The dealership exemptions

Question presented

A dealership may describe many roles as “exempt.” Which exact federal or California overtime route is asserted, and do establishment, actual duties, compensation, time allocation, and period records establish every element?

There is no general dealership status. Federal section 13(b)(10), section 7(i), white-collar rules, and California commission, white-collar, and outside-sales routes ask different questions. Federal treatment does not remove California protections. Titles, annual earnings, and pay codes are evidence, not conclusions.

Rule architecture

Federal section 13(b)(10). This route covers only a salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements at a nonmanufacturing establishment primarily selling those vehicles to ultimate purchasers. Truck and trailer wording needs special care. Both the establishment’s business and actual primary duty require proof.

In Encino Motorcars, LLC v. Navarro, 584 U.S. 79 (2018), the Supreme Court held that service advisers primarily engaged in servicing automobiles fit the federal language. It does not classify every service-lane employee; other and mixed roles remain fact-specific. Section 13(b)(10) concerns FLSA overtime only, leaving California rules separate.

Federal section 7(i). This route requires a qualifying retail or service establishment, a regular rate strictly greater than one and one-half times the federal minimum wage in each overtime week, and more than half of representative-period compensation in commissions. At the current $7.25 federal minimum, the rate must exceed $10.875. California applies its own higher floor separately.

The commission-share test needs defensible classification, a proper representative period, and section 516.16 records. Salary, draw, and bonuses do not become commissions through one payroll code. DOL letter FLSA2003-1 relied on one dealership, a single qualifying establishment rather than separate finance business, sales-department work, exclusive dealer pay, retail sales, the required rate, and commission share. It placed that described F&I role outside section 13(b)(10). The guidance is fact-bound.

Federal white-collar routes. Executive and administrative treatment requires the selected salary-level, salary-basis, and duties predicates. At the July 18, 2026 cutoff, the federal level is $684 per week. Commissions may supplement a qualifying guarantee but cannot cure a missing guarantee, improper deductions, or duties. Executive analysis asks about management, two supervised employees, and personnel authority or influence. Administrative analysis asks whether office work relates to management or general business operations and includes discretion on matters of significance. Senior production work alone is insufficient.

California is a new decision tree. Dealer-connected sales, service, and parts commonly begin with Wage Order 7; a genuinely separate repair or transportation operation may implicate Wage Order 9 or another order. Employer, physical operation, and principal business matter more than branding.

Section 510 and the selected order provide daily and weekly overtime. Wage Order 7 section 3(D) requires earnings above 1.5 times the wage-order minimum-wage benchmark and more than half of compensation in California commissions. At the 2026 state minimum of $16.90, earnings must exceed $25.35 per hour. A higher local wage remains independently payable; this guide does not assume it rewrites the wage-order exemption benchmark. Peabody rejected backward commission attribution under the general payday regime while identifying section 204.1’s dealer provision as distinct.

California executive and administrative routes require a salary of at least twice the state minimum for full-time work and qualifying duties more than half of work time: $70,304 annualized statewide in 2026. Outside sales generally requires more than half of work time away from the employer’s business selling or obtaining orders; occasional deliveries or test drives do not establish it.

Decision sequence

1. Define employer and operation. Identify the employing entity, worksite, dealer license, establishment boundaries, primary business, retail-sales facts, and whether a department is physically or organizationally separate.
2. Reconstruct actual duties. Use representative-day samples to quantify selling, servicing, repair, parts, paperwork, customer contact, supervision, policy work, and offsite activity.
3. Classify every pay component. Separate salary, hourly pay, true commissions, piece rates, draws, guarantees, bonuses, reimbursements, and reversals; identify earning and payment dates.
4. Test federal routes one at a time. Apply section 13(b)(10), section 7(i), and the selected white-collar route without borrowing establishment, duty, or pay predicates across them.
5. Select the California wage order. Then test the state commission, executive, administrative, and outside-sales routes independently by the state’s own periods and standards.
6. Verify the record. Match duty evidence, punches, system events, plans, transaction output, payroll, representative-period schedules, and wage statements for the same dates.

Evidence map

Worked example

Assume one dealer employs a service adviser who opens repair orders, discusses recommended work with customers, coordinates technicians, performs no repairs, and spends 46 recorded hours on the premises in a week. Pay is a $900 recoverable draw plus 4 percent of identified customer-pay labor and parts. The dealer invokes section 13(b)(10), section 7(i), and California’s commissioned-employee route in the alternative.

For section 13(b)(10), Encino makes actual automobile-servicing duties central, but the dealer still must prove the establishment and vehicle-sales business. Primarily processing warranty paperwork could point differently.

For section 7(i), calculate this overtime week rather than an annual average. The rate must exceed $10.875, and qualifying commissions must exceed half of representative-period compensation. The draw ledger, later credits, formula, and section 516.16 records are essential. One federal route does not prove the other.

California starts over. Confirm Wage Order 7 for the integrated service lane, then test earnings above the state benchmark, a majority of true commissions, and payment timing. Federal treatment cannot erase daily overtime. The $900 weekly draw annualizes below $70,304, and the facts do not show predominantly administrative duties.

Strategic implications

For dealers: document each asserted route. Preserve establishment evidence, representative periods, duty samples, guarantees, commission classifications, and weekly calculations. Re-test after changes to ownership, location, duties, wage floors, or plans. Flag any route whose required record cannot be reproduced.

For workers: preserve schedules, personal time notes, plans, wage statements, job descriptions, representative work samples, system timestamps, and proof of where duties occurred. Compare what the policy calls the job with what occupied the workday. Identify the failed predicate precisely rather than treating all dealership roles alike.

Both sides should evaluate competing factual explanations. A worker may serve customers while primarily doing clerical processing; a high monthly commission may arrive after a low week; a department may appear separate on an org chart while sharing the same establishment. Those are record questions before they are legal conclusions.

Analysis limits

This guide does not select a wage order, classify an individual, establish an overtime route, determine hours worked, or calculate relief. Local wage floors, municipal rules, collective bargaining provisions, mixed establishments, truck or trailer roles, and later commission allocation may change the analysis. Agency opinion letters apply only to their stated facts. Current-law cutoff: July 18, 2026.

Primary authority

• 29 U.S.C. §§207(i) and 213(b)(10): distinct federal retail-commission and dealership-duty routes.
• 29 C.F.R. §§516.16, 779.372, 779.410–.421: representative-period records, dealership definitions, and section 7(i) predicates.
• Encino Motorcars, LLC v. Navarro, 584 U.S. 79 (2018): federal treatment of service advisers primarily engaged in servicing automobiles.
• WHD FLSA2003-1: fact-limited section 7(i) guidance for the described F&I salesperson and a section 13(b)(10) distinction.
• Federal white-collar regulations: 29 C.F.R. §541.100 and §541.200 supply the executive and administrative duty tests; §§541.600, 541.602, and 541.604 separately address salary level, basis, and additional compensation.
• California Labor Code §510; Wage Orders 7 and 9; MW-2026: independent California overtime, wage-order, commission, duties, and pay tests.
• Peabody v. Time Warner Cable, 59 Cal.4th 662, 668–670: period-specific commission treatment under the general payday regime and its express vehicle-dealer distinction.