. Supreme Court.
If you need assistance determining if your employees are exempt from the FLSA overtime requirement under the current rules, please do not hesitate to contact a member of the Dealer Practice Group by calling 248-645-9300 or by email:
Chuck LeFevre, Chair – [email protected]
Lawrence F. Raniszeski – [email protected]
Michael J. O’Shaughnessy – [email protected]
Eric R. Bowden – [email protected]
Alycia Pallach Wesley – [email protected]
Coriann Gastol – [email protected]
