SCOTUS will look at DOL's flip-flop in FLSA exemption case

Encino Motorcars, LLC v. Navarro – up for US Supreme Court argument on April 20 – looks like a dispute about whether car dealership "service advisors" are exempt from FLSA's overtime provisions, but it really is a test of the Department of Labor's ability to put its own spin on the meaning of a statute – especially when DOL changes its spin. Let's look at the history:

  • 1970: DOL interpretive regulation says service advisors are non-exempt.
  • Post 1970: All courts considering the matter reject the DOL's position.
  • 1978: DOL policy letter says service advisors are exempt as long as a majority of their sales were for non-warranty work.
  • 1987: DOL's Field Operations Handbook instructs its employees to allow exemption for service advisors.
  • 2008: DOL’s notice of proposed rulemaking would have made service advisors exempt.
  • 2011: DOL – after notice-and-comment – issues a final rule saying service advisors are non-exempt.

The 9th Circuit (Navarro v. Encino Motors (9th Cir 03/24/2015)) deferred to DOL's regulatory definitions because the statute was ambiguous, and under the Chevron standard, the regulation was reasonable.

I think this case will be a fascinating exercise in applying Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984). In Chevron the Supreme Court said:

Step One: "If the intent of Congress is clear, that is the end of the matter."

Step Two: "[I]f the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute."

Navarro, wanting to be non-exempt, places great reliance on Chevron. At Chevron step one, the regulation reflects the statute's clear meaning. If you have to get to step two, then the regulation is a permissible reading of the statute.

Encino Motorcars, wanting its service advisors to be exempt, says the statute unambiguously covers service advisors so there is no ambiguity in the statute and no need to defer to DOL's interpretation. If deference is considered, the argument is that DOL's interpretation is "patently unreasonable." Besides, there was a "complete lack of justification for [DOL's] about-face in the 2011 interpretive regulation."

Interesting. The 9th Circuit found the statute to be ambiguous. Both Navarro and Encino Motors argue that the statute is clear and unambiguous. Of course, each party's clear meaning is the opposite of the other. It would seem, then, that the statute really is ambiguous. That definitely pushes the analysis to Chevron step two, at which point the issue becomes whether DOL's construction is "permissible."