DC Circuit Upholds DOL’s Home Health Care Rule

Practical Law Legal Update 0-618-3183 (Approx. 7 pages)

DC Circuit Upholds DOL’s Home Health Care Rule

by Practical Law Labor & Employment

Background

In Home Care Association of America v. Weil, a group of trade associations representing home care service providers challenged the DOL's new regulation prohibiting third-party employers from relying on the FLSA's domestic and companionship services exemptions from minimum wage and overtime pay requirements. On December 22, 2014, the US District Court for the District of Columbia granted summary judgment in favor of the trade associations, vacated the third-party employer regulation and stayed the effective date of the DOL's new definition of "companionship services." (No. 14-967, (D.D.C. Dec. 22, 2014).)

On January 14, 2015, the court vacated the DOL's revised companionship services regulation, which would have limited the scope of the FLSA exemption for companionship services employees (No. 14-967, (D.D.C. Jan. 14, 2015)). Together with its December 22 decision, the court invalidated the DOL's new home care rule in its entirety. For more information, see Legal Update, DOL's New Home Care Rule Vacated in Its Entirety: DC District Court.

The DOL appealed to the DC Circuit.

Outcome

The DC Circuit reversed the district court and remanded for the grant of summary judgment to the DOL, holding that:

The US Supreme Court's decision in Long Island Care at Home, Ltd. v. Coke confirms that the FLSA vests the DOL with discretion to apply (or not to apply) the companionship services and live-in exemptions to employees of third-party agencies (551 U.S. 158 (2007)).
The DOL's decision to extend the FLSA's protections to those employees is grounded in a reasonable interpretation of the statute.
In light of the DOL's reasoned explanation for its change in policy, its departure from past practice was neither arbitrary nor capricious.

The DC Circuit reviewed the new third-party-employer regulation under the two-step framework established in Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc. (467 U.S. 837 (1984)). The steps are:

If "Congress has directly spoken to the precise question at issue," then "the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress" (Chevron, 467 U.S. at 842-43).
If "the statute is silent or ambiguous with respect to the specific issue," the court analyzes "whether the agency's answer is based on a permissible construction of the statute" (Chevron, 467 U.S. at 843).

Considering Chevron step one, the DC Circuit noted that:

The appellees' contention, that the new third-party-employer regulation fails at the first step of Chevron because the FLSA does not delegate to the DOL the authority to exclude a class of employers from the FLSA's companionship services and live-in worker exemptions, is foreclosed by the Supreme Court's decision in Long Island Care at Home, Ltd. v. Coke (551 U.S. 158 (2007)).
In holding that the DOL had authority to "fill [the third-party employment] gap[ ] through rules and regulations," the Supreme Court in Coke relied on the general grant of authority under Section 29(b) of the FLSA to establish rules implementing the 1974 Amendments, holding that the third-party-employment question had been delegated to the Secretary (Coke, 551 U.S. at 165).
Because Section 29(b) "gives an agency broad power to enforce all provisions" of the 1974 Amendments, including both Sections 213(a)(15) and 213(b)(21), the DOL's "authority is clear" with respect to both FLSA exemptions (Gonzales v. Oregon, 546 U.S. 243, 258 (2006)).
The appellees' argument, that while the Secretary may define terms within the phrase "employee employed in domestic service employment to provide companionship services," the DOL exceeded its authority when, instead of "defining" that phrase, it issued a rule providing that third-party employers "may not avail themselves" of the exemption (29 C.F.R. § 552.109(a)) fails because the DOL's authority does not flow solely from the "define[ ] and delimit[ ]" language of Section 213(a)(15), but instead, as emphasized in Coke, comes from the general grant provided by Section 29(b) to "work out" the statutory "gaps" through rules and regulations (Coke, 551 U.S. at 165).
The appellees' contention that the DOL's new rules conflict with the legislative history of the FLSA amendments also fails. The Supreme Court, in Coke, explicitly found that the "statute's legislative history" provides no "clear answer" to the "third-party-employment question" (551 U.S. at 168). Further, the court in Coke found that congressional inaction (for example Congress's amendment of Sections 213(a)(15) and 213(b)(21) in 1996 and 1999 without altering either), was immaterial to the Chevron step one inquiry.
The DOL has the authority to "work out the details" of the companionship services and live-in worker exemptions. The treatment of third-party-employed workers is one such detail. (Coke, 551 U.S. at 165-68.)

Considering Chevron step two, the DC Circuit noted that:

The DOL's interpretation readily satisfies the Chevron step two standard, that "if the implementing agency's construction is reasonable, a court must accept the agency's construction of the statute" (Fin. Planning Ass'n v. SEC, 482 F.3d 481, 498 (D.C. Cir. 2007)).
Although the DOL points to no legislative materials concerning the live-in exemption in particular, it was reasonable for the DOL to assume that Congress intended the live-in exemption to operate in much the same way as the similarly worded companionship exemption, that is to exclude from the FLSA's scope casual employees who are "not regular bread-winners or responsible for their families' support" (Application of the Fair Labor Standards Act to Domestic Service, 78 FR 60454-01).
Based on its understanding of congressional intent, the DOL reasoned that the 1974 Congress would have wished the FLSA's protections to extend to current home care workers employed by third parties since these workers are professional caregivers, often with training or certification, who work for for-profit agencies. For these workers, their employment is a "vocation."
The DOL's resolution is fully reasonable and there is no basis for setting it aside at Chevron step two.

The DC Circuit further noted that the DOL's change in policy was neither arbitrary nor capricious (as argued by appellees) because:

There is no requirement that the DOL's change in policy requires it to satisfy a "higher burden" (FCC v. Fox Television Stations, Inc., 556 U.S. 502, 514 (2009)).
Instead, the question should be whether actions that are a departure from prior agency practice rest on a "reasoned explanation," which "would ordinarily demand that [the agency] display awareness that it is changing position," and "of course the agency must show that there are good reasons for the new policy" (Fox, 556 U.S. at 515). Beyond that, there is no special burden when an agency elects to change course.
The DOL's explanation for its updated rule meets those standards. In addition to reasoning that its original regulation misapplied congressional intent, the DOL justified its shift in policy based on the:
- transformation of the home care industry since the third-party-employer regulation was released in 1975. For example, in 1974, most private household workers were employed directly by a member of the household but by the time the Supreme Court decided Coke in 2007, the vast majority were instead employed by third-party agencies; and
- change in the duties of typical home care workers, for example, since the 1970s there has been increased emphasis on the value of providing care in the home and a corresponding shift away from institutional care.

The appellees also challenged the DOL's revised definition of "companionship services," which narrows the scope of employees encompassed by the exemption. Because the court concluded that appellees, as third-party employers, could not take advantage of the exemption regardless of the definition, it declined to address their challenge to that definition for lack of jurisdiction.

The DC Circuit reversed the district court's decision invalidating the DOL's third-party employer regulation and remanded the case for entry of summary judgment in favor of the DOL. However, the court essentially stayed the effect of its decision until seven days after the resolution of any timely petition for rehearing or rehearing by the full court. So for the short term, the court's decision does not take effect until it takes further action.

Practical Implications

The DC Circuit's decision is stayed and it is unclear what enforcement position the DOL will take in the interim concerning companionship services employees of third-parties. However, nothing prevents current or former employees of third-party agencies from filing their own minimum wage and overtime pay claims.

Third-party home care service providers that rely on the companionship services exemption should revise their pay practices or be prepared to do so on short notice.

As always, employers should determine if state wage and hour law is applicable. Some states require minimum wage or overtime pay for domestic service and companionship services employees. If state law is more favorable to employees, state law controls.

UPDATE: On October 6, 2015, the US Supreme Court denied the home care industry coalition's application to extend the stay of the effective date of the new rule pending its filing of a certiorari petition. This means that the DC Circuit's mandate instructing the district court to issue summary judgment in favor of the DOL will become effective on October 13, 2015.

According to a DOL Policy Statement signed on September 9, 2015 (80 FR 55029-01), the DOL will not bring enforcement actions against any employer for violations of FLSA obligations resulting from the amended domestic service regulations until November 12, 2015 (30 days after mandate issues). However, from November 12 through December 31, 2015, the DOL will exercise prosecutorial discretion in determining whether to bring enforcement actions, with particular consideration given to the extent to which States and other entities have made good faith efforts to bring their home care programs into compliance with the FLSA since the promulgation of the Final Rule (see DOL Website). It remains unclear whether further legal developments will affect the DOL's enforcement strategy in the interim.

DC Circuit Upholds DOL’s Home Health Care Rule | Practical Law