Employers should be aware of two developments in federal wage and hour law.  The U.S. Supreme Court has issued an employer-friendly decision regarding the interpretation of the FLSA exemptions and the U.S. Department of Labor has launched a new program that will allow employers to self-audit and avoid fines for accidental violations of the federal wage and hour laws on overtime and minimum wages.

Supreme Court Decision Signals Broader View of FLSA Exemptions

On April 2, 2018, the U.S. Supreme Court issued an important decision which signals that it will take a broader view of FLSA exemptions.  In Encino Motorcars LLC, v. Navarro, the Court held that auto service advisors, who advise customers about repair work, are exempt under the FLSA exemption that excludes salesmen, partsmen, or mechanics “primarily engaged in selling or servicing automobiles.”

Although this case only involved auto service advisors, the decision is important because the Court abandoned the long-held principle that FLSA exemptions are to be “narrowly construed” against employers seeking to assert them.  In the past, if there was any “gray area” or uncertainty, the court would resolve that ambiguity in favor of employees and hold that they were not exempt.

Now, the Court will apply a “fair reading” of FLSA exemptions, meaning it will take a more holistic, rather than a narrow approach, when determining whether employees are exempt.  This new standard includes a critical examination of the statutory language, consideration of relevant industry practices, and the intent of the exemption.  In the Encino Motorcars, LLC case, the Court looked at the phrases “salesman, partsman, or mechanic” and “selling or servicing automobiles” and determined that the language could be combined such that a “salesman” who is primarily engaged in “servicing” vehicles falls within the exemption.  The Court held that service advisors were “obviously” a form of “salesmen of services” and, therefore, were exempt.

The decision may make it easier for employers to establish that employees are exempt under the FLSA.  But employers should be aware that this decision does not affect state laws and state laws on exemptions still apply.

DOL Announces Pilot Program to Self-Audit

Recently the U.S. Department of Labor announced the “Payroll Audit Independent Determination,” or PAID, program, which will allow employers to self-audit and to pay back wages for accidental overtime and minimum wage violations.  This program requires employers to carefully audit their pay practices and correct any violations going forward.

There are numerous unanswered questions, most notably the effect of voluntary compliance with the federal FLSA under the PAID program would have on potential state violations for the same issues. The program is currently in a six month “pilot” period and will be evaluated at the end of the period.

Before participating in what could be a beneficial and efficient way to resolve possible wage and hour violations, employers are advised to consult counsel to understand the full ramifications of the PAID program.