Supremes strike down DOL overtime regulation for auto dealerships

The Fair Labor Standards Act is the law that requires employers to pay you minimum wage and overtime if you work more than 40 hours a week. The overtime rule has a zillion exceptions, however. This case from the Supreme Court looks at one of them and holds that the U.S. Department of Labor lacked any legal authority to rewrite the rules governing overtime pay for service advisors  who work at car dealerships.

The case is Encino Motorcars v. Navarro, decided on June 20. This case is a little boring, so let's spruce it up. The second you step foot into the parking lot at an auto dealership, a salesman will come-a-running in the hopes that you buy a car that will grant him a commission so he can feed his family. This case does not involve overtime for the salesmen. After you buy the car and it starts to fall apart because someone cut corners at the factory in Detroit or Japan, you have to return to the dealership to get it fixed. If you have a warranty or there is a recall, you have taken the car to the right place. Otherwise, as George Costanza once said, noting the excessive charges for dealership repairs, you'd have to be out of your mind to bring your car to a dealer. But the repair people have to make a living, too. This case involves the repair people, specifically the service advisors.

In 1966, Congress said there is no overtime requirement for "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trailers, trucks, farm implements or aircraft." The Department of Labor then issued regulations to enforce that law in 1970. That rule defined "salesman" to mean employees who are primarily engaged in making sales or obtaining orders or contracts for the sale of vehicles. The regulation also excluded service advisors -- who sell repair and maintenance services but not vehicles -- from the minimum wage requirements, which meant the dealerships could deny them overtime. In 2011, the DOL issued a new set of rules that said "salesman" only covers people who sell vehicles. In this case, service advisors sued to recover lost wages. The lower court said service advisors are no longer covered under the exemption, which means they can enjoy full FLSA protection and get their overtime. The employer appeals, claiming service advisors should still be exempt, consistent with the law passed in 1966; they argued the 2011 regulation is illegitimate.

A word or two about administrative law. When Congress passes a law, an executive agency like the Department of Labor, Department of Education, etc., has to issue regulations that help us to interpret and apply the law. This is what we call the bureaucracy. The regulations have to be consistent with the laws, to ensure that the agencies are not in essence writing up new laws. A good regulation fills in the blanks left by a vague law while remaining consistent with the law's aims. Since the regulators are not elected, they have to comply the Supreme Court's guidelines in the Chevron decision from 1984, which says the regulations have to be rational and consistent with Congressional intent.

The 2011 regulation in this case is not legitimate, the Supreme Court says, because it rewrote prior rules that the industry had relied on for years but did not provide any "reasoned explanation" for the change of course. This means the regulation is stricken and the case has to be decided under the law as written in 1966. More broadly, the Court is telling executive agencies to do a better job in explaining themselves when they rewrite rules that were in place for years and that the industry had relied upon.