US Dept. of Labor Changes Position on Service Advisors?

Over the next few weeks, you will probably see stories in industry publications that the U.S. Department of Labor has reversed its position and that service writers are no longer exempt from overtime requirements. More importantly, your service advisors may see the coverage. Here is the real story and what you can do about it. 

In 1978, the Wage and Hour Division of the DOL issued an opinion letter that service advisors are exempt from premium overtime under the exemption for dealer salespeople, “partsmen”, and mechanics since they “can be properly regarded as engaged in selling activities.” Three U.S. appellate courts, including the United States Court of Appeals for the Fourth Circuit which governs Maryland and Virginia, agreed in cases they decided.

Nearly three years ago, the DOL proposed to change its wage and hour rules to bring them into line with this opinion letter and the court decisions. On April 5 the DOL published its decision that it would not amend its rules to make it clear that service advisors are exempt because they are engaged in selling activities.

This announcement apparently reflects the position of the DOL that the dealership exemption for salespeople, “partsmen”, and mechanics must be strictly construed. According to the April 5 DOL notice, “selling” activities are limited to selling vehicles and mechanic activities are limited to turning wrenches. Since service advisors do neither, they will not be considered exempt. 

While this is an edgy position for the DOL since it has not withdrawn its 1978 opinion letter and the rule is contrary to three federal courts of appeals decisions on the wage and hour statute, dealers will still have to be concerned in the event of a DOL audit. Fortunately, there is another provision of the wage and hour law, known as the 7(i) exemption, for employees paid commissions by retail establishments that can provide an exemption for service advisors. There are three conditions that must be met for an employee to fit under the 7(i) exemption. These are:

  1. the employee must be employed by a retail or service establishment, and
  2. the employee’s regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked, and
  3. more than half the employee’s total earnings in a representative period must consist of commissions.

The Department of Labor has noted that unless all three conditions are met, workers must earn overtime premium pay for all hours worked over 40 in a workweek. 

While the new DOL position is subject to potential challenge in the event of an audit, dealers who wish to continue considering service advisors as exempt and to avoid DOL scrutiny and potential private wage and hour lawsuits should consider reviewing service advisor pay plans to ensure that they fall within the 7(i) exemption.