New Supreme Court Decision May Have Wide-Ranging Impact on Overtime Exemptions

The Supreme Court’s recent decision in Encino Motorcars v. Navarro concerning the exempt status of car service advisors may have wide-ranging implications for many employers in light of the Court’s ruling on how the Fair Labor Standards Act (FLSA) provisions concerning overtime should be interpreted.

In Encino, the Supreme Court held that car service advisors at a Los Angeles-based car dealership were exempt from overtime requirements under a specific exemption for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.”

In reaching this decision, the Supreme Court considered the lower court’s reliance on the principle that exemptions to the FLSA should be “construed narrowly.” Justice Thomas, on behalf of the majority, reasoned that the narrow interpretation principle, relied upon reflexively by courts for many years, was based on the faulty premise that the FLSA “pursues its remedial purpose at all costs.”  Instead, the Court held that FLSA exemptions are only subject to a “fair” reading – and that a narrow reading is not required.

Although the full impact of the Supreme Court’s decision in Encino remains to be seen, it is a clear victory for employers. Time and again, plaintiffs and their attorneys have relied upon the premise that the overtime exemptions should be interpreted narrowly to support their entitlement to overtime pay.

Notwithstanding this decision, employers should remain vigilant when it comes to understanding overtime claims and taking proper measures to prevent them. There is more than ample reason to believe that the wave of overtime claims – under both federal and state law – will continue unabated. Moreover, overtime claims will continue to be difficult to defend because of the relatively few legal defenses available to such claims and, just as importantly, because employers continue to commit “unforced errors” when it comes to overtime.

Employers should continue to exercise vigilance to fully understand and prevent wage and hour claims and, in particular, overtime claims. Employer best practices include the following:

  • Reviewing job descriptions and the work actually performed by employees to make sure that they are properly characterizing the employees as exempt or, as the case may be, non-exempt.
  • Revising job descriptions to conform to the actual work that employees are currently performing.
  • Communicating, specifically and repeatedly, to non-exempt employees when and under what circumstances they are permitted to work overtime, and the procedures associated with working overtime.
  • Revising handbook and other policies to address so called “off the clock” overtime.
  • Ensuring that all non-exempt employees accurately and fully record their hours and do so on a timely basis.
  • Monitoring the amount of overtime being worked on a weekly basis.
  • Training managers when overtime may be worked; the approvals necessary before overtime is worked; and the importance of ensuring the accuracy of time recorded and reported by non-exempt employees.
  • Where appropriate, considering staffing alternatives to mitigate the number of overtime hours being worked.

Marc Engel is an employment attorney experienced in providing successful strategies for managing employees and preventing employment claims. For more information, contact Marc at 301-657-0184 or [email protected].