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Anticipated Supreme Court Opinions Will Have Impact on Employers

By Leah A. Fuessel

During the Fall 2017 Term, the United States Supreme Court is hearing oral arguments on a variety of issues, including cases involving the definition of an exempt employee under the FLSA, an employer’s ability to avoid litigation over wage and hour matters through the use of employment agreements and the scope of authority of government agencies.  The result of some of these issues may directly affect the interests of many, including not for profits, small businesses, and governmental entities.

On October 2, 2017, the Supreme Court heard oral argument in Epic Systems Corp. v. Lewis, previously discussed in the 2017 Kopon Airdo Employment Law ManualEpic Systems involves a Wisconsin-based corporation, Epic, which required its employees to resolve any employment-based disputes through arbitration, instead of formal litigation.  Additionally, Epic required its employees to waive their rights to participate or receive any benefit from class action suits brought against Epic.

In 2015, Epic was sued by a former employee in federal court.  This employee alleged that he and others were denied their overtime wages, in violation of the Fair Labor Standards Act.  Epic moved to dismiss these claims, citing its arbitration and class action waiver agreement.  The District Court denied Epic’s motion to dismiss on the grounds that the arbitration agreement violated the rights of employees to act in concert, pursuant to the National Labor Relations Act (NLRA).  The Seventh Circuit affirmed, and added that because the agreement is unenforceable under the NLRA, the arbitration agreement is unenforceable under the Federal Arbitration Act which provides that arbitration agreements are to be generally enforced unless legal or equitable grounds that would render a contract unenforceable exist.

If the Supreme Court agrees with the Seventh Circuit, the effect on employers may be significant.  Specifically, employers will not be able to require its employees to use only arbitration as the means for resolving employment disputes.  This result could change the way that employers approach and structure their employment agreements.

Epic is not the only FLSA case the Supreme Court will hear this term. In September, the Supreme Court granted certiorari to hear Encino Motorcars, LLC v. Navarro again.  The issue in Navarro is whether “service advisors” at a car dealership, whose responsibilities primarily include identifying customers’ needs and selling service solutions, are exempt from overtime pay under the FLSA. The FLSA exempts “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” from its overtime compensation requirements.

The Ninth Circuit has held that service advisors are not exempt from the FLSA’s overtime requirements and must be paid on an hourly basis, with overtime pay for time worked over forty hours per week. The Ninth Circuit’s holding contradicts holdings on the same issue in the Fourth and Fifth Circuits, as well as the Montana Supreme Court, all of whom have held that service advisors fall within the salesman exception of the FLSA, and are not entitled to overtime compensation.

In June 2016, the Supreme Court directed the Ninth Circuit to reconsider its holding, concluding that the Ninth Circuit used the wrong standard in reaching its conclusion.  The Ninth Circuit reconsidered its ruling, applying a different standard, and reached the same result.  The Supreme Court has decided to review that ruling and will hear the case again later this year or in early 2018.  If the Supreme Court agrees with the Ninth Circuit, this will narrow the definition of the “salesman, partsman, or mechanic” overtime exemption within the FLSA, thereby requiring employers to pay overtime compensation to employees that would have previously been exempt.

Another interesting case in the area of administrative law, heard by the Supreme Court on October 11, 2017, is National Association of Manufacturers v. Department of Defense, a case regarding the application and scope of the Administrative Procedure Act (APA) and the Clean Water Act (CWA). Under the CWA, a court may review the Environmental Protection Agency’s (EPA) issuance or denial of any permit that places restrictions on waste emissions in federal waters. In 2015, the EPA issued a final rule defining “the waters of the United States.” Numerous states challenged this rule as inconsistent with the CWA, and therefore, adopted in violation of the rule-making procedures required by the APA.

The Sixth Circuit in National Association of Manufacturers held that the actions of the EPA, in effect, are within the EPA’s authority under the CWA to grant or deny permits with respect to emissions in federal waters. The Sixth Circuit’s holding interprets the CWA very broadly, and has the effect of giving more authority to the EPA.

National Association of Manufacturers is significant because administrative law has, through federal court and, specifically, Supreme Court history, been an ever-changing, and sometimes indefinite, area of law. If the Supreme Court agrees with the Sixth Circuit, the Court could set a precedent of allowing more deference and authority to administrative agencies with respect to the acts that each agency administers, effectively giving courts less discretion in reviewing administrative action.

These cases are only a few among others that the Supreme Court is scheduled to hear this term. Other cases include issues regarding the scope and application of the Fourth Amendment, securities law, and immigration. To view the Supreme Court’s full schedule, click here.