The Supreme Court May Have to Decide

It is not unusual for federal courts to disagree with federal agency interpretations. When some disagree, but others agree, only the U.S. Supreme Court can resolve the differences.  

Recently, there were two of these situations of interest to car dealers.

Service Advisor Pay Update

Set of open end wrenches

The U.S. Department of Labor stance on premium overtime for service advisors has twisted and turned for nearly four decades. In 1970, the DOL issued a regulation that service advisors were eligible for overtime because they were not covered by the special automobile dealer exemption from the Fair Labor Standards Act for salesmen, mechanics, and partsmen. The courts that later considered the issue disagreed. In 1978 the DOL abandoned the regulation in an opinion letter, but no action was taken to change the regulation until a proposal was issued in 2008, under the Bush administration, that service advisors would be exempt. However, by the time the DOL got around to finalizing the regulation in 2011, the Obama administration was in place and the final regulation was flipped to provide that service advisors are eligible for overtime because they are not covered by the automobile dealer exemption.

The first major federal case to follow the revised DOL regulation involved overtime claims brought by service advisors at a Los Angeles area automobile dealership. They claimed they were entitled to overtime under the Fair Labor Standards Act because they did not fit into the dealer exemption. The case was dismissed by the trial court, but the U.S. Court of Appeals for the Ninth Circuit reversed and held that the service advisors are entitled to overtime based on the 2011 DOL regulation.

The Ninth Circuit decision set up a split in federal circuits that justified a review by the U.S. Supreme Court. Observers expected that the court would resolve the issue by determining whether service advisors fall under the special automobile dealers exemption. Instead, the Supreme Court sent the case back. The Supreme Court reasoned that the 2011 DOL regulation, on which the Ninth Circuit Court of Appeals relied, offered little explanation for the DOL change in position.  It was not a valid regulation on which the Court of Appeals should have relied for its decision.

So where does this leave dealers? Where they were before the Supreme Court reviewed the case. In those federal circuits and districts where service advisors are viewed as exempt, that is still the case. The direction to the Court of Appeals for the Ninth Circuit is to decide the case without deference to the 2011 DOL regulation. It might still rule for the service advisors, and such a ruling would again present a split with the circuits justifying another court review. Until then, however, it is status quo on service advisors.

Employment Arbitration Agreements: Class Action Waivers OK?

The CFPB’s efforts to attack class action waivers in predispute arbitration provisions in financing and leasing documentation for motor vehicle sales have been well publicized. Little has been said about arbitration agreements in employment. Car dealers assume that class action waivers in employment arbitration agreements are not being questioned. But that is not true.

In 2012, the National Labor Relations Board (“NLRB”) issued a ruling that collective or class actions are an important process to allow employees to work together to protect their mutual employment interests. The NLRB ruled these rights were protected by Section 7 of the National Labor Relations Act, and waivers of those rights through arbitration agreements containing class action waivers are contrary to the Act.

For a while, the NLRB seemed alone in that view. Courts in the second, fifth, and eighth federal circuits issued rulings permitting class action waivers in employment arbitration agreements.

On May 26, 2016, the United States Court of Appeals for the Seventh Circuit set up a split in the circuits by agreeing with the NLRB. The court held that class action waivers in arbitration agreements interfere with employees’ rights to engage in concerted activities protected by the NLRA. This split in the circuits could lead to an ultimate U.S. Supreme Court review of the matter. For now, federal courts in Illinois, Indiana, and Wisconsin will not enforce arbitration agreements for class action waivers because of the decision of the Seventh Circuit Court of Appeals. Federal courts in the Second Circuit (Connecticut, New York, and Vermont), Fifth Circuit (Louisiana, Mississippi, and Texas), and Eighth Circuit (Arkansas, Iowa, Minnesota, Montana, Nebraska, North Dakota, and South Dakota) will enforce fair arbitration agreements that include class action waivers. Federal courts responsible for other states must determine their positions, unless the Supreme Court agrees to consider the issue and rules.  ­­­­­­­­­­