Supreme Court Rejects "Narrow Construction Principle" in Cases Interpreting Fair Labor Standards Act Exemptions

In a case analyzing a limited-use exemption to the overtime requirements of the Fair Labor Standards Act (the exemption at issue applies to salesmen and mechanics primarily engaged in selling or servicing automobiles), the Supreme Court issued an opinion on April 2, 2018, with wide-ranging implications for employers. In Encino Motorcars, LLC v. Navarro et al., the Court reversed the Ninth Circuit Court of Appeals’ holding that car service advisors were not exempt from the FLSA’s overtime requirements, and in doing so rejected the long-standing rule that exemptions to the FLSA’s overtime requirements should be construed narrowly against the employer. 584 U.S. ___ (2018).

Writing for a five-justice majority, Justice Clarence Thomas explained the Court’s reasoning: “We reject [the narrow construction] principle as a useful guidepost for interpreting the FLSA. Because 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.” (Slip Op., at 9) (internal quotations omitted).

The opinion marks a potential sea change in FLSA exemption cases: the narrow construction principle had previously been applied by all of the circuit courts of appeal. The Supreme Court’s categorical rejection of that principle better positions employers to defend classification decisions going forward, and may open up new arguments for employers facing classification claims in pending litigation. Look for further analysis of this important development from Faegre Baker Daniels’ employment litigation team in the near future.