Supreme Court, limits of Chevron deference, 9th Circuit, DoL

Encino Motor Cars is a Supreme Court case from 2016. It isn’t over yet as the case was sent back to the 9th which recently ruled again. Here is the background.

The FLSA requires employers to pay overtime compensation to covered employees who work more than 40 hours in a given week. In 1966, Congress enacted an exemption from the overtime compensation requirement for “any salesman, parts-man, or mechanic primarily engaged in selling or servicing automobiles” at a covered dealership.

Congress authorized the DoL to promulgate necessary rules, regulations, or orders with respect to this new provision. The Department exercised that authority in 1970 and issued a regulation that defined “salesman” to mean “an employee who is employed for the purpose of and is primarily engaged in making sales or obtaining orders or contracts for sale of the vehicles . . . which the establishment is primarily engaged in selling.” The regulation excluded service advisors, who sell repair and maintenance services but not vehicles, from the exemption. Several courts, however, rejected the Department’s conclusion that service advisors are not covered by the statutory exemption.

So here DoL simply dropped service advisors, who at that time were always engaged in selling services as well as scheduling, from the exemption created by Congress. Not a big stretch for Fed Courts to say “WTF?”

From 1978, then, until 2011, DoL treated service advisors as exempt, bowing to the various court rulings.

In 2011, without explanation, DoL reversed field and reiterated its 1970 regulation, denying the exemption.

Then the 9th Circuit ruled that “Chevron deference” applied and upheld DoL.

In 2016, the Supremes, all 8 who were sitting, agreed that Chevron deference could not apply to reversal of a long standing regulation without any explanation. The decision was 6-2, with Thomas and Alito wanting to Render and throw out the reg, but the majority Remanded to the 9th with instructions to decide without reference to Chevron deference. Who was right procedurally is an interesting side argument. The law school view is that the Supremes announce policy of the law but don’t weigh facts, but here it may have been that there were no facts to weigh. I didn’t read the record, so I don’t know. IOW, Thomas and Alito might have been exactly on point, or not.

So as a practitioner I would have wanted to know whether service writers had become mere schedulers or not. In my own experience, American dealerships sell service through the writers but Lexus and Subaru do not. YMMV. To justify a change in the reg, if I were at DoL, I would have attached a certified finding that service writers were not primarily sales force and exhibited the service writers’ employment descriptions or other materials before requesting that the 9th rule that the case had become moot on Remand, based on the Supremes’ requirement for a justifiable explanation. Or something like that.

But the DoL stood pat. And now the 9th has said “service writers are not primarily sales force” from the record before them, thus ruling the same way, but without any Chevron deference.

Maybe so. Maybe not. Again, gotta read the record, not just the opinions, and I have not. But there will likely be an Encino II at the Supremes.

If the Supremes had simply decided as Alito and Thomas wanted, the DoL could still have gone back to the drawing board and justified the change going forward, if there were facts to support it.

My gut says that Subaru and Lexus service writers, who never tried to sell me anything, should not be exempt, but that Ford service writers who always tried to sell me the Moon should be exempt. And I think that the regulation should not be “one size fits all” but rather one size fits the statutory definition, administrative convenience be damned. “Administrative convenience” is especially a problem when dealing with the FLSA, because the Wage and Hour guys have had a history of setting traps for the unwary.

Morning Report: Wages and salaries accelerating 1/31/18

Vital Statistics:

Last Change
S&P Futures 2835.5 11.0
Eurostoxx Index 396.6 0.4
Oil (WTI) 64.2 -0.3
US dollar index 83.0 0.0
10 Year Govt Bond Yield 2.71%
Current Coupon Fannie Mae TBA 103.591
Current Coupon Ginnie Mae TBA 103.688
30 Year Fixed Rate Mortgage 4.19

Stocks are higher this morning after global markets recovered overnight. Bonds and MBS are flat.

We should get the FOMC decision today around 2:00 pm EST. Be careful locking around then. The consensus seems to be that this will be a no change / hawkish tone type of statement.

This will be Janet Yellen’s last FOMC meeting. Jerome Powell seems to be cut more or less from the same cloth as Yellen, so the Fed’s go-slow approach to hiking interest rates will probably continue.

Treasury increased the size of its debt issues for the first time since 2009 this morning on the back of increased deficit spending and lower purchases from the Fed. They are offering $66 billion of 3, 10, and 30 year notes this time around, an increase from $62 billion in November. Less purchasing by the Fed plus increased issuance = higher interest rates, at least at the margin.

Mortgage Applications fell 2.6% last week as both purchases and refis fell by the same amount. The average 30 year conforming rate increased 6 basis points to 4.41%

The ADP jobs number came in at 235,000 last month, which was higher than expectations. The Street is looking for 175,000 jobs in this Friday’s jobs report.

Compensation is accelerating, according to the Bureau of Labor Statistics. The Employment Cost Index rose 0.6% in the fourth quarter, and is up 2.6% YOY. Private Industry compensation rose faster than government, with wages and salaries up 2.8% YOY. A year ago, that annual increase was 2.3%. The industry with the biggest increase? Truck drivers.

The “typical” mortgage payment rose 12% last year, according to CoreLogic. This measure takes the median home price and calculates the principal and interest payment using the prevailing Freddie Mac mortgage rate and assumes a 20% down payment. They are looking for this payment to increase another 13% next year as home prices and interest rates continue to rise.

Pending home sales rose 0.5% in December, according to NAR. Home sales are being depressed by tight inventory despite strong growth in wages and jobs.

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