Update on Navarro v. Encino Motorcars, LLC case

Service advisors are exempt from overtime under federal law, but overtime obligations may still exist under state law

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It appears that a resolution has finally been reached in the Navarro v. Encino Motorcars, LLCcase, on which we previously reported with updates as the case has bounced back and forth between the Ninth Circuit Court of Appeals and the U.S. Supreme Court. At issue in this case was whether service advisors fall within the federal Fair Labor Standards Act Section 13(b)(10)(a)’s blanket overtime exemption that covers any “salesman, partsman or mechanic primarily engaged in selling or servicing automobiles.” The Ninth Circuit previously ruled that service advisors are not covered by this exemption based on the Department of Labor’s recently changed position on the issue, but the Supreme Court disapproved of the Ninth Circuit’s reliance on the Department of Labor’s position and ordered it to reconsider the issue independently. On its subsequent review, the Ninth Circuit once again ruled in favor of the service advisors (finding that the overtime exemption did not cover them), but because this decision conflicted with other federal court decisions, the Supreme Court reviewed the case again.

In its second review of the case, the Supreme Court found that, contrary to the Ninth Circuit’s view, a service advisor works in the capacity of a “salesman, partsman or mechanic primarily engaged in selling or servicing automobiles” because service advisors are salespersons who are actively involved in the automobile servicing process, even if they are not actually performing the mechanical service work themselves. As such, the Supreme Court held that dealership service advisors are exempt from federal overtime pay obligations under the FLSA’s blanket overtime exemption for car dealerships.

However, this decision has much less impact on California dealerships, because under California law, service advisors are entitled to overtime pay unless a California overtime exemption applies, most commonly the commission sales exemption if more than one-half of the service advisor’s total compensation is comprised of commissions and the regular rate of pay is more than 1½ times the state minimum wage. As such, California dealerships should not rely solely on theNavarro decision regarding its potential overtime pay obligations, but should carefully review and monitor their service advisor compensation structures to ensure that any state overtime pay obligations are also addressed.