New Jersey appears poised to adopt a unique “average retail labor time allowance” multiplier to the compensation OEMs must pay dealers for warranty service, after both houses of that state’s Legislature voted on June 30, 2025 to adopt the Motor Vehicle Open Recall Notice and Fair Compensation Act (S.3309). The legislation now goes to New Jersey Gov. Phil Murphy for his review and approval. If approved, S.3309 would amend the New Jersey Franchise Practices Act, N.J. Stat. § 56:10-1 et seq., and would be the latest in a series of measures in a number of states that seek to regulate not only the labor rate manufacturers must pay dealers for performing warranty repairs, but also the time allowances for those repairs.
New Wrinkle Under New Jersey Law
Manufacturers provide limited written warranties covering new cars they sell in the United States, but are typically prohibited by various state dealer statutes from directly or indirectly performing warranty service on those vehicles. Instead, manufacturers must contract with their authorized dealers to perform warranty service at OEM expense and at no charge to customers, with the agreement between the parties detailing the method by which the dealer’s labor rate will be established and the time allowances for particular repairs. Those time allowances are based on studies conducted by manufacturers to determine the average amount of time it takes a trained technician to perform actual repairs, often with an additional margin for diagnostic and other time, and manufacturers reimburse dealers at a flat rate for this amount of time, regardless of whether the dealer’s technician takes more or less time to perform the repair.
Virtually every state in the United States—including New Jersey— has adopted statutory requirements that permit new car dealers to seek compensation from manufacturers for warranty repairs at the dealer’s “average retail labor rate.” This rate is calculated using a selected sample of sequential repair orders from actual customer pay, non-warranty repairs the dealer has recently performed, excluding certain routine minor service activities (such as oil changes). This average retail labor rate is then multiplied against the time allowance for a particular repair contained in the OEM’s flat rate time guide, and the manufacturer reimburses a dealer this amount in connection with a particular warranty repair.
If approved, the amendments to the Franchise Practices Act under S.3309 would give New Jersey new car dealers the option to receive not only their “average retail labor rate,” but also to be reimbursed for warranty repairs using an “average retail labor time allowance.” This time allowance would be established by a dealer submitting 100 sequential customer paid service repair orders or 90 days of customer paid service repair orders, whichever is less, to the manufacturer, covering repairs made no more than 180 days before the submission. The number of hours billed in those repair orders would be divided by the number of hours permitted by the manufacturer for the repairs under the manufacturer’s labor time guide, with the resulting quotient used as the “average retail labor time allowance.” This new time allowance serves as an additional multiplier for all warranty repairs performed by the dealer, with the warranty labor compensation now being calculated as: (1) the dealer’s “average retail labor rate,” as calculated under the state statute, multiplied by (2) the number of hours provided for the repair that is performed in the manufacturer time guide, multiplied by (3) the “average retail labor time allowance.”
For example, a New Jersey dealer with a $150 warranty labor rate and a 1.7 average retail labor time allowance performs a repair for which 2.0 hours is allotted in the OEM’s flat rate time guide. Under current New Jersey law (and the law in most other states), the dealer would receive $300 ($150 x 2.0 hours) in compensation from the manufacturer for performing that warranty repair. Under S.3309, however, the dealer would be compensated $510 ($150 x 2.0 hours x 1.7). The legislation, which passed the New Jersey Legislature with strong labor support, provides that “[u]pon payment of a claim for labor services under this section by the motor vehicle franchisor . . . the motor vehicle franchisee shall compensate its factory-certified flat rate technicians performing work on a warranty” or warranty-like work, but is silent as to the amount of the increased reimbursement must be passed on to technicians.
Warranty Time Allowances in Other States
If S.3309 is approved, New Jersey will become the latest state to regulate the time allowances provided by manufacturers for warranty repairs. Illinois was first to adopt a flat rate time guide multiplier in 2022 when it amended the warranty reimbursement provision of the Illinois Motor Vehicle Franchise Act, 815 Ill. Comp. Stat. 710/6(b), to require OEMs to reimburse dealers based on the manufacturer’s flat rate time guide with a 1.5x multiplier applied. In 2024, New York and Alaska joined Minnesota and Montana in permitting dealers to seek warranty labor reimbursement based on the time allowances contained in third party time guides used by dealerships in connection with customer pay repairs. Unlike OEM flat rate time guides, third party time guides are not based on time studies, but instead are time estimates prepared by time guide publishers for use by independent repair facilities, whose technicians do not receive specialized training and do not have special tools available to them in performing repairs.
