Legal Blog

Navarro Redux: U.S. Supreme Court to Decide Controversial Employee Classification Issue

2014 Best Law FirmsA perusal of the business news these days will invariably lead you to another headline describing the latest business to fall victim to one of the most vexing questions facing both new and established employers alike: employee classification. Notwithstanding the seeming attractiveness of designating all employees independent contractors or exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act (the “FLSA”), it is becoming ever clearer that such ubiquitous—and decidedly erroneous—practices are not going unnoticed. To the contrary, costly litigation over wage and hour issues has skyrocketed in recent years.[i] As such, keeping apprised of the latest developments in the law, much like watching a highly-anticipated boxing match or finally getting an opportunity to watch the latest, critically-acclaimed blockbuster, has become both a nail-biting and suspenseful pastime. In this vein we recently learned that the United States Supreme Court has agreed to review a case out of the Court of Appeals for the Ninth Circuit touching on one of a number of important employee classification issues. In April of last year I had occasion to write about this case, which dealt with the treatment of auto dealership service advisors under the FLSA. (See article here). In that case, the federal court broke with other federal appellate courts in the nation in deciding that service advisors, who are in the business of selling auto services at certain dealerships, are not “salesmen” as understood by the FLSA and the relevant regulation and that they are therefore required to be paid for overtime.[ii] In that post I explained that, in light of the appellate court’s break with its sister circuits, the case was in my opinion “ripe for review by the United States Supreme Court.” Although I do not fashion myself a clairvoyant or High Court prognosticator, it appears that my sentiment was prescient. Indeed, on January 15, 2016, the Supreme Court granted the dealership’s writ of certiorari and decided to hear the case.[iii] What this means for auto dealers, and employers more generally, across the United States is less patent, perhaps especially given the nascent uncertainty regarding the composition of the nation’s highest court. It is clear, however, that within the next year or so auto dealership owners may be able to have some semblance of confidence in their service advisor pay structure, for better or for worse. Of course, should the Supreme Court side with the Ninth Circuit in holding that service advisors are in fact entitled to overtime, the benefit of certainty is likely to be clouded by the fear (or inevitability) of costly litigation. Lawsuits in industries where the law is suddenly “re-interpreted” are neither new nor unprecedented. For example, when the Department of Labor changed course in 2010 in holding that many mortgage loan originators should have been classified as non-exempt (and therefore paid minimum wage and overtime), a tidal wave of lawsuits ensued. Such a situation is possible in the auto industry as well. In light of the fact that the Ninth Circuit is alone amongst the circuits in its determination of no exemption, and at the risk of attempting to read the tea leaves, it might appear slightly more likely that the decision will be overturned. However, given Justice Scalia’s sad departure and the difficulties inherent in predicting the future, auto dealers who utilize service advisors are well-advised to seriously evaluate their current wage and hour practices. If your business falls into this category, or if you are looking for additional clarification on your employee classification practices, please feel free to contact me directly. I would be happy to work with you to review your current practices and help you plan for an uncertain future. [i] See, e.g., Lydia DePillis, Why Wage and Hour Litigation is Skyrocketing, Wash. Post, Nov. 25, 2015 (https://www.washingtonpost.com/news/wonk/wp/2015/11/25/people-are-suing-more-than-ever-over-wages-and-hours/). [ii] See Navarro v. Encino Motorcars, LLC, 780 F.3d 1267 (9th Cir. 2015). [iii] See Encino Motorcars, LLC v. Navarro, No. 15-415, — S. Ct. —, 2016 WL 205945 (Jan. 15, 2016) (granting writ of certiorari).

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