__ U.S. __ (2016), 15-415, Encino Motorcars, LLC v. Navarro

Docket Nº15-415
Citation__ U.S. __, 136 S.Ct. 2117, 195 L.Ed.2d 382, 84 U.S.L.W. 4424, 26 Fla.L.Weekly Fed. S 295
Opinion JudgeKENNEDY, JUSTICE.
Party NameENCINO MOTORCARS, LLC, PETITIONER v. HECTOR NAVARRO, ET AL
AttorneyPaul D. Clement argued the cause for petitioner. Stephanos Bibas argued the cause for respondents. Anthony A. Yang argued the cause for the United States, as amicus curiae, by special leave of the court.
Judge PanelKENNEDY, J., delivered the opinion of the Court, in which ROBERTS, C. J., and GINSBURG, BREYER, SOTOMAYOR, and KAGAN, JJ., joined. GINSBURG, J., filed a concurring opinion, in which SOTOMAYOR, J., joined. THOMAS, J., filed a dissenting opinion, in which ALITO, J., joined. JUSTICE GINSBURG, with w...
Case DateJune 20, 2016
CourtUnited States Supreme Court

Page __

__ U.S. __ (2016)

136 S.Ct. 2117, 195 L.Ed.2d 382, 84 U.S.L.W. 4424, 26 Fla.L.Weekly Fed. S 295

ENCINO MOTORCARS, LLC, PETITIONER

v.

HECTOR NAVARRO, ET AL

No. 15-415

United States Supreme Court

June 20, 2016

[136 S.Ct. 2118] Argued April 20, 2016.

DECISION BELOW: 780 F.3d 1267

LOWER COURT CASE NUMBER: 13-55323

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Vacated and remanded.

SYLLABUS

[136 S.Ct. 2119] [195 L.Ed.2d 386] The Fair Labor Standards Act (FLSA) requires employers to pay overtime compensation to covered employees who work more than 40 hours in a given week. In 1966, Congress enacted an exemption from the overtime compensation requirement for " any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles" at a covered dealership. Fair Labor Standards Amendments of 1966, § 209, 80 Stat. 836, codified as amended at 29 U.S.C. § 213(b)(10)(A). Congress authorized the Department of Labor to promulgate necessary rules, regulations, or orders with respect to this new provision. The Department exercised that authority in 1970 and issued a regulation that defined " salesman" to mean " an employee who is employed for the purpose of and is primarily engaged in making sales or obtaining orders or contracts for sale of the vehicles . . . which the establishment is primarily engaged in selling." 29 CFR § 779.372(c)(1) (1971). The regulation excluded service advisors, who sell repair and maintenance services but not vehicles, from the exemption. Several courts, however, rejected the Department's conclusion that service advisors are not covered by the statutory exemption. In 1978, the Department issued an opinion letter departing from its previous position and stating that service advisors could be exempt under 29 U.S.C. § 213(b)(10)(A). In 1987, the Department confirmed its new interpretation by amending its Field Operations Handbook to clarify that service advisors should be treated as exempt under the statute. In 2011, however, the [195 L.Ed.2d 387] Department issued a final rule that followed the original 1970 regulation and interpreted the statutory term " salesman" to mean only an employee who sells vehicles. 76 Fed.Reg. 18859. The Department gave little explanation for its decision to abandon its decades-old practice of treating [136 S.Ct. 2120] service advisors as exempt under § 213(b)(10)(A).

Petitioner is an automobile dealership. Respondents are or were employed by petitioner as service advisors. Respondents filed suit alleging that petitioner violated the FLSA by failing to pay them overtime compensation when they worked more than 40 hours in a week. Petitioner moved to dismiss, arguing that the FLSA overtime provisions do not apply to respondents because service advisors are covered by the § 213(b)(10)(A) exemption. The District Court granted the motion, but the Ninth Circuit reversed in relevant part. Deferring under Chevron U.S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694, to the interpretation set forth in the 2011 regulation, the court held that service advisors are not covered by the § 213(b)(10)(A) exemption.

Held : Section 213(b)(10)(A) must be construed without placing controlling weight on the Department's 2011 regulation. Pp. 7-12.

(a) When an agency is authorized by Congress to issue regulations and promulgates a regulation interpreting a statute it enforces, the interpretation receives deference if the statute is ambiguous and the agency's interpretation is reasonable. See Chevron, supra, at 842-844, 104 S.Ct. 2778, 81 L.Ed.2d 694. When Congress authorizes an agency to proceed through notice-and-comment rulemaking, that procedure is a " very good indicator" that Congress intended the regulation to carry the force of law, so Chevron should apply. United States v. Mead Corp., 533 U.S. 218, 229-230, 121 S.Ct. 2164, 150 L.Ed.2d 292. But Chevron deference is not warranted where the regulation is " procedurally defective" --that is, where the agency errs by failing to follow the correct procedures in issuing the regulation. 533 U.S., at 227, 121 S.Ct. 2164, 150 L.Ed.2d 292.

One basic procedural requirement of administrative rulemaking is that an agency must give adequate reasons for its decisions. Where the agency has failed to provide even a minimal level of analysis, its action is arbitrary and capricious and so cannot carry the force of law. Agencies are free to change their existing policies, but in explaining its changed position, an agency must be cognizant that longstanding policies may have " engendered serious reliance interests that must be taken into account." FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515, 129 S.Ct. 1800, 173 L.Ed.2d 738. An " [u]nexplained inconsistency" in agency policy is " a reason for holding an interpretation to be an arbitrary and capricious change from agency practice," National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U.S. 967, 981, 125 S.Ct. 2688, 162 L.Ed.2d 820, and an arbitrary and capricious regulation of this sort receives no Chevron deference. Pp. 7-10.

(b) Applying those principles, the 2011 regulation was issued without the reasoned explanation that was [195 L.Ed.2d 388] required in light of the Department's change in position and the significant reliance interests involved. The industry had relied since 1978 on the Department's position that service advisors are exempt from the FLSA's overtime pay requirements, and had negotiated and structured compensation plans against this background understanding. In light of this background, the Department needed a more reasoned explanation for its decision to depart from its existing enforcement policy. The Department instead said almost nothing. It did not analyze or explain why the statute should be interpreted to exempt dealership employees who sell vehicles but not dealership employees who sell services. This lack of reasoned explication for a regulation that is inconsistent with the Department's [136 S.Ct. 2121] longstanding earlier position results in a rule that cannot carry the force of law, and so the regulation does not receive Chevron deference. It is appropriate to remand for the Ninth Circuit to interpret § 213(b)(10)(A) in the first instance. Pp. 10-12.

780 F.3d 1267, vacated and remanded.

Paul D. Clement argued the cause for petitioner.

Stephanos Bibas argued the cause for respondents.

Anthony A. Yang argued the cause for the United States, as amicus curiae, by special leave of the court.

KENNEDY, J., delivered the opinion of the Court, in which ROBERTS, C. J., and GINSBURG, BREYER, SOTOMAYOR, and KAGAN, JJ., joined. GINSBURG, J., filed a concurring opinion, in which SOTOMAYOR, J., joined. THOMAS, J., filed a dissenting opinion, in which ALITO, J., joined.

OPINION

KENNEDY, JUSTICE.

This case addresses whether a federal statute requires payment of increased compensation to certain automobile dealership employees for overtime work. The federal statute in question is the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq., enacted in 1938 to " protect all covered workers from substandard wages and oppressive working hours." Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728, 739, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981). Among its other provisions, the FLSA requires employers to pay overtime compensation to covered employees who work more than 40 hours in a given week. The rate of overtime pay must be " not less than one and one-half times the regular rate" of the employee's pay. § 207(a).

Five current and former service advisors brought this suit alleging that the automobile dealership where they were employed was required by the FLSA to pay them overtime wages. The dealership contends that the position and duties of a service advisor bring these employees within § 213(b)(10)(A), which establishes an exemption from the FLSA overtime provisions for certain employees engaged in selling or servicing automobiles. The case turns on the interpretation of this exemption.

I

A

Automobile dealerships in many communities not only sell vehicles but also sell repair and maintenance services. Among the employees involved in providing repair and maintenance services are service advisors, partsmen, and mechanics. Service advisors interact with customers and sell them [195 L.Ed.2d 389] services for their vehicles. A service [136 S.Ct. 2122] advisor's duties may include meeting customers; listening to their concerns about their cars; suggesting repair and maintenance services; selling new accessories or replacement parts; recording service orders; following up with customers as the services are performed (for instance, if new problems are discovered); and explaining the repair and maintenance work when customers return for their vehicles. See App. 40-41; see also Brennan v. Deel Motors, Inc., 475 F.2d 1095, 1096 (CA5 1973); 29 CFR § 779.372(c)(4) (1971). Partsmen obtain the vehicle parts needed to perform repair and maintenance and provide those parts to the mechanics. See § 779.372(c)(2). Mechanics perform the actual repair and maintenance work. See § 779.372(c)(3).

In 1961, Congress enacted a blanket exemption from the FLSA's minimum wage and overtime provisions for all automobile dealership employees. Fair Labor Standards Amendments of 1961, § 9, 75 Stat. 73. In 1966, Congress repealed that broad exemption and replaced it with a narrower one. The revised statute did not exempt dealership employees from the minimum wage requirement. It also limited the exemption from the overtime compensation requirement to cover only certain employees--in particular, " any salesman, partsman, or mechanic...

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