On December 22, 2014, the District of Columbia federal district court vacated a new U.S. Department of Labor regulation, scheduled to go into effect January 1, 2015, barring third-party employers from claiming minimum wage and overtime exemptions for “companionship” domestic service workers, as well as a statutory overtime exemption for live-in domestic service employees.

In his scathing opinion in Home Care Association of America v. Weil, Judge Richard J. Leon pointed out that the United States Supreme Court has already rejected “a challenge to the validity of the long-standing inclusion of employees paid by third parties within the companionship services exemption.”   Moreover, bills introduced by “the majority party in both the House and Senate in three consecutive Congresses (110th, 111th, and 112th)” never “generated sufficient support to get out of committee and to the floor of either house of Congress.”

Judge Leon chastised the DOL for attempting to do through regulation what could not be achieved through legislation, and for disregarding clear statutory language that applied these forty-year old statutory exemptions to “any employee” who is employed to provide the covered services.

Judge Leon held that although the DOL had the authority to define what companionship services are and what domestic service employment is, it had no authority to limit application of the exemption to employees who otherwise fell within these definitions based on the nature of their employer: “Congress surely did not delegate to the Department of Labor here the authority to issue a regulation that transforms defining statutory terms into drawing policy lines based on who cuts a check rather than what work is being performed.”

The decision, although likely to be appealed, is an important victory for home health care providers, which employ 90% of home health aides and personal care aides, including those providing companionship services. While some companionship services are paid for directly by the consumers (who still would have had the exemption under the now-vacated regulation), in most cases payment comes from Medicare, Medicaid or other government programs that pay only a flat hourly rate that does not contemplate any overtime pay (and often does not reflect recent increases in state and local minimum wages).

Had the now vacated regulations gone into effect, home health providers, who already work on narrow margins, would have had to absorb the costs of any overtime pay.  Many providers had already begun planning to reduce the hours of existing employees to avoid overtime. Now they at least will have some flexibility, at least in states where the exemption is also available under state law.

Home health providers should proceed with caution, however, as state laws may still require payment of the state or local minimum wage as well as overtime, and it is possible that Judge Leon’s decision could be reversed on appeal. In addition, the decision did not address DOL’s separate changes in the definition of companionship services, which included narrowing to 20% the amount of time that can be spent assisting with activities of daily living and instrumental activities of daily living that enable a person to live independently at home, and eliminating prior language that allowed the performance of general household work for up to 20 percent of the total weekly hours worked. These changes are under challenge in the same case but were not addressed in the partial summary judgment motion addressed in the decision. As a result, these changes will still take effect on January 1, 2015.