Navarro v. Encino Motorcars, LLC

         On Remand from the Supreme Court of the United States D.C. No. 2:12-cv-08051-RGK-MRW

          S. Keven Steinberg (argued), Thompson Coe & O'Meara, Los Angeles, California; Nancy Bregstein Gordon, James A. Feldman, and Stephanos Bibas, University of Pennsylvania Law School Supreme Court Clinic, Philadelphia, Pennsylvania; for Plaintiffs-Appellants.

          Todd B. Scherwin (argued), Karl R. Lindegren, and Colin P. Calvert, Fisher & Phillips LLP, Irvine, California; Wendy McGuire Coats, Fisher & Phillips LLP, San Francisco, California; for Defendant-Appellee.

          Felicia R. Reid, Hirschfeld Kraemer LLP, San Francisco, California; Douglas I. Greenhaus, National Automobile Dealers Association, McLean, Virginia; for Amici Curiae National Automobile Dealers Association and State Automobile Dealers Associations for Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington State.

          Melissa A. Murphy and Laura M. Moskowitz, Senior Attorneys; Paul L. Frieden, Counsel for Appellate Litigation; Jennifer S. Brand, Associate Solicitor; M. Patricia Smith, Solicitor of Labor; Office of the Solicitor, United States Department of Labor, Washington, D.C.; for Amicus Curiae Secretary of Labor.

          Before: Susan P. Graber and Kim McLane Wardlaw, Circuit Judges, and James C. Mahan, ^[*] District Judge.

         SUMMARY^[**]

         Labor Law

         On remand from the Supreme Court, the panel affirmed in part and reversed in part the district court's dismissal of an action brought under the Fair Labor Standards Act against an automobile dealership.

         Reversing the dismissal of a federal claim for overtime compensation, and disagreeing with the Fourth and Fifth Circuits, the panel held that service advisors do not fall within an exemption from the FLSA's overtime-compensation requirement for "any salesman, partsman, or mechanic primarily engaged in . . . servicing automobiles." Assuming without deciding that it must give no weight to the Secretary of Labor's interpretation, the panel interpreted 29 U.S.C. § 213(b)(10)(A) in the first instance.

         For the reasons given in an earlier opinion, the panel affirmed the dismissal of plaintiffs' other federal claims and reversed the dismissal of state-law claims. The panel remanded the case to the district court.

          OPINION

          GRABER, Circuit Judge.

         On remand from the Supreme Court, Encino Motorcars, LLC v. Navarro, 136 S.Ct. 2117 (2016), we must consider anew whether the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201-219, requires automobile dealerships to pay overtime compensation to service advisors. The district court held that service advisors fall within the exemption from the overtime-compensation requirement for "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, " id. § 213(b)(10)(A), on the ground that a service advisor is a "salesman . . . primarily engaged in . . . servicing automobiles." Because we conclude that Congress did not intend for the exemption to encompass service advisors, we reverse and remand for further proceedings.

         FACTUAL AND PROCEDURAL HISTORY

         Defendant Encino Motorcars, LLC, sells and services new and used Mercedes-Benz automobiles.^[1] Defendant employed or employs Plaintiffs Hector Navarro, Mike Shirinian, Anthony Pinkins, Kevin Malone, and Reuben Castro as "service advisors." Plaintiffs greet Mercedes-Benz owners as they arrive in the service area of the dealership; listen to customers' concerns about their cars; evaluate the repair and maintenance needs of the cars; suggest services to be performed to remedy the customers' concerns; suggest supplemental services beyond those that will remedy the customers' concerns; write up estimates; and, often, follow up with the customer while the repair work is underway to suggest further repairs and maintenance.

         Plaintiffs allege that Defendant has violated the FLSA by failing to pay them overtime wages. The district court dismissed the claim, and Plaintiffs timely appealed.

         We reversed. Navarro v. Encino Motorcars, LLC, 780 F.3d 1267 (9th Cir. 2015). We held that a regulation promulgated by the Department of Labor in 2011 reasonably interpreted the statutory exemption not to encompass service advisors. Id. at 1271-77. Applying the principles of agency deference described in Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), we deferred to the agency's interpretation. Navarro, 780 F.3d at 1277.

         The Supreme Court granted certiorari and held that we erred by applying the Chevron framework. Encino Motorcars, 136 S.Ct. at 2124-27. The Court concluded that

§ 213(b)(10)(A) must be construed without placing controlling weight on the Department's 2011 regulation. Because the decision below relied on Chevron deference to this regulation, it is appropriate to remand for the Court of Appeals to interpret the statute in the first instance. Cf. United States v. Mead Corp, 533 U.S. 218, 238-39 (2001).

Id. at 2127 (citation format altered).

         DISCUSSION

         Congress enacted the FLSA in 1938 to "protect all covered workers from substandard wages and oppressive working hours." Barrentine v. Ark.-Best Freight Sys., Inc., 450 U.S. 728, 739 (1981). To that end, 29 U.S.C. § 206 imposes a minimum wage requirement, and § 207 requires the payment of overtime compensation for hours exceeding a standard workweek. But not all workers are covered by the Act's provisions. Subsection 213(a) lists categories of employees who are exempt from both the minimum-wage and overtime-compensation requirements. Subsection 213(b) lists categories of employees who are exempt from the overtime-compensation requirement only.

         In 1961, Congress amended § 213(a) to exempt from both the minimum-wage and overtime-compensation requirements all employees of automobile dealerships. Fair Labor Standards Amendments of 1961, Pub. L. No. 87-30, § 9, 75 Stat. 65, 71. New paragraph (a)(19) exempted "any employee of a retail or service establishment which is primarily engaged in the business of selling automobiles, trucks, or farm implements." 29 U.S.C. § 213(a)(19) (1961); 75 Stat. at 71.

         In 1966, Congress repealed § 213(a)(19) but added paragraph (b)(10). Fair Labor Standards Amendments of 1966, Pub. L. No. 89-601, § 208, 80 Stat. 830, 836. The new provision exempted only the following employees from the overtime-compensation requirement:

any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trailers, trucks, farm implements, or aircraft if employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles to ultimate purchasers.

29 U.S.C. § 213(b)(10) (1966). In effect, unless a separate exemption applied, the 1966 amendments narrowed the 1961 exemption and required dealerships to pay a minimum wage to all employees and to pay overtime compensation to all employees except those listed in § 213(b)(10).

         In 1970, the Department of Labor issued a regulation defining the terms of § 213(b)(10). 29 C.F.R. § 779.372. The agency defined "salesman" to encompass only those salesmen who sold vehicles. Id. § 779.372(c)(1). Under the agency's interpretation, the exemption did not encompass service advisors. Id.; see also id. § 779.372(c)(4) (1970).

         In 1974, Congress amended § 213(b)(10) to its present-day form to exclude from the overtime-compensation requirement the following employees:

(A) 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; or

(B) any salesman primarily engaged in selling trailers, boats, or aircraft, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling trailers, boats, or aircraft to ultimate purchasers[.]

29 U.S.C. § 213(b)(10) (2016); Fair Labor Standards Amendments of 1974, Pub. L. No. 93-259, § 14, 88 Stat. 55, 61. The 1974 amendments had no effect on the text pertinent to car dealerships-the same exemptions as in 1966 continued to apply.

         In 1978, the Department of Labor issued an opinion letter stating that, contrary to the agency's regulation, service advisors were exempt under 29 U.S.C. § 213(b)(10)(A). Dep't of Labor, Wage & Hour Div., Opinion Letter No. 1520 (WH-467), 1978 WL 51403 (July 28, 1978). In 1987, the agency amended its Field Operations Handbook along the same lines, stating in an Insert that the agency would "no longer deny the [overtime] exemption" for service advisors. Dep't of Labor, Wage & Hour Div., Field Operations Handbook, Insert No. 1757, 24L04-4(k) (Oct. 20, 1987).

         In 2008, the Department of Labor proposed to amend its formal regulation-which had remained the same since 1970 despite the agency's shift in position-to conform to its practice of allowing the exemption for service advisors. Updating Regulations Issued Under the Fair Labor Standards Act, 73 Fed. Reg. 43, 654-01 (July 28, 2008). After receiving public comments, however, the agency issued a final rule in 2011 that reaffirmed the agency's original position: service advisors are not exempt under 29 U.S.C. § 213(b)(10)(A). 76 Fed. Reg. 18, 832-01 (Apr. 5, 2011).^[2]

         The parties dispute whether we owe deference to the Secretary of Labor's interpretation that the statute does not exempt service advisors. Plaintiffs argue that deference under Skidmore v. Swift & Co., 323 U.S. 134 (1944), is appropriate. Defendant urges us to give no weight to the agency's interpretation. We decline to resolve this dispute because, as we explain below, the answer does not affect the outcome. Instead, we assume without deciding that we must give no weight to the agency's interpretation and the regulation, and we "interpret the statute in the first instance."^[3]Encino Motorcars, 136 S.Ct. at 2127.

         The FLSA exempts from the overtime-compensation 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). Defendant is an automobile dealership within the meaning of the exemption. We limit our discussion to the exemption's coverage of employees of an automobile dealership. Thus, the relevant statutory passage is: "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles."

         Unless defined by the FLSA, we consider the "ordinary, contemporary, common meaning" of the terms at the time that Congress added the relevant clause-1966. Perrin v. United States, 444 U.S. 37, 42 (1979). To determine the common meaning, we consult dictionaries and other sources in use in 1966. Taniguchi v. Kan.Pac. Saipan, Ltd., 132 S.Ct. 1997, 2002-04 (2012). For an understanding of job descriptions, we look to the 1966-1967 edition of the Department of Labor, Bureau of Statistics, Occupational Outlook Handbook ("OOH"). See, e.g., United States v. Charles, 722 F.3d 1319, 1324 (11th Cir. 2013) (consulting the Occupational Outlook Handbook).

         We proceed as follows. First, we conclude that, under the most natural reading of the statute, Congress did not intend to exempt service advisors. Second, even if the text were ambiguous, the legislative history confirms that Congress intended to exempt only salesmen selling cars, partsmen ...