Auto dealers operating within the jurisdiction of the U.S. Court of Appeals for the 9th Circuit based in San Francisco are reacting in different ways with complying with a recent court decision that auto service advisers are non-exempt under federal overtime rules.
As a case by a group of California service advisers makes it way back to the U.S. Supreme Court for what will be a final decision, the response of dealers to what they argue is a huge upheaval to their operations has been "all over the map," according to one defense attorney.
While the Supreme Court reviews the decision of the lower court, the appeals court decision that service advisers are non-exempt from federal overtime rules is law in that jurisdiction.
The response from dealers in the area has been "all over the map," said Haley Morrison, a defense attorney with Tonkon Tarp of Portland, Oregon.
"When the case first came down, clients in general were thinking that this was nonsense," Morrison told Mega Dealer News. "Every dealer in the country has been operating on the principle that auto service advisers were exempt."
Right now within the 9th Circuit, some dealers are reclassifying the workers, some are paying their employees enough to make sure that if there is an adverse ruling then the overtime payments are covered and some are just waiting and seeing, Morrison said.
If the Supreme Court rules for the auto service advisers in this case, then dealers across the country will be on the hook for misclassifying them. It will be a "huge upheaval," said Morrison, who has represented some dealers within the 9th Circuit.
Overtime will have to be back paid for two years under federal legislation, and many states mirror that Fair Labor Standards Act (FLSA) time line. Some, including California, have a four year back pay rule for misclassification.
Advisers working for a dealership in northern California sued their employer, claiming they were non-exempt for overtime under the FLSA. While the act states that salesmen, partsmen, and mechanics are exempt, the language does not specifically refer to service advisers. But industry practice has included them as exempt since the inception of the act.
The Court of Appeals for the 9th Circuit initially ruled that they are non-exempt on a number of grounds, including the wording of the FLSA and through a rule by the Department of Labor.
That decision was reviewed by the Supreme Court, which ruled that the Labor Department's rule should be largely ignored, but asked the appeals court to look again at its decision on the FLSA. The appeals court once again found in favor of the service advisers, which led to the case bouncing back to the Supreme Court.
Morrison said it is hard to predict which way the high court will sway.
But she added: "The Supreme Court signaled with their first ruling that there are problems uprooting a long running industry practice." However, the justices, including conservatives, may be wary of interfering with the exact language of the law passed by Congress.
And the law also states that exemptions should be construed liberally, with the balance tilted toward employees.
A decision against the dealers will be "huge" for them, and they are already asking themselves how to make completely different business model work, Morrison said, adding that generally well compensated auto service advisers could lose money because they will be working less and have less incentive.