For more than 70 years, the Supreme Court has construed exemptions to the Fair Labor Standards Act (“FLSA”) narrowly. In A.H. Phillips, Inc. v. Walling, for example, the Court stated that “[t]o extend an exemption to other than those plainly and unmistakably within its terms and spirit is to abuse the interpretative process and to frustrate the announced will of the people.”  324 U.S. 490, 493 (1945).  The Supreme Court has restated this rule many times in the intervening years, and the lower courts have followed, citing this principle in virtually every significant case involving overtime exemptions.

On April 2,2018, the Supreme Court issued its highly anticipated ruling in Encino Motorcars, LLC v. Navarro.  Marking the second time that the case has gone to the high court, the ruling held that the specific employees at issue—service advisors at an automobile dealership—are exempt from the FLSA’s overtime requirement.  What people will long remember the 5-4 ruling for, however, is not the exempt status of the particular plaintiffs in that case, but rather the Court’s rejection of the principle that courts construe FLSA exemptions narrowly.  By removing a heavy judicial thumb from the workers’ side of the scales in FLSA exemption litigation, Encino Motorcars is likely to figure prominently in many pending and future exemption cases.

Background

In one of the law’s lesser-known subsections, FLSA section 13(b)(10)(A) exempts from the federal overtime requirement “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers[.]” 29 U.S.C. § 213(b)(10)(A).  In the early 1970s, the U.S. Department of Labor originally interpreted this language as not applying to so-called “service advisors,” whom the Court described as “employees at car dealerships who consult with customers about their servicing needs and sell them servicing solutions.”  (Opinion at 1-2.)  Courts took a different view, and from 1978 to 2011 the Department accepted the view that service advisors are exempt.  (Id. at 2.)  In 2011, the Department changed course again, issuing a regulation stating that service advisors are not “salesmen” and thus are not within the scope of the exemption.  (Id. at 3.)

In 2012, current and former service advisors sued a California car dealership, asserting that they are non-exempt and entitled to overtime. The dealership moved to dismiss the complaint, arguing that the section 13(b)(10)(A) exemption applies.  The district court agreed and dismissed the case, but on appeal the U.S. Court of Appeals for the Ninth Circuit reversed.  In April 2016, the Supreme Court reversed the Ninth Circuit, concluding in a 6-2 ruling that the Department’s 2011 regulation is invalid and entitled to no deference, and remanding the matter to the Ninth Circuit to consider the meaning of the statutory language without the regulation.  (Opinion at 3-4 (discussing Encino Motorcars, LLC v. Navarro, 579 U.S. — (2016)).)  On remand, the Ninth Circuit again held that the service advisors are not exempt, and the case went back up to the Supreme Court.

The Supreme Court’s Ruling

The meaning of the words in the statute

Noting the parties’ agreement that certain language in the exemption either does not apply or is not at issue, Justice Thomas, writing for the Court, distilled the legal question to whether service advisors are “salesm[e]n . . . primarily engaged in . . . servicing automobiles” for purposes of the statute’s overtime exemption. (Opinion at 5.)  The Court began its analysis by observing that “[a] service advisor is obviously a ‘salesman.’”  (Id. at 6.)  The Court looked to dictionary definitions of “salesman,” concluding that the term means “someone who sells goods or services.”  (Id.)  The Court stated that “[s]ervice advisors do precisely that.”  (Id.)

The Court then held that “[s]ervice advisors are also ‘primarily engaged in . . . servicing automobiles.’” (Opinion at 6.)  Once again turning to dictionaries, the Court observed that [t]he word ‘servicing’ in this context can mean either ‘the action of maintaining or repairing a motor vehicle’ or ‘[t]he action of providing a service.’”  (Id.)  To the Court, “[s]ervice advisors satisfy both definitions.  Service advisors are integral to the servicing process.”  (Id.)  Although they “do not spend most of their time physically repairing automobiles[,]” neither do “partsmen,” another category of employees whom “[a]ll agree . . . are primarily engaged in . . . servicing automobiles.”  (Id.)  Thus, “the phrase ‘primarily engage in . . . servicing automobiles’ must include some individuals who do not physically repair automobiles themselves”; and the verbiage “applies to partsmen and service advisors alike.”  (Id.)

The inapplicability of an arcane rule of statutory construction

The Court then rejected the Ninth Circuit’s use of the so-called “distributive canon,” a principle of statutory construction whereby courts may interpret a statute in a manner other than indicated by its plain language, and instead relate certain words back only to particular words appearing earlier in the statute. Here, the exemption uses the expansive, disjunctive word “or” three times, but the Ninth Circuit declined to read “or” in its usual sense, instead interpreting “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements” as meaning “any salesman . . . primarily engaged in selling” and “any . . . partsman[] or mechanic primarily engaged in . . . servicing[.]”  (Opinion at 4, 7.)  The Court gave three reasons for declining to apply the distributive canon to FLSA section 13(b)(10)(A): (1) the absence of one-to-one matching, as the Ninth Circuit’s reading requires pairing one category of employees with “selling” but two categories of employees with “servicing”; (2) the possibility, and indeed reasonableness, of construing the statute as written; and (3) the inconsistency of using the narrowing canon in light of the exemption’s overall broad language.  (Id. at 8.)

Rejection of the narrow construction rule

The most significant aspect of the Court’s ruling is its rejection of the Ninth Circuit’s use of the “narrow construction” principle for FLSA exemptions:

The Ninth Circuit also invoked the principle that exemptions to the FLSA should be construed narrowly. We reject this principle as a useful guidepost for interpreting the FLSA.

(Opinion at 9 (emphasis added, citation omitted).) The Court observed that “[b]ecause the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a “narrow”) interpretation.’”  (Id. (citation omitted).)  The Court remarked that “exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement.  We thus have no license to give the exemption anything but a fair reading.”  (Id. (citation omitted).)

The Court also rejected the Ninth Circuit’s reliance on a 1966-67 Handbook from the Department, as well as legislative history that was silent on the issue of service advisors. (Opinion at 9-11.)

The Dissent

Justice Ginsburg dissented, joined by Justices Breyer, Sotomayor, and Kagan. They disagreed with the Court’s linguistic construction of the exemption, while arguing that the regular schedules worked by service advisors render overtime exemption unnecessary.  (Dissent at 3-7.)  The dissent rejected the car dealership’s asserted reliance interest and concern for retroactive liability, noting the potential availability of the FLSA’s good faith defense.  (Id. at 7-8).  Finally, the dissent criticized the Court for rejecting the narrow construction principle for FLSA exemptions “[i]n a single paragraph . . . without even acknowledging that it unsettles more than half a century of our precedent.”  (Id. at 9 n.7.)

What The Decision Means For Employers

Most immediately, Encino Motorcars affects car dealerships by concluding that service advisors are exempt from the federal overtime requirement.  The decision, however, will reach far more broadly than just this one industry.  Since the 1940s, courts grappling with the meaning of ambiguously-worded FLSA exemptions have invoked the narrow construction rule as an often outcome-determinative facet of their decisions.  It served as much more than a tie-breaker, instead creating a very strong presumption of non-exempt status unless an employer could demonstrate that an exemption “plainly and unmistakably” applies.  In light of Encino Motorcars, that rule no longer has any place in interpreting FLSA exemptions.

What this means for employers is that it should now be easier than before for employers to persuade courts that employees fall within overtime exemptions. Now, employers must merely show that their reading of the exemption is more consistent with the statutory and regulatory text, rather than showing that there is little or no doubt about the matter.

At the same time, courts may find themselves tempted to resist this development, especially when construing exemptions under state law. It would not be surprising, for example, to see some courts begin to construe state-law exemptions differently from their FLSA counterparts, even when the wording of the exemptions is identical.

A Maine dairy company has received a potentially expensive grammar lesson from the U.S. Court of Appeals for the First Circuit, which held on March 13, 2017, that the company’s delivery drivers may be eligible for up to $10 million in overtime pay, because the lack of a comma in the statute regarding exemptions from the state’s wage and hour law rendered the scope of the exemption ambiguous.

Grammarians have long disputed whether writers should include a comma before the final item in a list—the so-called “serial” or “Oxford” comma.  Opponents of the serial comma consider it superfluous.  Supporters argue that the serial comma is necessary to eliminate potential ambiguity, as in the example, “I’d like to thank my parents, Ayn Rand and God.”  Are Ayn Rand and God the writer’s parents, or are they being thanked in addition to his or her parents?  Without the serial comma, it is impossible to know.

Similarly, this case, O’Connor v. Oakhurst Dairy, arose “[f]or want of a comma” in the Maine law exempting from overtime compensation employees involved in the “canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of” various perishable goods.  Without the controversial serial comma after “shipment,” the court found it unclear whether the exemption was meant to apply to one category of employees (i.e., those who pack goods, whether for shipment or for distribution) or two (i.e., those who pack goods for shipment, and those who distribute the goods).  Because the plaintiff drivers admittedly distributed goods, but claimed they did not pack goods or engage in any of the other activities specified in the exemption, their case could only proceed if the First Circuit reversed the district court’s ruling that the exemption encompassed both packers and distributors.

In an opinion that should appeal to grammar aficionados everywhere, the First Circuit extensively analyzed the language of the statute in light of “certain linguistic conventions,” or “canons,” including: (i) the rule against surplusage, which states that no word in a statute should be treated as unnecessary; (ii) the convention of using a conjunction before the last item on a list; (iii) the parallel usage convention, which requires words performing the same grammatical function to be presented in the same form; and (iv) the use of the serial comma itself, which the Maine Legislative Drafting Manual generally disfavors, except when its omission may cause the sort of ambiguity presented here.  After engaging in this analysis, and proving unable to determine the law’s clear meaning from the statutory text or its legislative history, the court reversed the district court and held it must “adopt the delivery drivers’ reading of the ambiguous phrase . . . , as that reading furthers the broad remedial purpose of the overtime law, which is to provide overtime pay protection to employees.”

While many commentators have viewed this opinion as an ode to, in the court’s words, “the clarifying virtues of serial commas,” ultimately that is a mere subset of the three broader lessons presented by this case, principles that should prove helpful to anyone who communicates via the written word—that is, all of us.

Lesson One — Say What You Mean

Given the context of this case, the first lesson presented by the court’s analysis was likely aimed primarily at the Maine Legislature, which drafted the ambiguous statute at issue. However, it is advice that all writers would be wise to follow—avoid ambiguity.  Whether drafting a statute, a brief, an employment policy, an email, or a Tweet, use language and punctuation (including the serial comma, where necessary) deliberately, to ensure that you actually write what you intend to say.  Review the grammar rules you may have ignored since middle school, and revise your writing as frequently as necessary, to guard against any accidental ambiguities like the one in the Maine wage and hour law.  Especially for attorneys, words are our primary weapons, and it is crucial that we wield them wisely.

Lesson Two — Remember Your Goal

The second piece of advice that arises from this case is somewhat related to the first—always keep the underlying purpose of a piece of writing in mind. Much as courts seek to effectuate the legislative intent of a statute, parties to a dispute should focus on what, specifically, they are trying to accomplish.  The delivery drivers in this case did not win because of a missing comma; they won because the extra compensation they sought was consistent with the broad remedial purpose of Maine’s wage and hour law.  As an advocate, you will be more likely to succeed if you can find a way to align the outcome you or your clients seek with the societal or legislative purpose the court is seeking to advance.

Lesson Three — Be Consistent (a.k.a., Don’t Be Your Own Worst Enemy)

The third lesson drawn from this case, despite being relegated to a seemingly insignificant footnote, may be the most important—make sure all of your messaging is consistent. In this case, the dairy company argued that the statutory exemption should be read as applying to both employees involved in “packing [goods] for shipment” and employees involved in “distribution” of the goods, because “shipment” and “distribution” are synonyms, and unless “packing for shipment” and “distribution” constituted two separate exempt activities, the statute would be redundant.  The court may have been more receptive to this argument, if it hadn’t noticed that the company’s “own internal organization chart seems to treat [shipment and distribution] as if they are separate activities,” significantly undercutting the company’s argument that the two terms were synonymous and redundant.  The company probably never considered the fact that its own organizational chart could be used against it, but any such inconsistency in a party’s messaging, even in a seemingly unrelated context like an org chart, may ultimately prove fatal to a contradictory legal claim the party seeks to assert sometime in the future.  Accordingly, especially for corporate entities, it is crucial to keep a single consistent and coherent viewpoint in mind when drafting any sort of company messaging, to prevent any inconsistencies from being used against the company at a later date.

Conclusion — It’s Not About the Comma

Contrary to the extensive media coverage of the “comma case,” this case offers a far broader lesson than “always use a serial comma.” Instead, the First Circuit’s opinion presents three fundamental principles that should apply in every context where the written word may prove determinative.  In essence, the opinion is a dissertation on the virtues of clarity in writing—a lesson that may cost Oakhurst Dairy up to $10 million, but which has been made available to the rest of us, free of charge.