Encino Motorcars, LLC v. Navarro
138 S.Ct. 1134 (2018)

On April 2, 2018, the United States Supreme Court decided Encino Motorcars, LLC v. Navarro (“Encino Motors”). The central holding was to reverse the Ninth Circuit’s decision, and to hold that service advisors are exempt from overtime requirements under the Fair Labor Standards Act (“FLSA”). But there is an underlying holding in Encino Motors that appears to be a game-changer in litigation involving FLSA exemptions, including pay exemptions from the FLSA’s regular rate requirements.

Many public agencies have been sued based on the holding in Flores v. City of San Gabriel, 824 F.3d 890 (9th Cir. 2016) (holding that cash in lieu of medical coverage pay must be included in the regular rate). Flores spawned the next wave of FLSA litigation against public agencies throughout California, all premised on agencies allegedly failing to pay overtime based on the proper “regular rate of pay.” Dozens of cases and claims against public agencies are pending throughout California. In what has become a bonanza for plaintiffs’ lawyers, public sector labor unions are promoting lawsuits over various negotiated pay types, such as “holiday in lieu” pay, and sick leave pay – pay types that many agencies have historically excluded from their regular rate calculations, with the agreement and acquiescence of labor unions.

But Encino Motors reversed a key basis for the Flores decision – that FLSA exemptions are to be “narrowly construed against the employers seeking to assert them.” See Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960). The rule was premised on the concept that the FLSA pursues it remedial purpose “at all costs.” Encino Motors, 138 S. Ct. at 1142.

This entire framework for analyzing exemptions under the FLSA is now reversed. The Supreme Court in Encino Motors held:

We reject this principle as a useful guidepost for interpreting the FLSA. Because the FLSA gives no “textual indication” that its exemptions should be construed narrowly, “there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation….The narrow-construction principle relies on the flawed premise that the FLSA “’pursues’’” its remedial purpose “’at all costs.’”….But the FLSA …exemptions…are as much a part of the FLSA’s purpose as the overtime-pay requirement….We thus have no license to give the exemption anything but a fair reading. (Id. at 1142 (citations omitted, emphasis added).)

Regular rate of pay issues present some of the most complicated and vexing problems under the FLSA. Encino Motors reverses the narrow construction standard, and will hopefully restore some rationality to the analysis of issues involving the regular rate of pay, as well as the white collar exemptions. While standards of construction may seem an arcane subject, virtually all of the negative case law under the FLSA affecting public agencies has been founded on the concept that close questions are decided in favor of the employees. The task now — a formidable one at that — is pushing back on the cases that were decided on the erroneous standard the Supreme Court has just reversed.

For further information, please contact:

Arthur Hartinger

Arthur Hartinger

Spencer Wilson

Spencer Wilson