Professional Service Agreement

Week In Review

January 25, 2016

High Court will resolve overtime exemption’s application to auto service advisors
The U.S. Supreme Court has agreed to review a federal court’s determination that an auto dealership’s service advisors did not fall within the exemption to overtime pay for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” A decision is expected to be released by July 2016. In its 2011 rulemaking, the Department of Labor (DOL) explained that, since service advisors do not meet the definition of the exemption, they were not exempt from being entitled to receive overtime pay. To determine if the DOL interpretation was controlling, the federal court applied a two-step analysis. In doing so, the court noted that the Fair Labor Standards Act (FLSA) is to be read liberally in favor of employees, and consequently, exemptions are to be narrowly construed. First, the court found that the relevant statutory text was capable of several different interpretations. Thus, the court could not readily find that the service advisors “plainly and unmistakably” fell within the reach of the exemption. In the face of this statutory ambiguity, the court looked to the DOL regulation and, having been promulgated after notice-and-comment rulemaking, considered the rule under a “reasonableness” standard. Even if the DOL’s 2011 final rule did amount to a change of position on the reach of the exemption, the court said the DOL would still be entitled to deference. Turning to the next step in the analysis, the court held the DOL’s interpretation of the ambiguous statutory provision was a reasonable one and would not be disturbed.

DOL issues guidance on joint employment – “as broad as possible”
Broader than the common law test, broader than the recently announced test by the National Labor Relations Board, broader than the OSHA test – the test for joint employment under the Fair Labor Standards Act (FLSA) “is as broad as possible.” On January 20, the Department of Labor (DOL) issued an Administrator Interpretation regarding what arrangements will constitute joint employment under the FLSA. Under the FLSA, when an employee is employed by two or more joint employers, each entity can be liable for wage and hour violations. The new DOL guidance makes clear that the DOL intends to interpret broadly who is a “joint employer” for the purpose of compliance with the FLSA. While employers in all industries would be wise to take note, the DOL called out the following industries in particular: home health care agencies; construction; agriculture; janitorial; warehouse and logistics; staffing; and hospitality. Under the guidance, the DOL intends to assess whether either of two types of joint employment exists: horizontal joint employment and vertical joint employment. In a horizontal joint employment scenario, the DOL considers the relationship between the two employers, rather than the employee’s relationship with the employers. The DOL seems particularly interested in horizontal joint employment because of the potential overtime pay liability that can arise. In a vertical joint employment scenario, the DOL considers the relationship between the potential joint employers and the employee. The bottom line is that a company cannot utilize workers from a staffing company with the expectation that only the staffing company is responsible for legal compliance.

Federal court upholds NLRB finding that employer unlawfully barred employees from distributing literature in “mixed-use” hallway
A federal court has upheld the findings of the National Labor Relations Board (NLRB) that the main hallway in an employer’s distribution facility was a “mixed-use” area, so that the employer unlawfully prohibited employees from distributing literature during non-work time in a non-work area. In 2011, four different employees handed out literature in the hallway. They were told by security that they could not loiter in the hallway, but could handbill in the cafeteria or break room. The employees brought two unfair labor practice charges alleging that the company prohibited employees from distributing literature during non-work time in a non-work area of its facility. The NLRB and the court ruled that the hallway constituted a “mixed-use” area in which the employer could not prohibit distribution during non-work time. They made this finding based on the following: (1) employees often congregated and socialized in the hallway, which featured televisions where employees for watching weather and company updates, computer stations for checking benefits information and personal email, and areas for employees to use personal cellphones; (2) the employer allowed the hallway to be used for various fairs, charity drives, raffles, and the sale of merchandise.

SESCO recommends that clients review all applicable policy and practices to ensure compliance. For assistance, contact us at 423-764-4127 or by email at