In a ruling that could have implications for other businesses as well, the U.S. Supreme Court held in a divided opinion Monday that car dealership service advisers are exempt from being paid overtime under the Fair Labor Standards Act.

The FLSA exempts salesmen from its overtime-pay requirement, said the ruling in Encino Motorcars L.L.C. v. Navarro et al. “A service adviser is obviously a ‘salesman,’” said the majority opinion by Justice Clarence Thomas in the 5-4 ruling.

The ruling is significant in holding that the FLSA’s overtime exemption should be more broadly construed, according to Colin P. Calvert, a partner with Fisher & Phillips L.L.P. in Irvine, California.

The FLSA was enacted in 1938. In 1974, Congress provided that the law’s overtime pay requirement does not apply to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements,“ if he works in a nonmanufacturing establishment, the ruling said.

Although “this language has long been understood to cover service advisers,” in 2011 the Department of Labor issued a rule that interpreted salesmen to exclude service advisers, according to the majority opinion. 

Current and former service advisers for Encino, California-based Encino Motorcars, a Mercedes-Benz dealership, sued the company for backpay in 2012. The 9th U.S. Circuit Court of Appeals in San Francisco reversed a lower court ruling and held the advisers were not exempt from being paid overtime.

In its first ruling in the case, in 2016 the U.S. Supreme Court vacated the 9th Circuit ruling, stating the 2011 rule was “procedurally ineffective,” and remanded the case back to the 9th Circuit. On remand, the 9th Circuit again held the overtime exemption does not include service advisers.

In overturning that ruling Monday, the majority opinion stated that “Under the best reading of the text, service advisers are ‘salesmen.’”

“The ordinary meaning of ‘salesman’ is someone who sells goods or services,” said the ruling. “Service advisers do precisely that. As this court previously explained, service advisers ‘sell (customer’s) services for their vehicles,’” said the ruling, quoting its earlier decision.

The 9th Circuit “invoked the principal that exemptions to the FLSA should be construed narrowly,” said the ruling. “We reject this principle as a useful guidepost for interpreting the FLSA,” the ruling said.

“The narrow-construction principle relies on the flawed premise that the FLSA ‘pursues’ its remedial purposes ‘at all costs,’” said the decision, in quoting an earlier ruling.

The case was remanded to the 9th Circuit.

The dissenting opinion by Justice Ruth Ginsburg stated Congress “explicitly exempted from the Fair Labor Standards Act hours requirements only three occupations: salesmen, partsmen and mechanics. The Court today approves the exemption of a fourth occupation: automobile service advisers.”

In accord with the 9th Circuit’s judgment, “I would not enlarge the exemption to include service advisors or other occupations outside Congress’ enumeration,” said the dissent.

Mr. Calvert said, “The ruling reaffirms long-standing FLSA interpretations regarding service advisers generally.” It also expands the FLSA’s interpretation more broadly, “which is important to employers,” he said.

“It allows them to properly categorize employers who are engaged in sales activities and have them categorized under the FLSA in the correct way,” Mr. Calvert said. The 9th Circuit’s ruling “undermined long-standing practices for car dealerships throughout the U.S.,” he said.

Mr. Calvert said also the ruling “does extend beyond the auto dealerships area, so to speak, in that the opinion states FLSA exemptions should be viewed reasonably, rather than narrowly.”

It “provides the employer a little more latitude” in determining  “whether an employee is actually exempt from overtime,” he said. 

“It certainly did take us a couple of trips to get there, but now we have a solid ruling that will give employers some certainty going forward,” said Mr. Calvert.