On June 11, 2007, the U.S. Supreme Court upheld the U.S. Department of Labor’s (DOL) regulation exempting in-home healthcare aides and companion services workers employed by third-party agencies from federal minimum wage and overtime pay requirements. In its unanimous ruling, the high court resolved a long-running dispute as to whether the 1974 amendments to the Fair Labor Standards Act (FLSA), which extended FLSA coverage generally to employees in domestic service, simultaneously intended to exclude from coverage companions and in-home aides caring for the elderly and infirm, when they are employed by third-party home health care agencies. Long Island Care at Home, Ltd. v. Coke, No. 06-593, 2007 U.S. LEXIS 7717 (U.S. June 11, 2007).
Evelyn Coke was employed by Long Island Care at Home, Ltd. to provide home care for elderly and infirm individuals. She sued the company, claiming that she was entitled to minimum wage and overtime pay under the Fair Labor Standards Act and under New York State law. In what was admittedly a "test case" to challenge the validity of the DOL regulations, she argued to the Supreme Court that the regulation improperly expanded the exemption for domestic workers to include individuals employed by an agency rather than only those employed directly by the individual or family for whom the aide or companion is working. Reversing decisions of the U.S. Court of Appeals for the Second Circuit, which had struck down the DOL regulation, the U.S. Supreme Court reasoned that the Labor Department’s regulation was a legitimate exercise of its authority to fill a gap left open by the statute as to the scope and definition of "domestic service employment" and "companionship services" and, therefore, was entitled to judicial deference.
As Justice Stephen Breyer put it in his opinion for the Court: "an agency’s interpretation of its own regulation is ‘controlling’ unless ‘plainly erroneous or inconsistent with’ the regulations being interpreted." 2007 U.S. LEXIS at *25.
The Statute And Regulations
In 1974, Congress amended the Fair Labor Standards Act extending coverage to many employees in "domestic service." At the same time, Congress excluded from coverage "any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves (as such terms are defined and delimited by regulations of the Secretary [of Labor])." 29 U.S.C. § 213(a)(15). Soon after the enactment of the amendments, the DOL issued two regulations with seemingly inconsistent provisions. First, in 29 C.F.R. § 552.3, the DOL defined the term "domestic services employment" to mean services performed by an employee in the home "of the person by whom he or she is employed." Second, in another section of the regulations, 29 C.F.R. § 552.109(a), under the heading "Interpretations," the DOL declared that individuals providing "companionship services" who are employed by an employer or agency other than the family or household using their services are also exempt from the FLSA. The apparent inconsistency of these regulatory provisions gave rise to countless lawsuits.
The Road To The Supreme Court
In 2003, a federal District Court in New York dismissed Coke’s suit, holding that the specific provision in the regulations excluding workers employed by third-party agencies was not arbitrary, capricious or manifestly contrary to the FLSA. Coke v. Long Island Care at Home, Ltd., 267 F. Supp. 2d 332, 341 (E.D.N.Y. 2003). The case was then heard by the Second Circuit twice; both times the Court ruled that domestic workers hired by a third-party employer to provide home health care and companionship services were covered by the FLSA’s minimum wage and overtime pay requirements, refusing to enforce the specific DOL regulation excluding them from coverage.
The Second Circuit held that Section 552.109(a) of the regulations was not entitled to judicial deference and was invalid. Coke v. Long Island Care at Home, Ltd., 376 F.3d 118, 121 (2d Cir. 2004). Under the U.S. Supreme Court’s 1984 decision in Chevron, U.S.A., Inc. v. Nat. Resources Defense Council, 467 U.S. 837 (1984), a court is required to defer to an administrative agency’s regulations that are not arbitrary, capricious, or contrary to the statute when the agency is acting in a "legislative" capacity, but such deference is not required when the agency is merely offering its own "interpretation" of the law. The Second Circuit reasoned that § 552.109(a) was an "interpretive" regulation to which a lesser standard of deference was warranted because the DOL included this regulation under "Subpart B – Interpretations" and not under "Subpart A – Regulations." Hence, the Department was not exercising its delegated power from Congress when enacting this regulation. Id. at 131. In this case, the Second Circuit noted, the regulation as enacted deserved no deference from the courts because the version of § 552.109(a) submitted for public comments provided that employees of third parties were covered and not exempt, whereas the ultimate version of § 552.109(a) that the DOL adopted provided the exact opposite – that those providing companionship services who were employed by third-party agencies were excluded from FLSA coverage. Id. at 132. Finally, the Court reasoned, the regulation exempting domestic service employees employed by third-party employers from FLSA-coverage was inconsistent with the underlying statute, and, therefore, not valid because Congress intended to expand FLSA coverage with the 1974 amendments. Since some of the third-party agencies had been covered by the FLSA before the 1974 amendments, a regulation that stripped away this coverage was, in the court’s view, contrary to Congress’s intent and, therefore, invalid.
In January 2006, the Supreme Court vacated the Second Circuit’s decision and sent the case back to the appellate court to reconsider in light of a DOL Advisory Memorandum clarifying the agency’s position on the enforceability of § 552.109(a). On remand, the Second Circuit adhered to its original position, again finding § 552.109(a) unenforceable. Coke v. Long Island Care at Home, Ltd., 462 F.3d 48 (2d Cir. 2006). The Supreme Court decided to review the case again.
The Supreme Court’s Decision
The question before the Supreme Court was whether the courts should defer to the DOL’s reading of the statute. Disagreeing with the Second Circuit, a unanimous Supreme Court upheld the regulation. Initially, Justice Breyer’s Opinion focused on the power of an administrative agency to fill any "gaps" in the statute explicitly or implicitly left open by Congress, and determined that the scope and definition of "domestic service employment" and "companionship services" were just such gaps in the FLSA that the DOL had the authority to fill in by regulation. 2007 U.S. LEXIS at *13-14. The Court then rejected each of Coke’s arguments for invalidating the regulation: that the regulation fell outside of Congress’ delegation; that it was inconsistent with another legally governing regulation; that it was an "interpretive" regulation that did not warrant judicial deference; and that it was improperly promulgated.
Coke argued that the purpose of the 1974 amendments was to expand FLSA coverage and since domestic workers who were employed by some third-party agencies were already covered by the statute even prior to the amendments, Congress could not have intended to authorize a contraction of the coverage of "domestic service employment" through administrative regulations. Id. at *17. Rejecting this reasoning, Justice Breyer said that the DOL was expressly granted authority to determine the details of the broad statutory terms "domestic service employment" and "companionship services," and, in this regard, the extent to which third-party employers might be exempt from coverage. Id. at *18-19.
Next, Justice Breyer rejected the argument that the provision in the "General Regulation" section of the regulations (29 C.F.R. § 552.3) defining "domestic service employment" as work performed in the home of the person who employs the individual necessarily precludes the agency from concluding that those employed by third-party employers are exempt from FLSA requirements. For one thing, Justice Breyer noted, such an expansive reading of the General Regulation would exclude from coverage other categories of employees, such as butlers and chauffeurs, if they were employed by third-party employers, which result would itself be contrary to the 1974 amendments. Id. at *21-22. Reasoning further, the Court explained, upholding Ms. Coke’s position would compel application of FLSA’s minimum wage and overtime provisions any time a family member of an elderly or infirm person hired the companion but did not live in the same residence as the individual receiving care. The Court concluded this was not what Congress intended. Id. at *22 23. Applying the rule that the "specific governs the general," Justice Breyer held that the portion of the regulations (§ 552.109(a)) that specifically addresses third-party employment controlled over the more general definition of "domestic service employment" as services performed by an employee in the employer’s home. Id. at *23.
The argument that the DOL regulation (§ 552.109(a)) was entitled to less deference because it was included in a section of the regulations labeled "Interpretations" was equally unpersuasive to the Court. Despite its location in the "Interpretations" part, the regulation was implemented after a public notice-and-comment procedure, which is required for "legislative" regulations but is not necessary for "interpretive rules," which strongly suggested to the Court the DOL’s intent to treat "the third-party regulation like the others, i.e., as a legally binding exercise of its rulemaking authority." Id. at *28. Ultimately, the Court concluded, "[w]here an agency rule sets forth important individual rights and duties, where the agency focuses fully and directly upon the issue, where the agency uses full notice-and-comment procedures to promulgate a rule, where the resulting rule falls within the statutory grant of authority, and where the rule itself is reasonable, then a court ordinarily assumes that Congress intended it to defer to the agency’s determination." Id. at *29 (citation omitted).
Justice Breyer dismissed Ms. Coke’s argument that the notice-and-comment procedure for this regulation was inadequate because the regulation as initially proposed would have classified the companions as covered employees, whereas the final regulation excluded companions employed by third parties from FLSA coverage. The Court explained that the purpose of the notice-and-comment period is to ensure that there is fair notice that a regulation is under consideration. According to the Supreme Court, since the proposed regulation demonstrated that the DOL was considering the scope of the third-party employer exemption, it was not improper for the final regulation to be different from the initial proposal. Id. at *31-32.
Impact On Employers
Agencies in the business of providing companionship services to the ill and infirm can now breathe a sigh of relief after the Supreme Court’s decision. Had the Supreme Court affirmed the Second Circuit’s decision invalidating the regulations, it would have resulted in a financial crisis for many of these agencies, and to states and cities that depend on them, because the cost of paying overtime for home care aides and companions could run into many millions of dollars, for which the agencies, states and cities had not budgeted.
Employers, however, must still be cognizant of state laws, some of which provide more generous requirements than the FLSA. The FLSA does not preempt state laws, so the victory in Coke does not absolve third-party employers of in-home health care aides and companionship service workers from compliance with any distinct state law minimum wage and overtime obligations.
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