In a major defeat for the home health care industry, on August 21, the D.C. Circuit Court of Appeals reversed a lower court decision that had blocked issuance of an interpretation making thousands of currently exempt workers subject to the minimum wage and overtime provision of the Fair Labor Standards Act. The case, Home Care Ass’n. of Amer. v. Weil, involves DOL’s interpretation of the FLSA’s companionship exemption. This part of the statute exempts workers who provide companionship or live-in services for the elderly, ill or disabled.

Until recently, DOL had interpreted the exemption to apply to many employees of third-party agencies who send workers into clients’ homes to provide certain care services. In 2013, DOL issued new rules that removed the exemption from any employee of third-party agencies assigned to perform services in a home. When announcing the rules, DOL noted the low pay prevalent in the industry. In response, several industry trade groups challenged the new rules on the basis that they were incompatible with the underlying statutory exemption. The district court agreed, invalidating the regulations.

On appeal, the D.C. Circuit concluded that DOL was within the scope of its discretion to interpret the exemption to exclude home care workers who are employed by a third-party agency. Although in 2007, the U.S. Supreme Court upheld previous rules including such workers under the exemption, changes in the nature of home care provide DOL with a reasonable basis to reverse this earlier interpretation. The court also upheld a provision in the new rules that limits the amount of services beyond mere companionship offered by even qualifying workers to no more than 20% of the total hours worked.

The effect of these two changes is to eliminate the applicability of the exemption for the vast majority of U.S. home health care workers, whether employed through a third-party agency or otherwise. The industry warned that requiring that employees receive overtime will make such services unaffordable to a considerable percentage of patients, forcing many into institutionalized care. State governments voiced concerns over the effects of the rules on their Medicaid programs’ ability to provide such home care services. Unless the Supreme Court agrees to revisit this issue, the home care industry will have to cope with the realities of this new cost structure.