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Opinion analysis: Justices rebuffs Department of Labor’s sloppy explanation of regulation exempting “service advisors” from overtime rules

The Court’s opinion in Encino Motorcars v. Navarro repeats an increasingly familiar pattern for the shorthanded Justices: a consensus of the middle around a disposition that gets the case off the docket without actually answering the question that warranted the Court’s attention in the first instance. [Am I the only one who thinks it is remarkable that the two Justices most in agreement this Term, at least accordingly to SCOTUSblog statistics, are Justices Elena Kagan and Anthony Kennedy, agreeing in a stunning ninety-seven percent of the cases?]

In any event, this case involves the application of a poorly drafted provision of the Fair Labor Standards Act (the FLSA) to service advisors at car dealers – the employees who meet with the customers to discuss what services the customers should buy. For half a century, the FLSA has had an exemption for any “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” The provision obviously covers those who sell cars and those who fix them, but its application to those who sell services is not nearly so clear: they are arguably neither salesmen nor mechanics, but at the same time they are arguably salesmen primarily engaged in servicing automobiles.

As it turns out, the case ended up having nothing to do with what the statute means and everything to do with the history of how the Department of Labor has interpreted it. The department, of course, habitually has read the overtime rules as broadly as it could. So, relying on the ambiguity of the statute’s phrasing, the department originally took the view that the service advisors should receive overtime. Courts, however, took a different view, and consistently rejected the department’s view, holding that employers did not have to pay overtime to the service advisors. Eventually, the department acquiesced, accepting the courts’ reading of the statute.

Decades later, after the Supreme Court’s decision in Chevron v. Natural Resources Defense Council established a regime under which courts must defer to expert agency interpretations of the statutes they administer, the Department of Labor decided to try again. It issued a formal notice of proposed rulemaking under the Administrative Procedure Act and then in due course adopted a regulation returning to its original view, that car dealers must pay overtime to the service advisors. The lower courts divided over the validity of the regulation, but the Ninth Circuit (in this case) held that Chevron deference obligated it to uphold the regulation.

The government’s efforts to defend the regulation did not go well at the argument, as multiple Justices criticized the department for failing in its administrative process to offer any explanation for the regulatory change from a rule under which overtime is not required to a rule under which overtime is required. Justices Stephen Breyer and Elena Kagan were particularly critical on that front.

So it was no surprise to read in the factual statement of the Court’s opinion that “[t]he Department gave little explanation for its decision to abandon its decades-old practice.” What was a little surprising was that the opinion came screeching to a halt so quickly after that warning. But so it did. After summarizing the facts, the statutory provisions, and the regulatory history, Justice Anthony Kennedy’s opinion for the Court turned to an explanation of the Chevron rules, marked by an extended discussion of the importance of reasoned explanation in the administrative process. Among other things, the opinion emphasized that “an agency must give adequate reasons for its decisions,” that “[a]gencies are free to change their existing policies as long as they provide a reasoned explanation for the change,” and that “‘[u]nexplained inconsistency’ in agency policy is ‘a reason for holding [a regulation] arbitrary and capricious.’”

Following such an ominous summary, it could be no surprise to anybody familiar with the argument that the Court found it an “unavoidable conclusion . . . that the regulation was issued without the reasoned explanation . . . required in light of the . . . change in position.” The Court went out of its way to suggest that the decades of reliance on the old rules by automobile dealers mandated some justification for the change. But because the department “said almost nothing” “when it came to explaining the ‘good reasons for the new policy,’” the Court held that the revised rule was not entitled to Chevron deference.

At that point, the opinion stopped on a dime. Where you would have expected the opinion to turn to the Court’s own understanding of the statute, the Court instead decided that it was enough to reverse the Ninth Circuit for erroneously placing controlling weight on the regulation. Without a single word of its own about the correct reading of the statute, the Justices sent the case back for the Ninth Circuit to consider that question in the first instance.

As suggested above, the opinion bears the now-common signs of a centrist compromise. If this is not plain enough from the narrow and non-informative ground of decision summarized above, the polarity of the separate opinions should leave no doubt. On the one hand, Justice Clarence Thomas dissented, joined by Justice Samuel Alito. He agreed that the Court should not afford deference to the regulation, but he would have gone ahead to interpret the statute. He pointedly quoted one of his own previous dissenting opinions for the idea that “we have an obligation to decide the merits of the question presented.” On the merits, he agreed with the earlier judicial decisions that overtime is not warranted; he would have sent the case back to the Ninth Circuit as a victory for the car dealers.

On the other hand, Justice Ruth Bader Ginsburg, joined by Justice Sonia Sotomayor, proffered a concurrence responding to Thomas from the other side of the bench. She emphasized various reasons why the Ninth Circuit might conclude that the statute in fact does require the payment of overtime and also strongly suggested that a new regulation, with a more robust explanation, also might resolve the issue in favor of the employees.

In sum, we have two Justices who think overtime is not required, two Justices who strongly suggest that it is, and four Justices who express no view whatsoever. It is fair to say that car dealers and their employees are no closer to resolution of their dispute today than they were ten months ago when the car dealers first brought the case to the Supreme Court.

PLAIN LANGUAGE: The Fair Labor Standards Act requires employers to pay overtime to covered employees who work more than forty hours a week. For more than fifty years, the statute has had an oddly worded exemption that excludes many workers at car dealerships from the statute. For many years, courts held that the statute did not apply to the workers that handle service appointments, and the Department of Labor accepted that rule. In 2011, though, the Department of Labor promulgated a new rule saying that the service advisors are entitled to overtime. Usually courts defer to regulations because of the expertise of the Department of Labor. In this case, though, because the Department of Labor did not explain why it changed its view, the Supreme Court said the courts should not defer to the regulation. The Supreme Court sent the case back to the court of appeals, asking it to decide whether the statute requires paying overtime to the service advisors.

Recommended Citation: Ronald Mann, Opinion analysis: Justices rebuffs Department of Labor’s sloppy explanation of regulation exempting “service advisors” from overtime rules, SCOTUSblog (Jun. 20, 2016, 9:51 PM),