The Companionship Exemption for Agency Employed Home Care Workers May End As Early As This Month. Are You Prepared to Defend Your Agency Against the Lawsuits That Will Follow?

Executive Summary:  It has been reported that the Department of Labor (DOL) will issue a rule this month revising its regulations to eliminate the Fair Labor Standards Act’s (FLSA) companionship exemption for agency-employed home care workers.  This rule will expose home care agencies to significant wage and hour liability they never had before.  Yet, agencies can take steps to limit their exposure to individual and class action lawsuits for overtime, other violations of the FLSA, and accompanying state law claims.

How Did This Happen? 

On December 27, 2011, the DOL issued proposed regulations to amend the companionship exemption under the FLSA.  Despite a 36-year history of applying the exemption to home care agency workers, the revised regulations would limit its coverage to workers employed directly by a client or family.

In justifying its stance, the DOL claimed that those “employed by home care staffing agencies are not the workers Congress envisioned when it enacted the companionship exemption, e.g. neighbors performing elder sitting, but are instead professional caregivers” and the DOL “is no longer convinced that its prior reading (of the exemption) was the best one.”  The DOL admitted that the revised regulations amount to “the transfer of income from businesses and their owners to workers,” but claimed that this redistribution of income is warranted and “is not likely to have a significant economic impact on a substantial number of small entities.”

This “about face” upends the DOL’s earlier defense of a broad exemption covering agency-employed home care workers, which resulted in a unanimous U.S. Supreme Court decision in 2007 deferring to the DOL’s expertise and upholding that exemption.

What Are the Issues?

The proposed rule will expose home care agencies to significant wage and hour liability in each of the following areas:

• overtime for all hours over 40 in a workweek at time and one-half a worker’s regular rate (including pay differentials);
• wages at a worker’s regular rate for additional hours claimed on 24-hour cases;
• wages for travel time between cases or to training and medical exams;
• wages for calls to work during “duty-free” time;
• wages for in-service training time;
• wages for annual medical exam time; and
• wages for worker paid expenses, such as uniforms and uniform cleaning.

In New York State, where overtime to home care workers is currently calculated at one and one-half the minimum wage, the DOL’s rule will substantially increase overtime costs.  Coupled with rising wage levels and benefit costs under the NYS Wage Parity Act and the federal Affordable Care Act, agencies will require higher reimbursement rates to survive.  Competition will intensify as agencies are compelled to do more with less.

What Are the Answers?

1.  Agencies must develop better policies and procedures to manage work hours.

Agencies need policies and procedures that determine how low, medium, and high hour cases will be assigned; how contingencies that result in extra hours being worked will be handled; how casual workers or regular replacement workers will be assigned to pick up hours due to call-outs, worker absences, and emergencies; and how workers will be prevented from performing work that is neither authorized nor requested.

2.  Agencies must use as much electronic technology as they can afford. 

Agencies need time-tracking software to require workers to electronically record their work hours, duty-free hours, sleep hours for 24-hour workers and any interruption of those hours; scheduling software to avoid incurring unnecessary overtime, to assign replacement workers when needed, and to manage the number of workers on assignment at any given time and hours worked; and monitoring software to track worker hours and overtime on a weekly basis, including average hours worked and active workers as a percent of available workers and comparative information from quarter to quarter and during periods of emergency.

3.  Agencies must bolster their credibility and the weight to be given facts favorable to them to be able to rebut claims in overtime and minimum wage cases.

Agencies need to post signs at orientation and at in-service training sessions that state “no work outside regularly scheduled work hours is allowed” and “agency written authorization must be obtained for any emergency work-time.” They need “hours worked” procedures that require written notice by the worker to the agency of any hours worked beyond those scheduled, which must be provided in the same payroll week as the additional hours were worked.  Agencies need to obtain worker sign-offs on policies and procedures at orientation and annually at in-service.

4.  Agencies must warn workers that hours worked must be recorded accurately and that falsifying a time record is grounds for disciplinary action.

Agencies must also practice what they preach and discipline violators consistently and uniformly.

5.  Agencies must maintain complete and accurate wage and hour records for at least seven years. 

If using an outside payroll company, an agency must ensure the contract states that the payroll records are the agency’s property, the records will be maintained at a predetermined location in a readily accessible computer format for a minimum of seven years, the agency has the right at any time to inspect, audit, or request production of its records, and the records will be transferred to a new company immediately upon the agency’s request.

The Bottom Line:

If you have not taken all the precautions mentioned here, begin immediately.  Once the DOL’s new rule is announced this month, lawsuits are sure to follow.  If you have any questions regarding this Alert, please contact the author, Stephen Zweig, Partner in FordHarrison’s New York City office, who has defended home care agencies for over 30 years, at szweig@fordharrison.com, or the FordHarrison attorney with whom you usually work.