Sober Home ‘Parents’ May Be Employees Under FLSA

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By Jay-Anne B. Casuga

Oct. 24 — The question of whether sober home residents who perform various duties for the homes’ operator are entitled to minimum wage under federal law is heading to trial ( Perez v. TLC Residential, Inc. , 2016 BL 351795, N.D. Cal., No. 15-02776, 10/21/16 ).

The Labor Department last year sued TLC Residential Inc., which operates group houses in California that provide substance abuse rehabilitation, alleging that the company violated the Fair Labor Standards Act by not paying wages to certain residents known as “house parents.” Those residents provide services such as running household meetings and buying supplies in exchange for free or discounted rent.

TLC Residential countered that the house parents aren’t entitled to FLSA wages because they aren’t employees.

Combating employee misclassification has been a top priority of the Labor Department under the Obama administration, and the current suit presents a unique twist on the issue.

Misclassification cases usually focus on whether an employer properly treated a worker as an independent contractor, who isn’t covered by the FLSA’s wage provisions, or an employee, who is covered.

The dispute in the current case doesn’t center on the usual employee versus independent contractor issue. Instead, it turns on whether the house parents are FLSA-covered employees or merely tenants.

Judge William Alsup of the U.S. District Court for the Northern District of California declined Oct. 21 to side with either the DOL or TLC Residential over the classification issue before trial, denying their motions for summary judgment.

Case Has ‘Significant Ramifications.'

“It's clear that this case against TLC Residential has significant ramifications for sober living homes and the sober living community throughout the United States,” Todd A. Roberts, an attorney with Ropers, Majeski, Kohn & Bentley in Redwood City, Calif., told Bloomberg BNA Oct. 24. Roberts is one of the attorneys representing TLC Residential.

The case involves a “very unique circumstance and setting” and “we were surprised in the first instance that the Department of Labor was interested in the issue at all,” he said, explaining that the house parent model has been in place for more than 20 years.

House parents are essentially clients of TLC Residential who “volunteer insofar as organizing the household and assuming a leadership position,” Roberts said.

A DOL spokesman told Bloomberg BNA Oct. 24 that the agency declines to comment on ongoing litigation.

Factors for Employee-Employer Relationship

Courts must analyze several factors to determine whether an employer-employee relationship exists, Alsup explained.

One factor is whether the alleged employer and the workers have a compensation agreement, express or implied. Here, such an agreement exists because the house parents took on certain tasks for TLC Residential and the company waived or lowered their rent in exchange, the judge said.

For other factors, however, Alsup said the DOL and TLC Residential offered evidence that makes it difficult to rule for one or the other outside of a trial.

These include whether the house parents work “for their own advantage” or for TLC Residential’s “immediate advantage"; whether the house parents are economically dependent on the company; and whether the house parents’ work “contemplates rehabilitation rather than compensation,” the judge said.

Discussing those factors, Roberts told Bloomberg BNA that house parents have full-time or part-time jobs and aren't economically dependent on TLC Residential.

He also said their roles foster sobriety not just for themselves but for every other member of that household.

Additionally, he said the DOL's request that TLC Residential pay minimum wages is “dwarfed by the housing benefit already received by the house parents,” given the high rental prices in northern California.

Employees or Tenants?

Alsup observed that the relationship between house parents and TLC Residential is similar to that of landlords and tenants, where landlords can give tenants rent credits for completing household chores and yard maintenance.

“In such situations, the tenant is still a tenant without becoming an employee,” Alsup said. “However, whether that is the situation here should not be decided by summary adjudication.”

Andrew J. Schultz, Donna F. Mustard Bond and Cheryl L. Adams of the DOL Solicitor’s Office in Washington represented the agency. Nicole S. Healy of Ropers, Majeski, Kohn & Bentley also represented TLC Residential.

To contact the reporter on this story: Jay-Anne B. Casuga in Washington at jcasuga@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com

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