Readers will recall that, in April 2011, the U.S. Labor Department declined to adopt an interpretation proposed in 2008 that would have acknowledged the federal Fair Labor Standards Act overtime-exempt status of employees doing the typical work of service writers, service advisors, etc. in automobile dealerships and truck dealerships.  Prospects were that USDOL would reverse an enforcement policy of two decades' standing and would begin challenging the FLSA Section 13(b)(10)(A) overtime exemption as applied to these workers.

However, Congress's 2012 Department of Labor Appropriations Act specifically prohibited USDOL from using any appropriated funds for this purpose.  Later comments by a U.S. Wage and Hour Division investigator led us to conclude that, unless Congress renewed this limitation in 2013 appropriations, dealerships should anticipate USDOL attacks on their treating these employees as being overtime-exempt.

Although the 2013 appropriation does not expressly refer to such a restriction, we conclude that the prohibition has been extended.  Among other things, Division F, Section 1105 of the recent appropriation calls for the continuation through September 30, 2013 of "the requirements, authorities, conditions, limitations, and other provisions" of the 2012 law.  Another example is Section 1104's statement that money allocated for 2013 may not be used to "initiate or resume any project or activity for which appropriations, funds, or other authority were not available" during the federal government's 2012 fiscal year.

Even if USDOL is unable to pursue such claims, current or former service writers or similar employees remain free to argue against overtime-exempt status in their own FLSA lawsuits.  And, as we said previously, employers embroiled in these lawsuits should be alert for any signs that USDOL is extending background assistance to these individuals.

◊   Have a comment or something else to add?  Please use our comment feature below.

In April 2011, the U.S. Labor Department disavowed its 24-year-long acknowledgment that the federal Fair Labor Standards Act's Section 13(b)(10)(A) overtime exemption applies to automobile-dealership employees doing the typical work of service writers, service advisors, etc.  Instead, USDOL seemed to embrace the view that the absence of a literal reference to these kinds of employees in Section 13(b)(10)(A)'s "salesman, partsman, or mechanic" formulation meant that they are subject to the FLSA's overtime requirement.

USDOL said what it did despite the fact that, since the 1970s, five federal courts had looked at the same language and ruled the other way.  In fact, as of April 2011, every reported court decision to consider the issue determined that dealership employees who are selling service and parts to customers are within the exemption.  These courts concluded that this outcome was entirely consistent with Congress's intent.

Now, two additional rulings have continued this trend, including that these newest ones have done so notwithstanding USDOL's comments.

In Navarro v. Mercedes Benz of Encino (link to reproduction below), Fisher & Phillips LLP persuaded the U.S. District Court for the Central District of California to dismiss an FLSA overtime claim brought by several Service Advisors.  After evaluating USDOL's April 2011 statements, the court concluded that those views are "unreasonable" and unworthy of deference.  Instead, the court said, "Service Advisors .  .  . are functionally equivalent to salesmen and mechanics and are similarly responsible for the 'selling and servicing' of automobiles."  It ruled that the Service Advisors were exempt from FLSA overtime.

A few days later, the Montana Supreme Court concluded that the words of Section 13(b)(10)(A) itself demonstrate that it applies to the kind of work done by Service Advisors, Service Writers, and the like.  In Thompson v. J.C. Billion, Inc. (link to reproduction below), the court determined that USDOL interpretative material "conflicts with the plain wording of [Section 13(b)(10)(A)] by defining employees who are exempt from overtime as 'salesman' more narrowly than the statute does."  The court determined that "a plain, grammatical reading of [Section 13(b)(10)(A)] makes clear that the term 'salesman' encompasses a broader category of employees than those only engaged in selling vehicles," and that, "under a plain reading, the statute clearly exempts 'any salesman . . . primarily engaged in servicing . . . automobiles."

These decisions further bolster the decades-old proposition that the exemption applies to a dealership employee whose primary duty is to do such things as greet customers and obtain information regarding their service or repair concerns; diagnose the mechanical condition of the vehicle; attempt to sell appropriate diagnostic or repair services; provide estimates for services or repairs; write orders for work authorized by the customer; assign the work to various employees; direct and check on the work of mechanics; and communicate with customers regarding the status of their vehicles.  Only time will tell whether USDOL will continue to swim against the tide of these court rulings.

◊   Have a comment or something else to add?  Please use our comment feature below.

Navarro v. Mercedes Benz of Encino.pdf (397.31 kb)

Thompson v. J.C. Billion, Inc.pdf (146.23 kb)

Readers will recall our April 2011 newsletter and blog post regarding the U.S. Labor Department's having declined to recognize the overtime-exempt status of vehicle-dealership employees typically called "service writers", "service advisors", or "service salesmen".  In so doing, USDOL appears to have revived its previously-abandoned interpretation that the federal Fair Labor Standards Act's Section 13(b)(10)(A) does not apply to employees whose role is to diagnose the mechanical condition of or to determine service needed by a vehicle, to assign service work to employees, to monitor their progress and results, and otherwise to take responsibility for the service work.

Dealerships across the nation were understandably alarmed by the prospects that USDOL would resume challenging the exempt status of these employees for the first time in almost 24 years.  However, Congress's 2012 USDOL appropriation prohibited the agency from devoting any of its funding to such efforts.

A U.S. Wage and Hour Division investigator recently told a dealership that its service writers are non-exempt, but that USDOL is temporarily precluded from doing anything about it.  The investigator said that USDOL will "enforce the law" in this respect once it is able to do so.

We take from this that, unless Congress renews its limitation in the 2013 USDOL appropriation, the Wage and Hour Division fully intends to attack the Section 13(b)(10)(A)-exempt status of these kinds of employees.  Employers who are unwilling to entrust things to the political process in a presidential-election year might want to consider implementing a pay plan meeting the requirements for the FLSA's Section 7(i) overtime exception for commission-paid employees of a retail or service establishment.  We have summarized this provision in an earlier post.

◊   Have a comment or something else to add?  Please use our comment feature below.

Various news items published last Friday afternoon intimated that a part of the 2012 federal omnibus appropriations law now exempts automobile-dealership service writers and similar employees^* from the federal Fair Labor Standards Act's overtime requirements.  Those reports appear to have been mistaken so far as we can tell, but the spending provision does contain at least some good news in this respect.

As we noted previously, in April the U.S. Labor Department decided against acknowledging the FLSA Section 13(b)(10)(A) overtime-exempt status of dealership employees doing the typical work of service writers, service advisors, etc.  DOL thus revived its previously-disavowed interpretation that "[e]mployees variously described as service manager, service writer, service advisor, or service salesman who are not themselves primarily engaged in the work of a salesman, partsman, or mechanic as described above are not exempt under section 13(b)(10)."  29 C.F.R. § 779.372(c)(4)(emphasis added).

Section 113 of Friday's "Department of Labor Appropriations Act, 2012" says, "None of the funds made available by this Act may be used by the Secretary [of Labor] to administer or enforce 29 CFR 779.372(c)(4)."  This directive does not change the Section 13(b)(10)(A) exemption itself, but the provision does preclude DOL from devoting any of its 2012 funding to efforts to "administer or enforce" this service-writer interpretation.

However, Section 113 does not prevent current or former service writers or similar employees from pushing DOL's service-writer interpretation in support of their own FLSA overtime lawsuits.  Whether and to what extent DOL officials might explore the limits of Section 113's "administer or enforce" language by offering background assistance to any such individuals remains to be seen.  Employers facing lawsuits of this kind should certainly be alert for signs that DOL is doing so.

^*  At least one such report erroneously referred to "service technicians".

◊   Have a comment or something else to add?  Please use our comment feature below.

The federal Fair Labor Standards Act's Section 13(b)(10)(A) provides an overtime exemption for "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers."

This exemption was adopted in the mid-60s.  DOL initially said that the exemption included a service manager who was primarily engaged in diagnosing the mechanical condition of cars brought in for repair, assigning the work to employees, directing and checking their work, and being responsible for the work performed.  But soon thereafter, DOL reversed itself and began to say that dealership employees who primarily engaged in selling vehicle repairs and maintenance services and in related activities were not exempt.  DOL adopted an interpretative provision saying, "Employees variously described as service manager, service writer, service advisor, or service salesman who are not themselves primarily engaged in the work of a salesman, partsman, or mechanic as described above are not exempt under section 13(b)(10)."  29 C.F.R. § 779.372(c)(4).

Following a series of DOL court losses and other adverse rulings, DOL's Wage and Hour Division threw in the towel.  In 1987, the Division added this to its internal Field Operations Handbook:

Employees variously described as service writers, service advisors, service managers, or service salesmen whose primary duty is to record the condition of a vehicle and write up a report indicating the parts and mechanical work needed have been construed as within the exemption in Sec[tion] 13(b)(10)(A) by two appellate courts (Fifth and Sixth Circuits) and two district courts (in the Eighth and Tenth Circuits). Consequently, [the Wage and Hour Division] will no longer deny the [overtime] exemption for such employees. This policy (that these employees are within the exemption) represents a change from the position in [29 C.F.R. §] 779.372(c)(4), which will be revised as soon as is practicable.

FOH Section 24L04(k).  After almost 24 years, the current administration's DOL apparently found it "practicable" to say essentially, "Never mind."  In last week's Final Rule, DOL announced that it was not going to revise 29 C.F.R. § 779.372(c)(4).  For more details, read our partner John Donovan's Legal Alert on the topic.

At least one source has opined that dealership employers now have no choice but to start treating these workers as being subject to the FLSA's overtime requirements.  Paying them overtime is always one alternative, but there are others.

One might be for a retail dealership to implement a pay plan that meets the requirements for the FLSA's Section 7(i) overtime exception for commission-paid employees of a retail establishment.  We have summarized this provision in an earlier post.

And some dealership employers might be willing to fight if need be to convince a court that prior rulings (and DOL's interpretation before April 5) have it right.  Some might be particularly so inclined in federal appellate jurisdictions governed by decisions that have already rejected DOL's April 5 position.  For one thing, internal DOL policy statements indicate that it will not seek to enforce its views in a federal appellate jurisdiction that has rebuffed them (whether DOL will subvert these policies by assisting private complainants in those jurisdictions remains to be seen).  Moreover, current or former employees who sue in these jurisdictions will have to overcome those prior rulings.  Employers who consider taking this posture will want to give special consideration to implementing a back-up Section 7(i) plan.

◊   Have a comment or something else to add?  Please use our comment feature below.