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Employer Alert: Spotting Overtime Exemption Inconsistencies

It’s not every day that the U.S. Department of Labor changes its interpretation of overtime exemption. But when it happens, major confusion can ensue. This is resoundingly true in the case of Encino Motorcars, LLC v. Navarro, et al., 136 S. Ct. 2117 (2016), in which costly uncertainty related to the classification of service advisors reared its head as a result of contradictory Department of Labor regulations, opinion letters and final rulings dating back to 1966, ultimately leading to the Supreme Court’s involvement. Here’s a brief overview of the case and ways to help your company stay in compliance with overtime exemption laws.

Case Background

In 2015, Encino Motorcars petitioned the U.S. Supreme Court to resolve the issue as to whether service advisors for auto dealerships are exempt from overtime compensation requirements under federal law. The Supreme Court chapter of this dispute followed the U.S. District Court for the Central District of California case, which resulted in a favorable ruling for the Mercedes-Benz dealership owned by Encino Motorcars, and a subsequent reversal-in-part by the U. S. Court of Appeals for the 9th Circuit in favor of the employee-plaintiff service advisors that worked at the Encino Motorcars dealership.

In the District Court case, the service advisors claimed that Encino Motorcars violated the Fair Labor Standards Act (FLSA) by failing to pay them overtime compensation when they worked more than 40 hours in a week. The District Court dismissed their claim holding that service advisors were exempt from overtime compensation requirements pursuant to a 1978 opinion letter issued by the Department of Labor stating that service advisors could be exempt under 29 U.S.C. § 213(b)(10)(A).

However, the 9th Circuit reversed the District Court’s dismissal, holding that the service advisors were not exempt from overtime compensation requirements. This decision was based on a 2011 Department of Labor ruling, which was a complete reversal of the Department of Labor’s 1978 interpretation, which had been in effect for over 30 years.

In June of this year, the Supreme Court sent the case back to the Ninth Circuit. The Supreme Court ordered the 9th Circuit to reconsider the case  applying the correct statutory interpretation method. Whether service advisors who work for auto dealerships are exempt from overtime pay under the FLSA is at least uncertain as this case highlights.

Navigating FLSA Overtime Exemption Laws

While it can be difficult for employers to uncover every Department of Labor ruling pertaining to overtime exemption, certain actions can be taken to identify inconsistencies in the FLSA and ensure accurate classification. For example:

  • Stay up to date on FLSA laws and rulings impacting the salary basis/level and job duties tests.
  • Learn the job duties for each exempt category so you know where your employees fall.
  • Keep in mind that certain employees can be exempt yet non-salaried, such as certain outside salespeople and commissioned retail workers, provided they meet the respective exemptions.
  • Avoid using job titles to determine exempt status. For example, an employee bearing the title of “manager” or “supervisor” is not exempt if he or she does not perform the respective duties, as defined by the FLSA.
  • Consult state law for overtime laws that may differ from federal law.
  • Evaluate job classifications frequently to determine whether reclassification is necessary.
  • Automate job classification workflows via single-application technology that streamlines HR and payroll processes.
  • Partner with employment counsel to help you classify employees and spot inconsistencies in the FLSA.


DISCLAIMER: The information provided in this blog is for general informational purposes only. Accordingly, Paycom and the writer of the above content do not warrant the completeness or accuracy of the above information. It does not constitute the provision of legal advice, tax advice, accounting services, or professional consulting. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other professional services.