August 24, 2015

Court Ruling Spells End of Overtime Exemption for Home Healthcare Companies

4 min

On August 21, 2015, the D.C. Court of Appeals in Home Care Association of America v. Weil, Case No. 14-cv-967 (RJL), issued a transformational decision upholding proposed U.S. Department of Labor regulations regarding the Fair Labor Standards Act's (FLSA) companionship and live-in exemptions. As a result of this decision, third-party employers of individuals providing companionship services to elderly or infirm people may no longer treat such employees as FLSA exempt, and must therefore pay them at the rate of 1½ times their regular rate of pay for all hours worked in excess of 40 in a workweek.

Details and Background

Since 1975, individuals employed as in-home companions, including those employed directly by a family or household, as well as those employed by third-party employers, were exempt from the FLSA's minimum wage and overtime requirements, assuming such individuals met certain criteria. In 2013, the U.S. Department of Labor (DOL) issued proposed regulations which would preclude third-party employers, such as home healthcare agencies, from availing themselves of the FLSA's companionship services and live-in exemptions. The would-be regulations also proposed to amend the definition of the term "companionship services" to mean "the provision of fellowship and protection for an elderly person or person with an illness, injury or disability who requires assistance in caring for himself or herself." In order to qualify for the companionship exemption, an individual could not provide such services for more than 20 percent of his or her total working hours per workweek.

In the wake of these sweeping proposed changes, the Home Care Association of America (HCA) filed suit, challenging both of the above-noted provisions of the DOL's proposed regulations. In January 2015, the D.C. District Court ruled in favor of the HCA on both accounts, vacating both of the DOL's proposed changes. The DOL subsequently appealed the matter to the U.S. Court of Appeals for the D.C. Circuit.

On August 21, 2015, the Court of Appeals reversed the District Court, ruling that the DOL had the authority to act as it had, thus eliminating the FLSA's exemption for companionship and live-in employees who are employed by a third-party employer. The Court declined to rule on the issue of the new definition of "companionship services."

What Now?

  • Overtime Compensation: As a result of this decision, third-party employers of companionship and live-in care employees may no longer avail themselves of the FLSA's companionship exemption. As such, formerly exempt companionship employees – such as home care aides – must now be compensated at the rate of 1½ times their regular rate of pay for all hours worked in excess of 40 in a given workweek.
  • Timing: The DOL's proposed regulations were originally slated to go into effect on January 1, 2015. At that time, the DOL had stated that it would not penalize violators for six months after that date (though the regulations did not necessarily preclude individuals from filing private lawsuits). At present, the DOL has not indicated whether the six-month period will begin to run now, or whether the regulations will instead go into effect immediately. As such, for the moment, employers would be well-advised to begin changing their overtime practices as soon as possible.
  • Strategies: Employers should also begin considering strategies for limiting the newly-heightened overtime costs triggered by the HCA decision. For example, employers may want to consider certain scheduling adjustments so as to limit the frequency with which employees work more than 40 hours in a workweek. Correspondingly, it may become necessary to hire additional staff in order to work the hours that would otherwise have been worked by existing employees. Moreover, compliance self-assessments are now more critical than ever.

Ultimately, the HCA decision drastically alters the financial landscape for home care companies and other third-party companionship service providers, nationwide. If you have questions about how to handle this sweeping change, please feel free to contact Brian Turoff, Allison Gotfried, or another member of Venable's national Labor and Employment team.