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U.S. Supreme Court Vacates Ninth Circuit Decision Deferring to DOL Rule That Upended 30 Years of Automobile Dealership Practice

Service advisors at our client’s automobile dealership sued in federal court alleging that the dealership failed to pay them overtime compensation in violation of the Fair Labor Standards Act (“FLSA”). We successfully moved to dismiss the overtime claims because section 213(b)(10)(A) of the FLSA exempts sales and service employees from the FLSA’s overtime requirements. The service advisors appealed to the Ninth Circuit, which reversed the district court’s dismissal. The Ninth Circuit deferred to the U.S. Department of Labor’s 2011 “regulation” providing that service advisors are not covered by the §213(b)(10)(A) exemption. This holding upended a settled industry practice relied upon by automobile dealerships nationwide for over thirty years.

We petitioned U.S. Supreme Court for certiorari which was granted.  The Court then vacated the Ninth Circuit’s decision. It admonished that when the DOL departs from existing policy it must provide a reasoned explanation. The Court agreed with our argument that the DOL did not provide any explanation for why the exemption should be interpreted to exempt dealership employees who sell vehicles but not dealership employees who sell services. Because the DOL failed to justify the 2011 policy change, the Court maintained that the regulation does not carry the force of law and should not receive deference by the courts. The Supreme Court remanded the case back to the Ninth Circuit with instructions to determine the service advisors’ exempt status under section 213(b)(10)(A) without giving controlling weight to the DOL’s rule.

Encino Motorcars v. Navarro, ___ U.S. ___ (June 20, 2016).

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