WASHINGTON -- A shorthanded U.S. Supreme Court this week will take up the case of five dealership service advisers who sought overtime pay for their 55-hour workweeks, a dispute that could have big implications for dealerships and their compensation structures.
The question before the court is whether service advisers fall into the same category as dealership salespeople, mechanics and parts department workers, who are explicitly exempted from overtime pay requirements under the Fair Labor Standards Act.
Dealers and many courts have long understood the answer to be yes, and dealerships have structured their bookkeeping and compensation practices accordingly, with many paying service advisers on commission, according to the National Automobile Dealers Association.
But the Obama administration and a ruling by the 9th U.S. Circuit Court of Appeals have challenged that assumption.
"A salesman is an employee who sells cars; a partsman is an employee who requisitions, stocks and dispenses parts; and a mechanic is an employee who performs mechanical work on cars," the 9th Circuit said in its March 2015 decision, backing a 2011 U.S. Labor Department ruling on the matter. "Service advisors do none of those things; they sell services for cars."
If the Supreme Court agrees, many service advisers presumably would qualify for overtime pay under the Fair Labor Standards Act, which established the standard 40-hour workweek in 1938. According to NADA, service advisers work an average of 47 hours a week.
Such a decision would "upend" dealers' understanding of the law and create "widespread unanticipated liability and disruption" at dealerships nationwide, NADA said in a brief filed in the Supreme Court case.
It also could result in "hundreds of millions of dollars" in claims by service advisers seeking to recover back pay, said Steven Szakaly, NADA's chief economist.
Switching to an hourly wage system with overtime could encourage dealers to hire more service advisers with shorter work hours, leading to lower per-employee pay and higher turnover, Szakaly says.