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Overtime ruling’s scope questioned

Overtime ruling’s scope questioned

A narrow U.S. Supreme Court ruling this year that says car dealership service advisers are exempt from being paid overtime is influencing lower courts to rule other occupations exempt from overtime as well.

But observers also point out that the Supreme Court’s April ruling in Encino Motorcars LLC v. Navarro et al. is based on the federal Fair Labor Standards Act, and states that provide better employee benefits under its provisions can — and in practice do — override it.

This means that in at least in some jurisdictions, including California, employers may still be obligated to pay overtime despite the Encino ruling.

The case, which has a long litigation history, was initially filed in 2012 by current and former service advisers for Encino, California-based Encino Motorcars, a Mercedes-Benz dealership, who were seeking back pay (see related story).

Observers say the ruling is significant in holding the FLSA’s overtime exemption should be more broadly interpreted.

The ruling is “enormously far-reaching” because in his majority opinion, Justice Clarence Thomas was not talking just about service advisers, said Ellen C. Kearns, a partner with Constangy Brooks, Smith & Prophete LLP in Boston. “He was talking about interpreting any exemption case,” whether white-collar, motor carriers, or seasonal employees. “It cuts across all industries,” she said.

Katherine P. Sandberg, an associate with Fisher & Phillips LLP in Sacramento, California, said, “The court upended a long-held rule of statutory construction that the U.S. Department of Labor has abided by for quite a long time” — a position plaintiffs attorneys have taken as well — that FLSA overtime exemptions should be narrowly construed.

“(The ruling) tips the scale against employees” in wage and hour litigation that involves the FLSA, she said.

Wage and hour insurance coverage can be combined with employment practices insurance to cover FLSA claims., although coverage may be restricted to defense costs.

Before this ruling, “employers were never getting the benefit of the doubt,” said Jonathan T. Hyman, a partner with Meyers, Roman, Friedberg & Lewis in Cleveland.

“Now, the court says, ‘We’re taking a much more kind of a realistic view of this,’” which is going to be not a narrow but “a fair interpretation of how the exemptions work in a particular workplace,” Mr. Hyman said.

The Supreme Court ruling is “going to make it easier in the courts for employers to get to summary judgment,” said Lisa A. Schreter, a shareholder and co-chair of the wage and hour practice with Littler Mendelson P.C. in Atlanta.

“I also think that it will constrain some judges from essentially taking a path of deciding at the summary judgment level of deferring that to a jury, and that will be big news, and frankly I think that has been a long time coming,” Ms. Schreter said.

Paul DeCamp, a member of Epstein Becker Green P.C. in Washington, said, “It’s fair to say that in some cases Encino Motorcars will be a game-changer. There’s no doubt about that, but the impact of the decision will have in any particular case depends on the facts and law in that case.”

The high court’s ruling has been widely cited by other courts. In Sept. 19 rulings, for instance, in Munoz-Gonzales v. D.C. Limousine Service Inc. and Flood v. Just Energy Marketing Inc., which dealt with limousine drivers and door-to-door salesmen, respectively, the 2nd U.S. Circuit Court of Appeals in New York upheld lower court rulings in the employers’ favor that they were not obligated to pay overtime.

“The key here for those employers who are worried about defending these claims” is the Supreme Court’s ruling is “trickling down to the appellate courts,” said Howard M. Wexler, a partner with Seyfarth Shaw LLP in New York.

Employers must consider their local state laws to determine how to proceed, say observers.

“The impact is not going to be sweeping vis-à-vis this particular law because there’s so much concurrent legislation on the state level and even in some cities,” said Donna Ferrara, Chicago-based senior vice president and managing director at Arthur J. Gallagher & Co.

How employers now proceed “depends on how aggressive you want to be,” said Mr. Hyman. “If you have employees where it was close” as to whether the exemption applies, Encino “gives you the justification” to revisit the issue “and maybe reclassify some folks,” Mr. Hyman said.

For those who are more risk-averse, “It may prove judicious to take a wait-and-see attitude here to see how the courts look at the exemptions for a specific job title and specific industries to see how this shakes out moving forward,” Mr. Hyman said.

“Employers should remember that they still bear the burden of proof on any exemption defense, and that if the facts aren’t there to support an exemption defense, it doesn’t matter whether the statute is given a fair reading or is narrowly constructed,” said Matthew C. Helland, managing partner of Nichols Kaster PLLP’s San Francisco office.

“The decision is definitely a good decision for employers, but it’s important not to overread the decision or to start haphazardly classifying people as exempt based on the new standard,” Mr. DeCamp said. “It’s still important to adhere closely to the law and be very mindful of litigation risks.”






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