Encino Motorcars, LLC v. Navarro

• Decision Date: 20 June 2016
• Docket Number: No. 15–415.,15–415.
• Citation: 136 S.Ct. 2117,195 L.Ed.2d 382
• Parties: ENCINO MOTORCARS, LLC, Petitioner v. Hector NAVARRO, et al.
• Court: U.S. Supreme Court

136 S.Ct. 2117

195 L.Ed.2d 382

ENCINO MOTORCARS, LLC, Petitioner

v.Hector NAVARRO, et al.

No. 15–415.

Supreme Court of the United States

Argued April 20, 2016.

Decided June 20, 2016.

Paul D. Clement, Washington, DC, for petitioner.

Stephanos Bibas, Philadelphia, PA, for respondents.

Anthony A. Yang for the United States as amicus curiae, by special leave of the Court, supporting the respondents.

Karl R. Lindegren, Todd B. Scherwin, Colin P. Calvert, Fisher & Phillips LLP, Los Angeles, CA, Paul D. Clement, Jeffrey M. Harris, Subash S. Iyer, Bancroft PLLC, Washington, DC, Wendy McGuire Coats, McGuire Coats LLP, Lafayette, CA, for petitioner.

Keven Steinberg, Thompson, Coe & O'Meara, Los Angeles, CA, Stephanos Bibas, James A. Feldman, Nancy Bregstein Gordon, University of Pennsylvania, Law School, Supreme Court Clinic, Philadelphia, PA, for respondents.

Justice KENNEDY

delivered the opinion of the Court.

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 services for their vehicles. A service 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 (C.A.5 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 primarily engaged in selling or servicing automobiles, trailers, trucks, farm implements, or aircraft" at a covered dealership. Fair Labor Standards Amendments of 1966, § 209, 80 Stat. 836. Congress authorized the Department of Labor to "promulgate necessary rules, regulations, or orders" with respect to this new provision. § 602, id., at 844.

The Department exercised that authority in 1970 and issued a regulation that defined the statutory terms "salesman," "partsman," and "mechanic." 35 Fed.Reg. 5896 (1970)

(codified at 29 CFR § 779.372(c) ). The Department intended its regulation as a mere interpretive rule explaining its own views, rather than a legislative rule with the force and effect of law; and so the Department did not issue the regulation through the notice-and-comment procedures of the Administrative Procedure Act. See 35 Fed.Reg. 5856 ; see also 5 U.S.C. § 553(b)(A) (exempting interpretive rules from notice and comment).

The 1970 interpretive regulation 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 or farm implements which the establishment is primarily engaged in selling." 29 CFR § 779.372(c)(1) (1971)

. By limiting the statutory term to salesmen who sell vehicles or farm implements, the regulation excluded service advisors from the exemption, since a service advisor sells repair and maintenance services but not the vehicle itself. The regulation made that exclusion explicit in a later subsection: "Employees variously described as service manager, service writer, service advisor, or service salesman ... are not exempt under [the statute]. This is true despite the fact that such an employee's principal function may be disagnosing [sic ] the mechanical condition of vehicles brought in for repair, writing up work orders for repairs authorized by the customer, assigning the work to various employees and directing and checking on the work of mechanics." § 779.372(c)(4).

Three years later, the Court of Appeals for the Fifth Circuit rejected the Department's conclusion that service advisors are not covered by the statutory exemption. Deel Motors, supra . Certain District Courts followed that precedent. See Yenney v. Cass County Motors, 81 CCH LC ¶ 33,506 (Neb.1977)

; Brennan v. North Bros. Ford, Inc., 76 CCH LC ¶ 33,247 (E.D.Mich.1975)

, aff'd sub nom.

Dunlop v. North Bros. Ford, Inc., 529 F.2d 524 (C.A.6 1976) (table); Brennan v. Import Volkswagen, Inc., 81 CCH LC ¶ 33,522 (Kan.1975).

In the meantime, Congress amended the statutory provision by enacting its present text, which now sets out the exemption in two subsections. Fair Labor Standards Amendments of 1974, § 14, 88 Stat. 65. The first subsection is at issue in this case. It exempts "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements" at a covered dealership. 29 U.S.C. § 213(b)(10)(A)

. The second subsection exempts "any salesman primarily engaged in selling trailers, boats, or aircraft" at a covered dealership. § 213(b)(10)(B). The statute thus exempts certain employees engaged in servicing automobiles, trucks, or farm implements, but not similar employees engaged in servicing trailers, boats, or aircraft.

In 1978, the Department issued an opinion letter departing from its previous position. Taking a position consistent with the cases decided by the courts, the opinion letter stated that service advisors could be exempt under § 213(b)(10)(A)

. Dept. of Labor, Wage & Hour Div., Opinion Letter No. 1520 (WH–467) (1978), [1978–1981 Transfer Binder] CCH Wages–Hours Administrative Rulings ¶ 31,207. The letter acknowledged that the Department's new policy "represent [ed] a change from the position set forth in section 779.372(c)(4)" of its 1970 regulation. In 1987, the Department confirmed its 1978 interpretation by amending its Field Operations Handbook to clarify that service advisors should be treated as exempt under § 213(b)(10)(A). It observed that some courts had interpreted the statutory exemption to cover service advisors; and it stated that, as a result of those decisions, it would "no longer deny the [overtime] exemption for such employees." Dept. of Labor, Wage & Hour Div., Field Operations Handbook, Insert No. 1757, 24L04–4(k) (Oct. 20, 1987), online at https://perma.cc/5GHD–KCJJ (all Internet materials as last visited June 16, 2016). The Department again acknowledged that its new position represented a change from its 1970 regulation and stated that the regulation would "be revised as soon as is practicable." Ibid.

Twenty-one years later, in 2008, the Department at last issued a notice of proposed rulemaking. 73 Fed.Reg. 43654

. The notice observed that every court that had considered the question had held service advisors to be exempt under § 213(b)(10)(A), and that the Department itself had treated service advisors as exempt since 1987. Id., at 43658–43659. The Department proposed to revise its regulations to accord with existing practice by interpreting the exemption in § 213(b)(10)(A) to cover service advisors.

In 2011, however, the Department changed course yet again. It announced that it was "not proceeding with the proposed rule." 76 Fed.Reg. 18833

. Instead, the Department completed its 2008 notice-and-comment rulemaking by issuing a final rule that took the opposite position from the proposed rule. The new final rule followed the original 1970 regulation and interpreted the statutory term "salesman" to mean only an employee who sells automobiles, trucks, or farm implements. Id., at 18859 (codified at 29 CFR § 779.372(c)(1) ).

The Department gave little explanation for its decision to abandon its decades-old practice of treating service advisors as exempt under § 213(b)(10)(A)

. It was also less than precise when it issued its final rule. As described above, the 1970 regulation included a separate subsection stating in express terms that service advisors "are not exempt" under the relevant provision. 29 CFR § 779.372(c)(4) (1971)

. In promulgating the 2011 regulation, however, the Department eliminated that separate subsection. According to the United States, this change appears to have been "an...