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.

53 Responses

  1. New post.

    Addendum: thought Brent was skipping.

    Liked by 1 person

  2. My reading of the original language, especially the inclusion of “parts-man” and the fact that it was meant to cover “selling or servicing automobiles” would be to exempt all of them regardless. The salesmen, parts sellers, service writers and mechanics are either selling or servicing in their jobs.

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    • Well “primarily engaged” is the operative description and the way FLSA SHOULD look at it is the way YJ describes – “primarily” means primary income source not how much time. So the Ford service writer who sells a fuel injector clean at a $35 commission for himself while scheduling your $35 oil change for which he got paid two minutes of time at $12/hr…

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      • My view is that any ambiguity or uncertainty in the law should be resolved in favor of freedom, not enforcement. If a restriction or mandate on a given action does not unambiguously apply to a particular person or circumstance, then it should not be applied to that person or circumstance. If the legislature does not like the results, it can change the law so as to more clearly apply to the desired demographic/circumstance.

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        • That certainly is the view of the criminal law and probably of regulatory law after a court fight, of course. But how does that apply to this case?

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        • Mark:

          But how does that apply to this case?

          The law places a legal requirement on employers to pay overtime with regard to certain employees. If a particular employee is not unambiguously covered by the law, then the requirement should not apply to the employer with regard to that particular employee. In the case at hand, whether or not the employee in question is covered is ambiguous. Therefore, he should be treated as not covered.

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        • I have always agreed with this as a general proposition. The employer is faced with a sanction for violating the law or the reg. If the law or reg is unclear, then the employer is not on sufficient notice that he faces a penalty and thus no penalty should apply. In practice, this position will get sympathy from a court or an administrative court the FIRST time.

          The position on penalties which you espouse here and with which I generally agree grows out of a postulate of Anglo-American law that what is not forbidden is permitted. Supposedly German law is different.

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        • Mark:

          In practice, this position will get sympathy from a court or an administrative court the FIRST time.

          The implication of this is that, once the court or the administrative bureaucracy has established its own interpretation, such sympathy will (and should?) no longer be granted. But my point is that I think the principle should guide not just first time treatment, but indeed it should guide the court’s/bureaucracy’s interpretation itself. That is to say, the court/bureaucracy should not be saying “It is unclear whether the law was meant to apply to this circumstance, but we we think it should, therefore we will let it go this time, but be on notice that it will apply in the future.” The court/bureaucracy should say instead “It is unclear whether the law was meant to apply to this circumstance, and so unless and until the legislature clarifies that it should, we will not apply it to such circumstances.”

          Again, my principle is that ambiguity should always be resolved in favor of freedom, not enforcement. An ambiguity in the law doesn’t go away simply because the court or the bureaucracy declares that it is going to enforce the law in a particular manner. To think it does is to think that the courts/bureaucracy has the authority to make the law, and they don’t.

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        • But the law works the other way. People are entitled to overtime pay and minimum wage unless specifically exempted. The argument is over who is included in the exemption. Everyone outside that umbrella is a non-exempt employee.

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        • yello:

          But the law works the other way. People are entitled to overtime pay and minimum wage unless specifically exempted.

          Again, to restate my operating principle, “…the law should be resolved in favor of freedom, not enforcement. If a restriction or mandate on a given action does not unambiguously apply to a particular person or circumstance, then it should not be applied to that person or circumstance.”

          In this case the law places a mandate on employers, ie the employer must do X with regard to certain employees, and the principle applies with regard to the person/entity being compelled by the law. So, if the law does not unambiguously place the mandate on the employer with regard to a particular employee, then the ambiguity should be resolved in favor of freedom, not enforcement. The freedom, that is, of the one subject to the law, ie the employer.

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        • You lost me entirely. Draw a flow chart or something. Who at a car dealership should get overtime pay?

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        • yello:

          Who at a car dealership should get overtime pay?

          Anyone who worked more than 40 hours per week and wasn’t a salesman, parts-man, or mechanic primarily engaged in selling or servicing automobiles. If it is unclear whether a particular employee is a salesman, parts-man or mechanic primarily engaged in selling or servicing automobiles, then the employer should be free not to pay that particular employee overtime.

          Again, ambiguity should be resolved in favor of freedom, not enforcement.

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      • Frankly, the concept of a service advisor paid a sales commission on service volume is not a place I want to deal with, although I just may be naive in assuming they aren’t all paid that way. Lately I’ve been using AAA automotive shop because they seem to be upselling me when I go in, but again, I may just be naive.

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      • “scheduling your $35 oil change for which he got paid two minutes of time at $12/hr”

        I’d view that activity as part of “servicing”. So regardless of whether he’s selling or servicing, he’s exempt.

        Liked by 1 person

        • I see your point.

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        • I only had time to acknowledge your point yesterday. But I think you know courts have always seen “service” in a dealership as typical hands-on-the-car work, not scheduling the service. Scheduling is seen as office work, and consistent with the FLSA generally, is treated as wage and hour or salary work as opposed to commission work.

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  3. The major distinction would seem to be if the employee was dependent upon commissions or quotas as part of his salary. I know equipment salesmen who if they don’t sell, they don’t eat. A processor or order taker is like a retail salesclerk who gets an hourly non-exempt pay rate. Someone making money off of whether you replace your transmission or not has a different set of incentives.

    I had a friend who was jeweler and owned a shop but technically he paid all his repair people as independent contractors which seemed to really skirt the edge of 1099 vs W-2 employees. I’m not sure he even paid FICA for himself which he came to regret in his retirement.

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  4. Reading the FSLA: “Tipped employees are individuals engaged in occupations in which they customarily and regularly receive more than $30 a month in tips. The employer may consider tips as part of wages, but the employer must pay at least $2.13 an hour in direct wages.”

    So glad I’m not in a tip based business!

    “Employees of motion picture theaters” are exempt from the OT stuff, too. Hell.

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    • “Employees of motion picture theaters” ?
      What is the logic of that carve out? That theater employees have long downtimes between showings that don’t merit overtime? Not true in the modern multiplex where screenings are spaced about 15 minutes apart. It seems most states have laws that override this exemption.

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    • If tips don’t bring gross earnings up to the untipped minimum wage, the employer is supposed to make up the difference but this is a rule honored more in the breach. The Trump administration is wanting to give restaurant owners broader authority to pool tips, pay back-of-house workers out of tips, and even just outright confiscate them.

      The history of tipping is very complex but its cementing into US food service culture is out of an unwillingness to pay freed slaves as waiters and other similar service occupations.

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      • yello:

        The history of tipping is very complex but its cementing into US food service culture is out of an unwillingness to pay freed slaves as waiters and other similar service occupations.

        Not according to this:

        http://www.foodwoolf.com/2010/08/history-of-tipping.html

        Also worth noting, the Anti-Tipping Society of America originated in 1904 in that hotbed of sympathy for ex-slaves….Georgia.

        Liked by 1 person

        • I said the history of tipping is complicated but even your source give away the game.

          tipping in the United States began just after the American Civil War in the late 1800’s.

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        • I’m not sure it is logical to assume that any change that came to America in the post Civil War era must have been a result of animosity to freed slaves.

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        • “I’m not sure it is logical to assume that any change that came to America in the post Civil War era must have been a result of animosity to freed slaves.”

          I blame the carptebaggers!

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  5. The Entertainment site I am participating in (with like 20 other people, maybe more) has the courage to do a “parody” that involves a special needs man/boy reviewing films.

    The columns are brilliant (IMO) if, ah, edgy and TV-MA . . . but I just like that the site has the courage to do this kind of stuff in this day and age:

    https://filmgoblin.com/exclusives/flimables-call-me-by-you-name/

    Also, I think his reviews are better than anything mainstream critics are doing. Just sayin’. BTW, it’s not me, nobody has any idea who the guy is, as far as I know. But it’s frickin’ awesome. And he puts a lot of work into it.

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    • I hope he didn’t go full retard.

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    • Kevin, curious on your take of Blade Runner 2049. I have been obsessed over the original, going back and forth over whether Decker was a replicant and think the sequel proved he wasn’t. I thought Gosling was very good and that Leto almost ruined the movie. Otherwise I dug it, though the original was a little grittier with more action.

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      • I just saw it. I liked it. A lot. It’s a great sequel. Checked all my boxes: featured Deckard effectively. Did not kill him to make way for “the new generation!” Left the ending open, had him reaching a goal without telling us what happened. Could have been a CGI filled battle-fest with “war of the normies against the replicants” and did not remotely go there. Patient, slow, beautiful. I’m not a huge Blade Runner fanboy (so it was never going to ruin my childhood) but, yeah, I liked it. I thought Leto was okay, just too young for the role he was playing, IMO. Should have been someone older.

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        • I enjoyed the leisurely pace, reminded me of the Westworld reboot. My problem w/Leto’s character was that he was weird and spoke nonsensically. I think about the original’s Tyrell as well as Prometheus’s Wyatt and don’t see how a super successful businessman of the not to distant future can speak and act so abstractly. It stuck out like a sore thumb.

          I did like the little things though, the scene where Gosling walks into the police station and everybody shits on him, it was a great and telling detail.

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        • If the character had been far older, it would have been more credible that he’d gone kind of insane. Meaning he was probably on top of shit when he was in his 30s but now that he was in his 70s he’d become a nut.

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  6. Encino II decided: 5-4 service writers are exempt sales force. I haven’t read it yet.

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