United States: U.S. Supreme Court Rebukes USDOL In Vacating Ninth Circuit Service Adviser Holding

I have followed and blogged on this case for some time. As I had thought, the U.S. Supreme Court ruled that the Ninth Circuit's decision, i.e. allowing OT pay for Service Advisers, was incorrect. But, and this is a big "but," the Court's ruling was a limited one, as it sent the case back to the appellate court and ordered the Ninth Circuit to reconsider the matter without considering the USDOL regulations which the Justices opined were issued without adequate explanation. The case is entitled Encino Motorcars LLC v. Hector Navarro et al.

The justices voted 6-2 to vacate the March 2015 decision. In an opinion authored by Justice Anthony Kennedy, the Court stated that the FLSA "must be construed without placing controlling weight" on regulations issued by the U.S. Department of Labor in 2011." As the opinion read, "the unavoidable conclusion is that the 2011 regulation was issued without the reasoned explanation that was required in light of the [DOL's] change in position and the significant reliance interests involved. Because the decision below relied on Chevron deference to this regulation, it is appropriate to remand for the Court of Appeals to interpret the statute in the first instance."

There had been a split in the Circuits on this issue. The Ninth Circuit's decision was counter to the other rulings by the Fourth and Fifth Circuits, both of which declined to adopt the DOL's definitions. The service advisers had urged that they did not sell cars or perform repairs and thus were non-exempt. The employer contended that since the FLSA exempted salespeople "primarily engaged in selling or servicing automobiles" from overtime, the exemption "applies not just to those primarily engaged in selling, but also to those primarily engaged in servicing."

The DOL filed an amicus brief, contending that it was entitled to deference for its 2011 regulatory interpretation. The Supreme Court disagreed, observing that the 2011 regulations ran contrary to a 2008 notice of proposed rulemaking in which the DOL indicated it would revise its regulations to say that the FLSA exemption covers service advisers. The Court concluded that since the DOL's prior position was that service advisers were exempt, its explanation for changing its position needed a more adequate explanation.

The Takeaway

This decision shows that the Supreme Court will not simply, or blindly, accept an agency's change in a position, especially a long-held position, without a detailed explanation from that agency. That is a very good thing. The Court held that it was not its role to divine or speculate as to what the agency's reasoning was on this matter.

Now, we will see if the Court takes the same position on other DOL changes. At a minimum, the agency now has forewarning that the Court might do just that.

After all, isn't transparency a good thing?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.