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Supreme Court Changes the FLSA Exemption Review Standard to Favor Employers!

In April, the United States Supreme Court ruled employees at a California auto dealership, Encino Motorcars, LLC, who advise customers about repair work fall under a Fair Labor Standards Act (“FLSA”) exemption that excludes “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.”  This means these auto service providers are exempt from overtime pay requirements on the federal level.

While the ruling itself is specific to the automobile industry, the decision’s holding has broader and crucial implications for employers.  As part of the ruling, the Court rejected the principle that FLSA exemptions are to be narrowly construed against employers seeking to assert them. Instead, the federal mandates should be limited to cases “plainly and unmistakably within their terms and spirit.”  Lower courts should thus be in a position to give exemptions a “fair reading.” This means that employers seeking to apply the exemptions to their employees now face a more relaxed standard.  This is good news for employers and their bottom line. 

Before employers start rejoicing, they must also ensure compliance with any state and local wage and hour requirements.  It is entirely possible while an employee may be exempt from overtime under federal law, they are not exempt under state or local law.  For now, the Supreme Court’s decision allows employers a more compelling argument in wage and hour classification cases that an employee is in fact exempt from overtime.  All-in-all, much welcomed news for employers.
