Exemptions to Wage-Hour Law No Longer to Be Narrowly Construed

An April decision of the U.S. Supreme Court has important ramifications beyond its ruling pertaining to auto dealerships.  Encino Motor Cars, LLC v. Navarro, No. 16-1362 (U.S. 4/2/18).  The overtime rule exempts any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles, trucks or farm implements.  The lower court ruled that exemptions should not apply to the service advisor because they did not sell automobiles and did not engage in the manual labor of maintaining or repairing vehicles.  The employee argued that the exemption from overtime applied to those whose duties involved selling or servicing vehicles, even if they did not perform the manual tasks themselves.  The Obama Administration had supported their position on the issue.

In the current ruling, the Court objected to the narrow construction concept that exemptions should be narrowly construed in a way that provides the greatest possible benefit to a worker.  Justice Clarence Thomas, writing for the majority, stated: "We reject this principle as a useful guidepost for interpreting the FLSA."  Justice Thomas, joined by four other justices, ruled that exemptions in the wage-hour law were entitled a "fair reading."  Four justices dissented. 

This case is of great interest for two reasons.  First, it suggests that in the future, courts are likely to give broader interpretations to exemptions to the wage-hour rules.  Second, it shows the importance of newly-appointed Justice Gorsuch, who joined in the 5-4 majority ruling. 

In a related development, the federal government budget law signed March 23, 2018, includes a rider amending the wage-hour laws pertaining to tip-pooling arrangements.   A regulation had been proposed that allowed restaurants to require employees who directly earn tips to share them with workers who don’t.  The budget bill would prohibit employers, including managers and supervisors, from participating in the tip-pooling arrangements.  Questions still remain as to how this prohibition will apply to lead persons.  The original Obama-era rule asserted that tips are the property of employees who earn them, and the rider rescinds this rule and moots a December 2017 proposed rule that would have allowed broader tip pooling.