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U.S. Labor Department deems service writers eligible for OT pay

April 29, 2011
Dealers who classify their service writers as exempt from overtime pay can expect to be challenged on the issue by investigators for the U.S. Department of Labor, following a departmental decree that it considers service writers eligible for overtime compensation effective May 5.
The move reverses a position the labor department held for at least 32 years.
The Fair Labor Standards Act (Act) includes an overtime exemption that applies to certain employees of automobile dealerships, specifically any “salesman, parts man, or mechanic primarily engaged in selling or servicing automobiles [or] trucks. . . .”
Although the Act does not specifically identify service writers as an exempt position, courts generally have held that service writers work like salespersons under the statute and therefore also are exempt from overtime pay.
The language of the Act superficially supports the Labor Department’s newfound view: If Congress wanted to include service writers as exempt from overtime pay, it easily could have done so. Because it did not, so goes the Department’s argument, any interpretation that includes service writers as ineligible for overtime pay runs contrary to congressional intent and is invalid.
What lies ahead?
Courts tend to defer to the Labor Department’s interpretation of the Act. But while the majority of courts that have considered the question decided that service writers are exempt, the Seventh Circuit Court of Appeals—the court with jurisdiction over dealers in Illinois, Indiana and Wisconsin—has not previously decided the issue.
The Seventh Circuit could well reject the reasoning of the other courts and accept the Labor Department’s new position.
Managing the risk
The CATA’s labor relations counsel, Franczek Radelet, said dealers who classify service writers as overtime-exempt have a few options to minimize their risk of liability in a Labor Department payroll audit or in a private claim or lawsuit by a service writer.
1. The dealership could change the classifications for service writers and treat them as non-exempt employees. That would require the dealership to track the service writers’ hours worked (e.g., with a punch clock) and pay them an overtime rate for any hours worked over 40 in a workweek. If the service writer is partially paid by commission or other variable pay, the calculation of the effective hourly rate for the service writer can become complicated.
2. Service writers also could potentially satisfy a different overtime exemption—the retail exemption—under Section 7(i) of the Act. To qualify for the retail exemption, ALL of the following conditions must be met:
• The service writer must be employed by a retail or service establishment. A dealership will meet this exemption if more than 75 percent of its annual revenue comes from the sale of consumer goods, i.e., automobiles.
• The service writer’s regular rate of pay must exceed 1.5 times the current federal minimum wage, $7.25 an hour. To meet this requirement, the hourly rate must exceed $10.88.
• More than half of the employee’s total earnings in a representative period must consist of commissions on goods or services.
3. Finally, dealerships could potentially classify certain service writers as exempt employees under either the executive or administrative overtime exemptions if they work as supervisors or managers.
Dealer members of the CATA with questions about applying these exemptions for service writers or about the Labor Department’s new enforcement policy can contact Franczek Radelet attorneys Staci Ketey Rotman or Mark Wilkinson, both at (312) 986-0300.