Due to a recent decision by the U.S. Court of Appeals for the District of Columbia Circuit, a new U.S. Department of Labor (“DOL”) requirement that home health care providers pay the federal minimum wage and overtime to employees providing companionship services and live-in domestic services took effect in late October 2015.

Background

The home health industry grew dramatically in recent years, both in private pay and as Medicaid waiver programs have encouraged care to be provided at home rather than in nursing homes and other institutional settings, to the extent possible. At the same time, individuals providing companionship services or live-in care for the elderly, ill, or disabled in their homes were exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act (“FLSA”), whether hired directly by the home care recipients and their families or employed by third-party agencies.

As a result, absent applicable state minimum wage or overtime requirements, most state Medicaid plans typically set reimbursement rates without regard to federal minimum wage and especially overtime requirements. Indeed, they declined to reimburse for any overtime premium. The private pay industry generally followed suit.

Home Care Association of America v. Weil

However, on August 21, 2015, the D.C. Circuit in Home Care Association of America v. Weil upheld the 2013 amended regulations promulgated by the DOL, which, for the first time, barred third-party employers from using the minimum wage and overtime exemption for both companionship services and live-in domestic service employment and also narrowed the definition of “companionship services.” In so doing, the D.C. Circuit reversed two prior decisions issued by the District Court for the District of Columbia, vacating the DOL’s regulations that originally were scheduled to go into effect on January 1, 2015, but were stayed by those decisions.

The D.C. Circuit thoroughly rejected the district court’s analysis and relied on the Supreme Court’s decision in Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158 (2007). The D.C. Circuit concluded that the decision to include workers paid by third parties within the scope of the statutory exemptions for companionship services and live-in domestic service employees was within the DOL’s discretion under its general grant of authority to promulgate implementation regulations.

The D.C. Circuit further found that the new, narrower construction of the statutory exemption was appropriate and consistent with Congressional intent. Specifically, the D.C. Circuit found that Congress intended to include within FLSA coverage employees whose vocation is domestic service, rather than the type of assistance provided by a neighbor or an “elder sitter.” Furthermore, the D.C. Circuit found that this construction was not arbitrary and capricious because DOL justified its shift in policy based on the changes in the industry since the prior regulation was issued in 1975.

Finally, the D.C. Circuit rejected arguments that the new regulations would make home care less affordable and create an incentive to re-institutionalize the elderly and disabled. In particular, the D.C. Circuit relied on a stated lack of evidence that this had occurred in states that already had minimum wage and overtime protections for third-party-employed home care workers.

Although the Home Care Association plans to seek review by the U.S. Supreme Court, the D.C. Circuit recently rejected a request to stay its mandate pending the request for review, and, on October 6, 2015, Chief Justice Roberts also denied a stay. Thus, the D.C. Circuit’s mandate issued on October 13, the district court entered summary judgment in favor of DOL on October 21, and the previously vacated regulations have now gone into effect. Although DOL has announced that it will not bring enforcement actions for the first 30 days, i.e., through November 12, 2015, and previously stated that it would exercise “prosecutorial discretion” through the end of 2015 based on the extent to which there had been good faith efforts to bring home care programs into compliance, the new regulations will be immediately enforceable by private individuals and attorneys, so DOL’s action is of little practical significance.

Impact of the New Regulations

Home health care providers therefore should begin planning for this transition immediately. Although most likely already pay the federal minimum wage to individuals providing companionship services (often called “home health aides”), many do not pay overtime. Notably, home health care providers already work on narrow margins and typically cannot recover overtime costs from the Medicare, Medicaid, or other government programs that pay for most of their services only at a flat hourly rate (which sometimes does not reflect recent increases in state and local minimum wages). Private pay individuals and families will likely also resist the increased cost of overtime.

This means providers in states where the exemption was previously available will now have to absorb the costs of any overtime pay. In many cases, this will mean changing schedules to limit the number of hours that a home health care provider works (thereby causing a reduction in the provider’s income rather than an increase) and hiring additional staff (with attendant additional administrative costs) to cover the hours that a single provider previously worked.

These changes could also be disruptive to the persons receiving the services, who may resist having multiple providers, rather than having the same person come every day. Providers will have to explain to both their employees and customers that the new regulations effectively require them—as well as their competitors—to limit the number of hours that an employee works and use additional employees to fill the gaps. Private pay individuals and families can, of course, be offered the option of paying for overtime if they would prefer to limit visits from multiple providers.