CHICAGO – Following a U.S. Supreme Court ruling that auto service advisers are exempt from federal overtime pay rules as "salesmen," an Illinois attorney is advising dealerships in Illinois to be careful about requirements under state law.
By a 5-4 margin, the Supreme Court found that service advisers are salespeople and exempt under the Fair Labor Standards Act. But Staci Rotman, an attorney at Franczek Radelet in Chicago, warned owners of auto dealerships and repair shops in Illinois to make sure they continue to comply with state law.
"While the court’s opinion covers any claims under the FLSA, auto dealerships should keep in mind that state law might be different from federal law and should be consulted," Rotman told the Cook County Record. "For example, in Illinois, dealerships should continue to structure their service adviser pay plans to comply with the 7(i) sales exemption, which is expressly included in the Illinois Minimum Wage Law, to ensure compliance with any wage obligations."
Staci Rotman
| Franczek Radelet
The Supreme Court ruled on a case out of the U.S. Court of Appeals for the Ninth Circuit in California, which initially had decided to side with the U.S. Department of Labor's view that advisers were not exempt from FLSA overtime pay requirements because they were not specifically named in the law.
The issue, however, had divided three U.S. appeals courts. The Ninth Circuit Court of Appeals found that auto service advisers should be paid overtime, while the Fourth and Fifth Circuit courts held that they should be exempt from overtime requirements.
In an initial review, in 2016, the Supreme Court did not rule on the central issue, but sent the case back to the Ninth Circuit with instructions to essentially ignore the U.S. Department of Labor's regulations and focus solely on the wording of the FLSA. After reviewing the language, the Ninth Circuit found that they were not salespeople and not exempt, which prompted an appeal to the high court.
“The ordinary meaning of ‘salesman’ is someone who sells goods or services, and service advisers 'sell customers services for their vehicles,'” Justice Clarence Thomas, who wrote the Supreme Court's majority opinion, stated in the decision.
Rotman explained the Obama administration changed what was a long-standing position of the U.S. Department of Labor, concluding the exemption was limited to “salesmen who sell vehicles and partsmen and mechanics who service vehicles.”
"The issue of this case focused on whether service advisers are covered by the FLSA’s 'salesman' overtime exemption," Rotman said. "The 'salesman' exemption includes any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles."
In its second run at the issue, the Supreme Court "no longer had to deal with whether a court could defer to the DOL regulations and focused solely on the language of the exemption," Rotman said. "The court ultimately concluded that service advisers do, in fact, typically operate as a salesman primarily engaged in the sale of services for automobiles, thus falling within the salesman overtime exemption."
The attorney said the decision could have an impact beyond auto dealers and repair shops.
"In its opinion, the court seemingly rejected the longstanding principle that FLSA exemptions are to be narrowly construed against employers,” she said. "This ruling and the reasoning therein could potentially have significant ramifications on other cases where employers assert that an FLSA exemption applies."
Potentially all employers who utilize exemptions will benefit from this ruling, Rotman said, but "certainly this decision provides some much-needed guidance to auto dealerships."
Rotman said there may be other legal arguments and reviews of FLSA exemptions following the Supreme Court’s decision.
"Where there is gray area as to whether an exemption applies, this opinion could impact whether those exemptions apply and provide for different arguments asserted in litigation," she said. "If it is a close call, it may be worth reviewing again."