NADA's Jack Kain: The ruling is "a major victory for dealers."
A three-judge panel of the 9th U.S. Circuit Court of Appeals in Portland, Ore., last month overturned three lower-court rulings that said F&I managers are entitled to overtime wages.
Those cases challenge dealerships' efforts to extend to F&I managers an overtime exemption in the federal Fair Labor Standards Act.
That exemption applies to retail employees who earn more than half their pay from commissions and make at least 1½ times the minimum wage for the hours they work.
The plaintiff's lawyer in one of the three cases, John Scannell of Seattle, says he is asking the full appeals court to review the panel's ruling.
"This is a case of national importance," Scannell says. "Employers should not be able to create a separate department for nonexempt employees. Dealers are just trying to get around the law."
Robert Bekken, a labor lawyer in Costa Mesa, Calif., who argued the dealers' case before the appeals court, calls the ruling "a landmark decision."
If the lower-court rulings were to prevail, Bekken says, dealerships across the country could face class-action suits by F&I managers seeking back pay. Plaintiffs' lawyers could claim dealers owe F&I managers 1½ times their normal pay rate whenever they work more than 40 hours a week, he adds.
That exposure could cost dealerships "hundreds of millions of dollars," the National Automobile Dealers Association says.
Plaintiffs in the three overtime cases say dealerships applied the retail-employee exemption improperly. They argue F&I products are not retail goods. They cite previous court rulings that declared finance companies and insurance brokerages are not retailers.
The plaintiffs also claim some dealerships are not retail operations. To qualify for the overtime exemption, a business must derive 75 percent of its gross revenues from retail sales. The plaintiffs argued that car and truck leases are not retail transactions because lease customers don't own the vehicles.
The appeals court rejected those claims. It said dealerships are retail establishments and vehicle leases are retail transactions.
"The customer who signs a retail automobile lease is the intended consumer of that vehicle," the ruling said. "Neither the dealer nor the customer enters into a lease with the expectation that the vehicle or its parts will be promptly resold."
Because F&I managers work for retail businesses, the court concluded, they are not entitled to overtime pay.
NADA and the U.S. Department of Labor filed briefs with the appeals court on behalf of the dealer defendants. NADA Chairman Jack Kain calls the appeals court ruling "a major victory for dealers."
Says Kain: "The court clearly heard our views and issued an opinion that protects dealers from hundreds of millions of dollars in potential liability."
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