SCOTUS to scrutinize fair share fees, FLSA exemption for auto service advisors

By Pamela Wolf, J.D.

On September 28, 2017, the Supreme Court granted certiorari in a pair of unrelated cases that will give the Justices an opportunity to rule on issues that the full Court was not able to address squarely in earlier decisions.

In Janus v. American Federation of State, County, and Municipal Employees, Council 31 (16-1466), the plaintiffs are hoping the fully constituted Court will overrule Abood v. Detroit Board of Education and declare that public sector agency fee arrangements are unconstitutional under the First Amendment. Encino Motorcars, LLC v. Navarro (16-1362) gives the Court a chance to go further than it did the first time around and find that service advisors at car dealerships are in fact exempt under 29 U.S.C. Sec. 213(b)(10)(A) from the Fair Labor Standards Act’s overtime-pay requirements.

Public-sector agency shop fees. The High Court had an earlier opportunity to rule on the constitutionality of agency shop fees, but in the aftermath of Justice Scalia’s unexpected death and his still-vacant seat, the Court’s March 29, 2016, 4-4 ruling in Friedrichs v. California Teachers Association left the controversial question open.

The Supreme Court’s Harris v. Quinn ruling in June 2014 rendered the agency fee issue ripe for consideration. That case questioned the foundation for the precedent established in Abood, but let it stand in the face of a case involving workers who were not “full-fledged” state employees and thus to whom Abood did not apply. Harris involved the Illinois Public Labor Relations Act (PLRA), which is also at issue in Janus.

Seventh Circuit ruling. In this new opportunity to rule on the question, the Seventh Circuit held below that the district court had properly rejected a challenge brought by two Illinois state workers hoping to bar their unions from collecting “fair share” fees from nonmembers. The PLRA allows for such fees, and the First Amendment does too, according to Abood, the appeals court held.

Under the PLRA, a union representing public employees can collect fair share fees from public employees who are not union members but who benefit from the union’s bargaining efforts and its role in administering the contract. Illinois Governor Bruce Rauner filed suit in 2015 hoping to halt the practice. He argued that by letting the union levy these fees, the statute violates the First Amendment in that it compels employees to provide financial support to an organization of which they disapprove. For the sake of expediency, the court permitted two public employees to intervene after it dismissed the case because Rauner lacked standing to sue.

“Of course, only the Supreme Court has the power, if it so chooses, to overrule Abood,” the Seventh Circuit’s Judge Richard Posner wrote, acknowledging, as the plaintiffs did, that the district court and appeals court were simply hurdles to clear before they could seek High Court review. The lower court’s dismissal, and the Seventh Circuit’s affirmance of that dismissal, were formalities.

Second time around on DOL reg. The Encino Motorcars case is before the Court for the second time. In June 2016, finding that the Labor Department had failed to give a reasoned explanation for the policy change in its 2011 regulations to hold that automobile service advisors are entitled to FLSA overtime compensation, the Court concluded (in a 6-2 decision) that the regulation was not entitled to Chevron deference and vacated the Ninth Circuit’s contrary ruling. Because the 2011 regulation is inconsistent with the DOL’s longstanding earlier position, the industry had significantly relied on the interpretation since 1978 that service advisors are exempt from the FLSA’s overtime provisions, and the fact the service advisors had negotiated and structured compensation plans based on this understanding, the rule could not carry the force of law.

Service advisors still not exempt. In January 2017, on remand from the Supreme Court, the Ninth Circuit ruled that Congress did not intend for the overtime exemption in 29 U.S.C. Sec. 213(b)(10)(A) to encompass service advisors employed by automobile dealerships. Giving no deference to the DOL’s 2011 regulation holding that service advisors were entitled to overtime pay, the appeals court concluded that under the most natural reading of the statute, Congress did not intend to exempt service advisors from overtime. Moreover, even if the text were ambiguous, the legislative history confirmed that Congress intended to exempt only salesmen selling cars, partsmen servicing cars, and mechanics servicing cars.

The petition for certiorari points out that the Ninth Circuit had acknowledged that service advisors came within the “literal” terms of the exemption, but still found them exempt for the reasons (other than deference) that it relied upon in its earlier ruling. “Just as it had done in its previous decision, the Ninth Circuit relied heavily on a purported canon of construction under which exemptions to the FLSA must be interpreted ‘narrowly’ rather than being interpreted in accordance with their plain or literal text,” the petition states. “The court explicitly acknowledged that its decision ‘conflicts with published decisions by the Fourth and Fifth Circuits and by the Supreme Court of Montana.’”

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