The US Supreme Court [official website] ruled [opinion, PDF] Monday in Encino Motorcars v. Navarro [SCOTUSblog materials] that it could not rely on the Department of Labor’s (DOL) interpretation of a statute on overtime pay, sending the case back to the lower court. The issue in the case was whether “service advisors” at car dealerships are exempt from the Fair Labor Standards Act’s (FLSA) overtime-pay requirements. The DOL had originally concluded [SCOTUSblog report] that service advisors were entitled overtime pay, but reversed its decision following numerous courts’ rejection of the regulation. Then the DOL updated the regulation back to its original stance excluding service advisors from the statute. The plaintiff employee, Hector Navarro, filed suit against his automobile dealership employer alleging that the latter violated the FLSA when it did not pay him overtime compensation. Navarro argued [SCOTUSblog report] that the justices should rely on the updated DOL regulation, but the court stated that “one basic procedural requirement of administrative rulemaking is that an agency must give adequate reasons for its decisions.” The court concluded [Forbes report] that the update to the FLSA was “issued without the reasoned explanation that was required in light of the [DOL’s] change in position,” that the industry relied upon the DOL’s position since 1978 that service advisors were exempt from overtime pay requirements, and that the updated rule could not carry the force of law. The Supreme Court vacated and remanded [The Hill report] the case to the Ninth Circuit for further review in a 6-2 opinion.

This case is decided on the heels of a DOL decision to update its FLSA overtime rules. Since 1938, the FLSA directed [Business Insider report] that employees must be paid at least time-and-a-half for each hour they worked more than 40 hours a week. Workers that received less than $23,660 a year or $455 a week were to be paid overtime with some exceptions. Last month the White House announced [Business Insider report] that the DOL would raise the salary threshold for overtime pay to $47,476 a year or $913 a week. The change has widespread consequences [Forbes report] for businesses and nonprofits who must either raise the wages for employees or pay overtime compensation. The Obama administration has maintained [DOL official site] that the new rule will improve the lives of workers while businesses and Republicans have criticized [SHRM report] the rule stating that it will “hurt the lowest paid American workers the most”.