• The Supreme Court and the Department of Labor Join Forces to Support the Long-Standing FLSA Exemption for Companionship Services Provided by Third-Party Employers
  • February 10, 2006 | Authors: Jonathan W. Greenbaum; Emily K. Hargrove
  • Law Firm: Nixon Peabody LLP - Washington Office
  • The Fair Labor Standards Act creates an exemption from the Act's minimum wage and overtime requirements for "any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves" (29 USC §213(a)(15)). In Long Island Care at Home v. Coke (376 F.3d 118 (2d Cir. 2004)), the Second Circuit held that the 1974 Department of Labor ("DOL") regulation applying the exemption to third-party employers, such as agencies providing home health care companions, was "inconsistent with Congress's likely purpose in enacting the FLSA" and vacated the lower court's ruling that the regulation was enforceable. This was a surprising result, as all previous courts had upheld the regulation. The employer sought Supreme Court review. On January 23, 2006, the Supreme Court vacated the Second Circuit's judgment and remanded the case back to the Second Circuit "for further consideration" in light of a DOL advisory memorandum reaffirming the exemption for domestic service workers' employment by third-party employers.

    The Second Circuit's concern in Long Island Care arose from the apparent conflict between different DOL regulations governing the exemption. In 1974, after Congress added domestic service employees to the FLSA, the DOL issued a regulation (§552.109(a)) explicitly applying the companionship exemption to home care employees provided by third-party employers. The Second Circuit, however, focused on language in other DOL regulations defining the term "domestic service employment," arguing that those regulations require companionship employees to work in the private home of the person by whom he or she is employed. The Second Circuit's interpretation thereby excluded, for the first time since 1974, third-party agencies that provide companionship employees to clients in private homes from the companionship services exemption from the FLSA's minimum wage and overtime requirements.

    On December 1, 2005, the DOL issued an advisory memorandum in an attempt to clarify and reaffirm the exemption, its regulations, and their proper application. According to the DOL, whether an employee qualifies for the companionship exemption does not depend on the identity of his or her employer, but rather on the nature of the employee's activities or responsibilities. The DOL instructed that the "domestic service employment" regulations focus on the requirement that companionship services must be performed in a private home as opposed to, for example, a hospital or nursing home, and do not require that the companionship employee's employer be the owner of the private home in which the work is performed.

    Additionally, as the DOL highlights, where Congress intended to exclude employers from an exemption, it explicitly stated so in the language of the exemption. The DOL also points out that it specifically considered and deliberately included third-party employers in the final version of its rules, and used the memorandum to rebut directly the Second Circuit's assertion that the DOL regulation merely is interpretive and does not have the force of law.

    Moreover, above and beyond the concerns of regulatory interpretation, the home health care industry was faced with the practical effects of exclusion from the companionship exemption. Congress enacted the companionship exemption in 1974 to ensure that working families and/or individuals in need of companionship employees would be able to obtain such services. Congress was concerned that working people could not afford to pay for companionship services for the elderly or infirm if they had to pay the employees who provided those necessary services minimum wages and overtime. Its reasoning had nothing to do with the employer providing those services.

    If the Second Circuit's reasoning in Long Island Care were upheld and third-party home health care providers excluded from the companionship exemption, the costs of companionship care would become prohibitive. Writing as amici, a number of health care groups highlighted the effects of removing third-party employers from the exemption. Home health care providers would not be able to provide services under health care insurance agreements. Medicaid will not reimburse these agencies for the additional costs, and home health care providers would be forced to pass along the expense to clients -- who are not likely in a position to bear the burden of the resulting hike in care costs.