Federal court denounces U.S. DOL's new regulations prohibiting third-party employers from utilizing the FLSA's domestic service employee exemptions



December 24, 2014

Employment Law Alert

Author(s): Philip Rosenberg

A recent decision issued by the U.S. District Court for the District of Columbia vacated new regulations issued by the U.S. Department of Labor that purport to prohibit third-party employers (such as home care agencies) from utilizing the companionship and live-in domestic employee exemptions previously available to such employers under the Fair Labor Standards Act. While this decision is clearly a significant blow to the agency, the decision (which is subject to appeal) by no means marks the death knell for the DOL’s new regulations impacting the home health industry. Impacted employers should continue to follow this case closely for further developments.

On December 22, 2014, in a decision issued by District Judge Richard J. Leon in Home Care Association of America (HCAA) v. Weil, the U. S. District Court for the District of Columbia vacated new regulations issued by the U.S. Department of Labor (“DOL”) that purport to prohibit third-party employers (such as home care agencies) from utilizing the companionship and live-in domestic employee exemptions previously available to such employers under the Fair Labor Standards Act (“FLSA”). In its decision, the court lambasted the DOL’s new regulations, which are supposed to be effective on January 1, 2015, as a “wholesale arrogation” of congressional authority and a “thinly-veiled effort to do through regulation what could not be done through legislation.”

As the court noted, the FLSA was amended in 1974 to extend coverage to certain domestic service employees. At the same time, Congress created exemptions under the FLSA for certain types of domestic services, including exemptions for individuals providing companionship services and for live-in domestic employees. Over the years, the DOL has consistently interpreted these exemptions to extend to third-party employers, as well as the direct users of such services. Moreover, in its decision in Long Island Care v. Coke, 551 U.S. 158 (2007), the U.S. Supreme Court held that the DOL’s regulation extending the companionship exemption to third-party employers was valid and binding. As the HCAA court further observed, following the Coke decision, several attempts were made in Congress to abolish the exemption, but all of them failed.

Nonetheless, according to Judge Leon, “undaunted by the Supreme Court’s decision in Coke, and the utter lack of [c]ongressional support to withdraw this exemption, the [DOL] amazingly decided to try to do administratively what others had failed to achieve in either the Judiciary or the Congress.” Specifically, the DOL proposed new regulations in 2011, which were eventually finalized in 2013, excluding third-party employers from utilizing the long-standing domestic service exemptions.

In rejecting these new regulations, the HCAA court found that the DOL was improperly attempting to use its regulatory authority to fill “definitional gaps” on an issue regarding which Congress had already “clearly spoken.” As the court explained, Congress had directed the DOL to define certain statutory terms relating to the types of services covered by the exemptions at issue, and then to include within the exemptions “any employee” who provided such services. But nothing in this mandate gave the DOL the authority to define which type of employer could utilize the exemptions. As the court succinctly held, “[t]he focus is on the type of services provided, not who pays the check.”

In the end, the court held that the DOL’s “conduct bespeaks an arrogance to not only disregard Congress’s intent, but seize unprecedented authority to impose overtime and minimum wage obligations in defiance of the plain language of [the FLSA].” Accordingly, the court’s decision vacated the DOL’s “Third-Party Employer” rule.

While this decision is clearly a significant blow to the agency, the decision (which is subject to appeal) by no means marks the death knell for the DOL’s new regulations impacting the home health industry. Indeed, it is important to note that the court’s decision vacated only the Third-Party Employer rule, and did not vacate other parts of the DOL’s new regulations, including a regulation that narrows the definition of “companionship services”—which the court may address in a separate decision in the future. Impacted employers should continue to follow this case closely for further developments.

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