Navarro, et al. v. Encino Motorcars

“Service advisors” are not exempt from overtime pay requirements under the FLSA.

Navarro, et al. v. Encino Motorcars, LLC (9th Cir. March 24, 2015)

NOTE: On January 15, 2016, the US Supreme Court granted certiorari.

Plaintiffs, “service advisors” at a Mercedes Benz dealership, were required to meet and greet Mercedes owners to evaluate the service and/or repair needs of each vehicle based on the owners’ complaints, suggest the services to be performed (including additional services beyond those required to address the needs of the complaints), and then write an estimate for the repairs and services for the customers and take the cars to the mechanics for services and repairs. Service advisors were expected to call vehicle owners while the vehicles were with Defendant’s mechanics and suggest further repairs to the owners at additional cost. The position was paid on a commission-only basis.

Plaintiffs alleged Defendant failed to pay overtime wages pursuant to the Fair Labor Standards Act of 1938 (FLSA).[i] Defendant contended Plaintiffs were exempt from FLSA’s overtime provisions as salesmen (“any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles”) and therefore Defendant had no obligation to pay overtime wages to service advisors.[ii] The district court ruled that the service advisors fell within the ambit of the exemption and dismissed the overtime claim.

On appeal, Plaintiffs argued the Ninth Circuit Court of Appeals had to defer to the U.S. Department of Labor’s 2011 regulatory definitions of the terms “salesman,” “partsman,” and “mechanic,”[iii] limiting the exemption to “salesmen who sell vehicles and partsmen and mechanics who service vehicles.”[iv] Defendant conceded that Plaintiffs did not fit into the regulatory definitions but contended the appellate court did not need to defer to the 2011 regulation.

The Ninth Circuit utilized the two-step McMaster inquiry to evaluate whether it was required to defer to the DOL’s interpretation of the FLSA with respect to the exemption in question.[v] Step one in McMaster requires a court to determine whether a statute unambiguously states Congress’s intent on its face; if it does, the analysis is over and the Court relies on the statutory meaning.[vi]  However, if the statute is silent or ambiguous as to Congressional intent, then the court proceeds to step two, in which it decides what level of deference applies, assuming the agency’s interpretation is “based on a permissible construction of the statute.”[vii]

Construing the FLSA liberally in the light most favorable to Plaintiffs, and the exemption narrowly against Defendant,[viii] the court of appeals could not conclude that “service advisors” were “persons plainly and unmistakably within [the FLSA’s] terms and spirit”[ix] as Congress had not defined the terms “salesman, partsman, or mechanic” with sufficient particularity and therefore the Court held the statute was sufficiently ambiguous to require deference to the DOL’s regulation. In step two of the analysis, the Ninth Circuit affirmed that Chevron, U.S.A. provided the appropriate standard of deference and held that the DOL’s interpretation was reasonable, as it did not render any term meaningless or superfluous. In so doing, the court of appeals determined it was bound by the 2011 regulation and could not substitute its own construction of the FLSA exemption.[x] The Ninth Circuit also acknowledged that its decision conflicted with decisions by the Fourth and Fifth Circuits, yet it distinguished both the Fourth Circuit’s interpretation of the above terms as overly expansive and illogical and the Fifth Circuit’s selective citing to only a portion of the statute’s legislative history (which the Navarro court found inconclusive) as improper applications of the Chevron analysis.

[i] 29 U.S.C. § 201, et seq.
[ii] 29 U.S.C. § 213(b)(10)(A).
[iii] 29 C.F.R. § 779.372(c).
[iv] 76 Fed. Reg. at 18,838.
[v] McMaster v. United States, 731 F.3d 881, 889 (9th Cir. 2013), cert denied, 135 S. Ct. 160 (2014)
[vi] See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842 (1984).
[vii] Id. at 843.
[viii] Haro v. City of Los Angeles, 745 F.3d 1249, 1256 (9th Cir.), cert. denied, 135 S. Ct. 138 (2014).
[ix] Solis v. Washington, 656 F.3d 1079, 1083 (9th Cir. 2011).
[x] CHW W. Bay v. Thompson, 246 F.3d 1218, 1223 (9th Cir. 2001).



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