The Supreme Court Reshapes How FLSA Exemptions Are Supposed To Be Interpreted

“One pill makes you larger, and one pill makes you small
And the ones that mother gives you, don't do anything at all

Go ask Alice, when she's ten feet tall”

--White Rabbit by the Jefferson Airplane

The Fair Labor Standards Act (“FLSA”) has been around for more than 80 years. During all that time, the prevailing view has been that it is a remedial law, meant to address the imbalance of power between employer and employee. As a result, any exemption to the FLSA was supposed to be interpreted narrowly, in order to protect the workers and to avoid opening yawning gaps in the enforcement of the law. Accordingly, the Supreme Court has historically construed exemptions to the Fair Labor Standards Act (“FLSA”) narrowly. In the leading case of A.H. Phillips, Inc. v. Walling, for example, the Court held 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).  This rule had been restated so many times by so many courts as to have become accepted hornbook law.

But apparently that precedent may be dead now. In Encino Motorcars, LLC v. Navarro, 584 U.S. __ (2018) (Docket # 16-1362) the Supreme Court  changed course, by a 5 to 4 split, with conservative justices lining up on the side of the majority, and the liberal justices all dissenting. The Court held that the service advisors at an automobile dealership were exempt from the FLSA’s overtime requirement The Court declared that no narrow tailoring rule would be employed, and, instead, the Court would interpret the statutory language as written.

The Court emphatically rejected the 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 further noted 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.  Finally the Court concluded 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. 

What is most notable about the decision, is not the auto dealer based exemption issue, but rather the Court’s repudiation of a long-line of legal precedent on how to interpret FLSA exemptions. The Court also gave no deference to the DOL Field Operations Handbook interpretation or the analysis of the legislative history. This is a significant revision to the FLSA legal landscape. Indeed, it sweeps aside perhaps 80 years of legal precedent that courts shall construe FLSA exemptions narrowly. 

By changing the interpretive rule for FLSA exemptions from a “narrow construction” standard to a “fair reading” standard, the Supreme Court makes it all the more likely that employers have a better chance of prevailing in any exemption disputes. While in the past, close issues were often decided based on this interpretive rule, now they are much more likely to be decided on their facts. And that means the playing field for employers is made more level, or if you are a plaintiff’s lawyer, one of the key props have been kicked out from under you. And to those who wish to appeal otherwise settled law regarding the FLSA, the case gives hope there is a chance of success.