Federal Court Saves the Day—Eviscerates Department of Labor’s Changes to Companionship Exemption

January 16, 2015Articles
As many home health care agencies were preparing for major changes to their business, the U.S. District Court for the District of Columbia (the “District Court”) eviscerated the U.S. Department of Labor’s (“DOL”) proposed companionship regulations set to take effect January 1, 2015. A coalition of associations (the “Coalition”) representing home care providers across the country filed litigation challenging the DOL’s proposed changes to the federal companionship exemption, contending that the DOL’s rule exceeded its authority under the FLSA, which specifically exempts companionship and live-in employees from overtime requirements in order to maintain the affordability of home care services.

On December 22, 2014, in the first of two significant blows, the District Court struck down the portions of the regulation applicable to third-party employers. Because the December 22, 2014, ruling did not address the narrowed definition of what services were included under the exemption, the Coalition requested that the District Court vacate that portion of the rule as well. On January 14, 2015, Judge Leon agreed with the Coalition and vacated the new definition of “companionship services” proposed by the DOL.

Proposed Regulatory Changes to Federal Companionship Exemption

On October 1, 2013, the DOL promulgated a Final Rule which made a number of changes to the longstanding regulations on the companionship services exemption from minimum wage and overtime compensation under the FLSA. The Final Rule would have made most home-care workers eligible for minimum wages and overtime pay. The Final Rule eliminated the companionship exemption for “third-party providers” of home care services and narrowed the companionship exemption significantly, largely limiting it to “fellowship and protection,” and excluding home care workers who spent more than 20 percent of their work hours performing “care” services, such as dressing, grooming, feeding, bathing, toileting, transferring, light housework, and providing transportation.

If implemented, the Final Rule would have significantly changed the landscape for home health care agencies which had operated under largely the same regulations for over 40 years.

Federal Court Vacates Regulation Excluding Third-Party Employers from the FLSA Companionship and Live-In Domestic Employees Exemption

On December 22, 2014, the District Court vacated a significant portion of the DOL’s regulations that had interpreted the terms “companionship services” and “live-in domestic services” so as to limit the minimum wage and overtime exemptions only to individuals who were directly employed by the recipient or their household that was the beneficiary of the services. In vacating the regulation, the District Court noted that the DOL sought to overhaul a regulation that not only stood for 40 years, but which had been previously upheld by the United States Supreme Court in Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158 (2007). Specifically, the District Court remarked that the DOL’s revised regulation, as applied to third-party employers, “not only disregard[ed] Congress’s intent, but seize[d] unprecedented authority to impose overtime and minimum wage obligations in defiance of the plain language” of the FLSA. The District Court admonished the DOL’s attempt “to do through regulation what could not be done through legislation.” As a result of the District Court’s order, the DOL’s exclusion of third party employers from the companionship and live-in domestic employee exemption provisions of the FLSA did not take effect on January 1, 2015, although an appeal is likely.

The importance of this ruling cannot be overstated to the home health care industry. Without it, any worker, aside from those directly engaged by the recipient of care, would have been subject to the FLSA’s minimum wage and overtime regulations, thus exposing employers to increased payroll costs and increased litigation stemming from individual and collective action lawsuits.

Federal Court Vacates Definition of Companionship Services

On Wednesday, January 14, 2015, in the second significant blow to the efforts of the DOL, the District Court vacated the DOL’s rule that purported to narrow the definition of “companionship services,” stating that the regulations run contrary to legislative intent. The rule, which would have made most home care workers eligible for minimum wage and overtime pay, will not take effect unless the district judge is reversed on appeal. Similar to his December 22, 2014 decision, the District Court concluded again that the DOL did not have the authority to redefine the companionship exemption. The District Court stated “[h]ere, yet again, the [DOL] is trying to do through regulation what must be done through legislation. And, therefore, it too must be vacated.” According to the District Court, the statutory language of the exemption made clear that companion services are services provided to the elderly and disabled individuals who “are unable to care for themselves.” The DOL attempted “to issue a regulation that would [effectively] write out of the exemption the very ‘care’ the elderly and disabled need.” Congress is the appropriate forum in which to debate the competing interests in this matter, according to the ruling.

Moving Forward in Light of the District Court’s Rulings

It is important to note that the December 22, 2014 and January 14, 2015 decisions do not disturb any state or local wage and hour laws or regulations applicable to agency workers who perform companionship services or live in domestic services. Further, both decisions are likely to be appealed and the battle between the DOL and the Coalition will be ongoing. For at least the foreseeable future, the DOL appears to be vigilant in its attempt to capture minimum wage and overtime pay for home health care employees.

We can answer many of your questions regarding the scope and implications of the District Court’s rulings. Contact your Dinsmore attorney to learn more.