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9th Circuit defers to DOL: FLSA exemption didn’t apply to auto dealer’s service advisors

By Lisa Milam-Perez, J.D.

An auto dealership’s service advisors did not fall within the FLSA’s exemption for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles,” the Ninth Circuit held in a case of first impression. Parting ways with the Fourth and Fifth Circuits and granting Chevron deference to the DOL’s regulatory definitions in the face of statutory ambiguity, the appeals court reversed a lower court’s dismissal of the service advisors’ FLSA and state-law overtime claims. “[There are good arguments supporting both interpretations of the exemption,” the court wrote. “But where there are two reasonable ways to read the statutory text, and the agency has chosen one interpretation, we must defer to that choice.” (Navarro v. Encino Motorcars, LLC, March 24, 2015, Graber, S.).

Service advisors. The employer, a car dealership that sells and services new and used Mercedes-Benz automobiles, employed five “service advisors” whose job duties entailed greeting customers, evaluating their autos’ service or repair needs based upon the customers’ complaints, and suggesting certain repair services. The advisors also were “duty bound” to solicit additional services beyond those repairs necessary to resolve the customer’s initial complaint. The advisors then wrote up an estimate for the repairs and services for the customer. As required by the employer, the service advisors would often contact customers while their vehicle was in the mechanic’s hands to suggest other repair work, at additional cost. For their efforts, they received neither an hourly wage nor a salary; they were compensated on a commission-only basis.

Overtime suit. The district court dismissed the service advisors’ overtime claims, concluding that the employees fell within the statutory exemption set forth in FLSA Sec. 213(b)(10(A) for auto salespersons and mechanics. The lower court also dismissed the employees’ other federal claims (not at issue here) and their state-law claims for lack of supplemental jurisdiction. The appeals court reversed, agreeing with the employees that deference was due the DOL’s regulatory interpretation.

Regulatory provision. In its 2011 rulemaking, the DOL explained that the auto dealership exemption at issue here, 29 C.F.R. Sec. 779.372(c), applied only “to salesmen who sell vehicles and partsmen and mechanics who service vehicles.” Thus, under the DOL’s interpretation, the service advisors didn’t meet either of those definitions and thus were not exempt. But was the DOL’s interpretation controlling? The Ninth Circuit undertook the two-step Chevron analysis in order to decide—noting out of the gate, though, that the FLSA is to be read liberally in favor of employees and that, consequently, exemptions are to be narrowly construed.

Statute was ambiguous. First, the court found that the relevant statutory text was capable of several different interpretations. “It is plausible to read the term ‘salesman’ broadly and to connect the term to ‘servicing automobiles’; that is, one could consider a service advisor to be a ‘salesman . . . primarily engaged in . . . servicing automobiles,’” the court acknowledged. Yet it was at least equally plausible to read these words “in a more cabined way: a salesman is an employee who sells cars; a partsman is an employee who requisitions, stocks, and dispenses parts; and a mechanic is an employee who performs mechanical work on cars.” And the employees here did none of those things; they sold services for cars, the court said. Did Congress intend to broadly exempt any sales employees involved in the servicing of cars along with salesmen who actually sell the cars themselves? If so, it wasn’t clear from the text of the statute. After all, not all car dealership employees were exempt, the court observed, citing the examples of (nonexempt) bookkeepers who track auto sales invoices or secretarial employees who route calls to those salesmen, partsmen, and mechanics. Thus, the court could not readily find that the service advisors “plainly and unmistakably” fell within the reach of the exemption.

No flip-flopping here. In the face of this statutory ambiguity, the appeals court looked to the DOL regulation and, having been promulgated after notice-and-comment rulemaking, considered the rule under the Chevron “reasonableness” standard. Noting that the DOL’s “formal, regulatory position” on the scope of this exemption has been materially consistent going back to 1970, the court readily disposed of cases cited by the employer as being off-point. It acknowledged that the DOL had occasionally, in the form of opinion letters and at least one iteration of the Wage and Hour Division’s Field Operations Handbook, adopted a broader meaning of the exemption favored by the employer. It even proposed amending the regulatory provision itself to conform to the broader construction. Ultimately, though, the agency weighed against doing so, evidencing, too, that it has given this particular matter considerable thought.

“The Department of Labor’s regulations consistently—for 45 years—have interpreted the statutory exemption to apply narrowly. The agency reaffirmed that interpretation most recently in 2011, after thorough consideration of opposing views and after a formal notice-and-comment process. Under these circumstances, Chevron provides the appropriate legal standard.”

Deference due anyhow. Yet even if the agency’s 2011 final rule did amount to a change of position on the reach of the exemption, the appeals court said the DOL would still be entitled to Chevron-level deference, citing the Supreme Court’s 2009 decision in FCC v. Fox Television Stations, Inc., and, more recently, the High Court’s holding earlier this month in Perez v Mortgage Bankers Assoc.

DOL interpretation was reasonable. Moving on to the next step in the Chevron analysis, the Ninth Circuit held the DOL’s interpretation of the ambiguous statutory provision was a reasonable one and would not be disturbed. Granted, in so holding, the appeals court was setting up a conflict with the Fourth and Fifth Circuits on this issue, along with several district courts and the Supreme Court of Montana. But it simply disagreed with the conclusion by those courts that the contrary reading of the statute was the only reasonable one or that the agency’s interpretation was unreasonable.

Parsing the text of the DOL regulation, the appeals court said it was important to note that the agency’s reading “does not render any [statutory] term meaningless or superfluous. All three subjects (salesman, partsman, and mechanic) and both verbs (selling and servicing) retain meaning; it is just that some of the verbs do not apply to some of the subjects.” Had the agency’s construction rendered one of these words meaningless, then its interpretation “likely would be unreasonable,” but that wasn’t the case.

Legislative history inconclusive. Finally,  the  appeals court reviewed the legislative history of the FLSA exemption and noted that Congress had introduced numerous bills to sweepingly exempt “any salesman or mechanic” employed by a car dealership, but those measures did not pass. Moreover, the final three versions of the exemption added the qualifier, “primarily engaged in selling or servicing automobiles.” The legislative history is largely silent on its meaning (save for a lone committee report, which the Fifth Circuit “quoted selectively” in holding to the contrary). The legislative history, taken as a whole, is inconclusive. Accordingly, with no further light shed on an ambiguous statutory provision, the DOL interpretation prevailed.