Wages and Overtime Law: A Return to the Past Courtesy of the U.S. Supreme Court

by | June 4, 2018 | Overtime Law, Wage & Hour

During the United States Supreme Court October Term 2017, the Court delivered a 1-2 punch against workers and their right to earn overtime pay with its decisions in Encino Motorcars, LLC v. Navarro et al. and Epic Systems Corp v. Lewis (decided together with Ernst & Young, LLP et al, v. Morris et al., and National Labor Relations Board v. Murphy Oil USA, Inc., et al.,). The majorities (Chief Justice Roberts and Justices Alito, Gorsuch, Kennedy, and Thomas) in both cases held that elements of the Fair Labor Standards Act (FLSA or Act)[1] did not apply to the aggrieved workers in their attempts to earn a higher hourly rate due when working overtime hours.

Among other things, the FLSA guarantees the right of certain workers to earn a higher rate, or overtime compensation, after working more than 40 hours during a specific workweek. However, there are classes of workers who are exempt from earning overtime compensation.  The exempted classes are numerous, but they include certain salespeople. Of relevance to the Encino case is that the Act specifically exempts any “salesman . . . primarily engaged in the selling or servicing automobiles . . . .” from earning overtime compensation. 29 U.S.C. § 213 (b) (10) (A). The core of the dispute in Encino   turned on whether a car dealer’s “service advisors” (employees who advise customers on additional services) are in fact salespeople. Here, the “service advisors” generally worked 11 hours per day, 5 days per week, for a 55 hour workweek. However, unfortunately for the “service advisors” in this dispute, the Court determined that “[a] service advisor is obviously a ‘salesman.’” Encino Motorcars, LLC v. Navarro, 584 U.S. ____ ,  ____ (2018) (slip op., at 6). The bottom line, according to the Court, is that a “fair” reading of the language of the Act leads to the conclusion that the “service advisors” in Encino are exempt from collecting overtime compensation. Id., at ____ (slip op., at 11). The Encino ruling, however, alarmingly overturned decades of Supreme Court precedent regarding exemptions and the Act. For example, the Court previously held that exemptions to the Act “are to be narrowly construed against the employers seeking to assert them.” Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392. (1960). The Court’s ease in doing away with the previous standard that exemptions must be narrowly applied should be a concern for all who support the original goals and objectives of the Fair Labor Standards Act.

A second case that the Supreme Court decided this past term that involved the FLSA is Epic Systems Corp v. Lewis. This case also involved the Federal Arbitration Act (FAA) and the National Labor Relations Act (NLRA). Simply put, the question in Epic Systems was whether employment contracts entered between employer and employee, which specifically call for disputes between the parties to be adjudicated by individualized arbitration, can still be heard as a class or collective action? The Supreme Court ruled that NO–the terms of the agreements control, and the disputes must be arbitrated.

The Epic Systems employees sought relief from what they alleged was underpayment of wages in violation of the FLSA. The employees argued they should be allowed to collectively litigate as a group, in contravention to signed contracts calling for one-on-one arbitration, in order to recover lost wages. The lynchpin of the legal arguments in Epic Systems centered on the interplay between the FAA (adopted 1925) and the NLRA (adopted 1935). In brief, it is generally agreed that the FAA mandates the enforcement of an arbitration agreement according to the terms of the agreement. There is an exception, however, if the terms of the agreement violate another federal statute. Ergo, here comes the NLRA. The employees argued that the NLRA gave them the right to “bargain collectively . . . and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . .” 29 U.S.C. § 157. According to the reasoning of these workers, since these contracts violated a federal law (NLRA), the FAA cannot govern the contracts and the employees are free to collectively litigate in order to recover lost wages.

Unfortunately for these workers, the Court ruled that the FAA and NLRA do not conflict and therefore the FAA must be followed. The call for one-on-one arbitration wins, and collective or class action enforcement loses under these agreements.

The rollback in the rights of America workers to enjoy earned overtime pay or the right of employees to collectively fight for lost wages is indeed troubling. In fact, within hours after the Epic Systems opinion was issued, large law firms were already planning for the expected demand from employers for employment contracts calling for binding arbitration to settle disputes. With the current legal environment, why would an employer not seek to control its workforce through binding arbitration?

Barring a dramatic change in the makeup of the Supreme Court, decisions like Encino and Epic Systems will become the norm and not the exception. However, hope should not be lost. The employment attorneys at Sanford Heisler Sharp., are experienced in civil litigation and are here to help with offices located nationwide — New York, Baltimore, Washington, DC, Nashville, San Diego, and San Francisco.[1] The FLSA was passed by Congress in 1938. For an interesting review of the passage of the Act see https://www.dol.gov/oasam/programs/history/flsa1938.htm (as last visited, August 5, 2020).