The U.S. Supreme Court has sided with the employer in two recent decisions clearing grey areas with regards to exempt automobile service advisors under the Fair Labor Standards Act (“FLSA”) and with regards to the enforceability of workplace arbitration agreements under the National Labor Relations Board (“NLRB”). Both rulings were split 5-4 showing there remains a close divide in the high court regarding such employer friendly rulings.
Case No. 1: Lower Courts are Now Required to Give FLSA Exemptions a Fair Reading vs. Narrowly Construed Reading.
The FLSA requires employers to pay its employees overtime to covered employees. 29 U.S.C. §201 et. seq. The FLSA has many exemptions for certain types of employees from the overtime-pay requirement. In particular, FLSA exempts from overtime pay “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” at a covered dealership. §213(b)(10)(A). The U.S. Supreme Court recently ruled that auto dealership “service advisors” fall under the above FLSA exemption in Encino Motocars, LLC v. Hector Navarro, et al., No. 16-1362 (U.S. Sup.). Justice Clarence Thomas wrote for the majority. The decision is impactful because the U.S. Supreme Court set a new “fair reading” standard requiring lower courts to take a broader approach when determining if one of the many FLSA exemptions apply to the general rule that employees who work over 40 hours per week are entitled to overtime pay.
In the Encino case, a group of service advisors at a car dealership sued for overtime pay against their employer. The employees were service advisors who were not performing the car services themselves but instead they met customers, suggested and sold repair and maintenance services and followed-up as the services were performed. The Court broke down the FLSA exemption for car servicemen and salesmen to answer the question whether service advisors are ‘salesm[e]n…primarily engaged in…servicing automobiles.” The Court ruled while service advisers do not spend most of their time repairing or selling automobiles, the statutory language should not be read so constrained and the words “primarily engaged in” could be matched with “servicing automobiles” found later in the statutory exemption.
Justice Thomas wrote that “a narrow distributive phrasing is an unnatural fit here because the entire exemption bespeaks breadth. It begins with the word ‘any’…And it uses the disjunctive word ‘or’ three times.” The Encino Order importantly states the Court rejected the lower court’s invoked principle that exemptions to the FLSA should be construed narrowly. In overruling the lower court, the U.S. Supreme Court ordered that the FLSA exemptions must be given a “fair reading” because with over two dozen exemptions under the FLSA, the exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirements. This new rule allows for a changing culture and fit for FLSA exemptions.
TAKEAWAY: The U.S. Supreme Court has replaced the narrow construction standard for FLSA exemptions with a new “fair reading” standard requiring lower courts to take a much broader approach when determining if any exemption applies. This may allow employers to apply FLSA exemptions where they have not been able to in the past.
Case No. 2: U.S. Supreme Court Gives the Green Light to Workplace Arbitration Agreements to be Enforced as Written.
On May 21, 2018, in the case Epic Systems Corp. v. Lewis, Nos. 16-285, 16-300, 16-307 (U.S. Sup), the U.S. Supreme Court entered a second employer friendly order holding that arbitration agreements do not violate the NLRA. This is a significant win for employers in the #MeToo movement which allows employers to move employee disputes to specified individualized arbitration procedures rather than being overruled and having to handle disputes with multiple employees in a collective or class action lawsuit.
In the Epic Systems case, the Court consolidated three lower court rulings to come up with the same holding. The issue in front of the Court was whether an employer and employee contract providing for individualized arbitration proceedings to resolve employment disputes between parties violated the NLRA after the Board for the NLRA in 2012 ruled that the NLRA effectively nullifies the Federal Arbitration Act (“FAA’). Since 2012, many courts have followed the Board of the NLRA’s ruling.
Justice Gorsuch delivered the opinion for the majority and the Court cleared up and overruled the Board of the NLRA, stating that NLRA does not displace the FAA. The Court pointed out several reasons why the NLRB does not override the FAA. The first point made is the strong language and mandate from the FAA itself which requires courts to “rigorously” enforce arbitration agreements according to their terms. The second point made is that when two acts of Congress touch the same topic, the Court is not at liberty to pick and choose but must try to give effect to both acts at issue. The third point, and perhaps most important for employers, is that NLRA sought to limit the work of the FAA which, as an Executive Agency, does not have the authority to do.
TAKEAWAY: Employers are free to engage in employer and employee agreements which require mandatory arbitration agreements that preclude class and collection actions. As employees, employers and states grapple with #MeToo movement, the U.S. Supreme Court has made a clear ruling that such agreements should be given deference and be enforced as written.
Contact Stephanie Loughner (Stephanie.email@example.com) if you have questions about these recent U.S. Supreme Court rulings, how to classify employees under the FLSA or about implementing mandatory arbitration agreements in the workplace.
Originally posted in the Colorado Bar Association Business Section newsletter.