Court Strikes Down New FLSA Regulation Limiting Exemption for Home-Care Workers

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By Chris Opfer

Dec. 23 — A federal judge Dec. 22 invalidated part of a Labor Department regulation requiring employers to pay most home-care workers minimum wages and overtime, striking down the provision 10 days before it was slated to take effect.

The U.S. District Court for the District of Columbia granted partial summary judgment to the Home Care Association of America and two other groups on claims that the DOL violated the Administrative Procedure Act in issuing as part of the regulation a provision that home-care workers employed by a third-party business are no longer exempt from the Fair Labor Standards Act's minimum wage and overtime requirements.

The court found that Congress didn't delegate to the department the authority to change the FLSA's statutory terms, which exempt “any employee” providing “companionship services” from the minimum wage and overtime requirements and exempt “live-in” domestic service providers for the overtime obligation.

The new DOL rule on home-care workers “essentially would eviscerate a Congressionally-mandated exemption via a method Congress never envisioned,” Judge Leon wrote. He said U.S. Supreme Court precedent affirming current regulations “does not grant the Department judicial cover for what can only be characterized as a wholesale arrogation of Congress's authority in this area!”

The new rule “essentially would eviscerate a Congressionally-mandated exemption via a method Congress never envisioned,” Judge Richard J. Leon wrote. He added that U.S. Supreme Court precedent affirming current regulations interpreting the law “does not grant the Department judicial cover for what can only be characterized as a wholesale arrogation of Congress's authority in this area!”

Companionship Services Definition Change Remains

However, the court didn't invalidate a separate provision of the new regulation that updates the definition of “companionship services” to narrow the types of duties for which workers are exempt from the FLSA's minimum wage and overtime requirements. Leon said the DOL acted “appropriately” in filling a gap left by Congress with respect to the specific exempted activities.

Labor Department spokesman Jason Surbey told Bloomberg BNA Dec. 23 that the DOL “strongly disagrees with the district court’s opinion.” He added that the new definition of “companionship services” will go into effect as planned.

“As of January 1, 2015, one of the Final Rule’s central changes, the revision of the outdated definition of ‘companionship services,' will go into effect,” Surbey told Bloomberg BNA. “All employers of home care workers, including third party employers, will be obligated to consider the duties such workers perform in evaluating whether they must pay wages in compliance with the minimum wage and overtime requirements.”

The International Franchise Association joined with the Home Care Association and the National Association for Home Care and Hospice as plaintiffs in the litigation.

“Today’s victory is a small but important step in protecting clients, workers and local franchise business owners in the home care industry,” IFA Executive Vice President Robert Cresanti said in a Dec. 22 statement following the decision. “While we are mindful that only part of the DOL’s damaging regulation has been vacated thus far, we are encouraged by the court’s willingness to hold the Administration accountable for misguided policies pursued in defiance of congressional intent and legal precedent.”

Rule Elicited Flurry of Comments

The Labor Department originally proposed the rule in December 2011, a move that generated more than 26,000 public comments from industry groups, labor organizations and other stakeholders. The department issued the final rule in September 2013.

The rule addressed the FLSA exemption for home-care workers who provide “companionship services” and “in-home” domestic services for clients and said it is limited to workers who work directly for a client, rather than through a third-party agency or other business. It also clarified the definition of “companionship services” to include only social, physical and mental “fellowship” activities and “protection” services, such as being present when a client is inside the home to monitor the person's safety.

The department said the rule was intended to reflect changes in the home-care industry since the exemptions were originally enacted in 1974. “The Department intends for the exemption to apply to those direct care workers who are performing ‘elder sitting' rather than the professionalized workforce for whom home-care is a vocation,” the DOL wrote of the companionship services definition change in the final rule.

Opponents of the new regulation, including industry groups and some congressional Republicans, said it would cause home-care costs to skyrocket by making the vast majority of workers eligible for federal minimum wages and overtime pay.

Sen. Lamar Alexander (R-Tenn.), the ranking member on the Health, Education, Labor and Pensions Committee, was among a group of 24 Republican lawmakers who in September signed a letter to Labor Secretary Thomas E. Perez, asking him to suspend the rule's implementation. They cited the rule's “sweeping changes” to the exemptions and said state Medicaid and other programs needed more time to implement the new requirements.

The DOL announced Oct. 7 that it would delay enforcement actions under the new rule until June 2015 and exercise “prosecutorial discretion” about which cases to pursue through the end of the year. Opponents seized on the announcement as proof that the changes were untenable and said the delay simply created more confusion for employers.

Supporters of the rule, on the other hand, have argued that the changes are necessary to allow home-care workers to make a living wage. In a statement issued Dec. 22, the Paraprofessional Healthcare Institute said the district court's ruling “allows this multibillion dollar industry to continue to profit from an exemption to our nation’s most basic labor law, while perpetuating the exploitation of home-care aides who provide vital services to millions of Americans.”

Rule ‘Transforms Defining Statutory Terms.'

Granting partial summary judgment to the Home Care Association and the two other groups, the district court held that Congress didn't delegate to the Labor Department the authority to decide that all third-party home-care workers were no longer covered by the companionship service and in-home domestic services exemptions.

“[A]n agency's general rulemaking authority does not necessarily mean that every specific rule the agency promulgates will be a valid exercise of that authority,” Leon wrote. “Congress surely did not delegate to the Department of Labor here the authority to issue a regulation that transforms defining statutory terms into drawing policy lines based on who cuts a check rather than what work is being performed.”

Leon said Congress left certain “definitional gaps” in the exemption for the DOL to fill, including the types of work that qualify as companionship services under the exemption. He said lawmakers made clear, however, that the exemption was to apply to “any employee” performing those services, regardless of whether the employee works directly for a client or is employed through a third party.

Indeed, the court noted that the Supreme Court upheld the exemption in Long Island Care at Home v. Coke, 551 U.S. 158, 12 WH Cases2d 1089 (2007), and that legislation that would have revised the FLSA to remove third-party home-care workers from the exemption has thus far failed to move in Congress. “[T]he Department of Labor amazingly tried to do administratively what others had failed to achieve in either the Judiciary or Congress,” Leon wrote.

Although the Supreme Court in Coke held that the DOL's then-current regulations interpreting the companionship exemption were valid and enforceable, the district court said the new regulations posed a different question because they contradicted the statute's plain language. Leon said the Coke decision didn't empower the department to “gut” the statutory exemptions.

The Home Care Association was represented by Maurice Baskin of Littler Mendelson P.C. and William A. Dombi of the Center for Health Care Law, both in Washington, D.C. Julie S. Saltman of the Justice Department in Washington represented the DOL.

To contact the reporter on this story: Chris Opfer in Washington at copfer@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

Text of the opinion is available at http://op.bna.com/dlrcases.nsf/r?Open=copr-9s3pem.