The companionship service exemption spares from the FLSA’s minimum wage and overtime provisions employees who provide in-home companionship services to elderly or infi rm persons unable to care for themselves. Companionship services include making beds and washing clothes, but do not include care from trained personnel, like registered nurses or licensed practical nurses who are entitled to overtime. As stated in two separate Department of Labor (“DOL”) regulations, the exemption applies to companions hired directly by the persons to whom they provide services (29 C.F.R. § 552.3) and to those hired through a third-party employer (29 C.F.R. § 552.109).

The third-party exemption was challenged in Coke v. Long Island Care at Home, Ltd., 462 F.3d 48 (2006), a case decided by the Second Circuit Court of Appeals. A retired domestic companion sued her employer for unpaid overtime, arguing that the FLSA’s companionship service exemption applies only to employees of the individual receiving the care, not to companions who provide the same type of care but are employed by a third party. The plaintiff argued that the “general” regulation exempting companions employed by the infi rm or elderly confl icts with the “interpretive” regulation exempting companions employed by third parties. The Second Circuit adopted the plaintiff’s argument, jettisoning years of prior interpretations and throwing the companionship services industry into a panic.

In June 2007, the U.S. Supreme Court unanimously reversed the Second Circuit, holding that companionship employees employed by third parties are exempt (127 S. Ct. 2339). The Court acknowledged that while the applicable regulations are confl icting, the DOL’s interpretation of those regulations deserves controlling deference. The Court relied on the legal maxim “The specific governs the general,” reasoning that the “general” regulation describes the type of work necessary to qualify for the exemption whereas the “interpretive” regulation extends the exemption to third-party employers. The Court also relied on a 2005 DOL advisory memorandum affi rming that third-party companionship service employees are exempt and warning that a decision to the contrary would remove the exemption from companions paid by a family member living outside the home of the person receiving the care, a result that the Court found absurd.

In rejecting the plaintiff’s arguments, the Court noted that Congress had specifi cally delegated to the DOL broad authority to fi ll in gaps in the FLSA, and thus had charged the agency with responsibility for making key interpretive decisions, such as whether companionship employees of third-party employers are exempt.

The Court’s decision is important as a practical matter. It prevents a further opening of the floodgates to wage and hour litigation and avoids a financial crisis in the companionship service industry. A contrary result likely would have raised the cost of home care to levels that only the wealthiest could afford, causing countless infi rm or elderly individuals who rely on Medicare and Medicaid reimbursements to forgo in-home care and move into nursing homes or assisted living facilities.

The decision should not be viewed as a sign that the Court is narrowing the FLSA’s protective scope. Nevertheless, employers may fi nd some consolation in the fact that the Court deferred to the DOL’s interpretation of the FLSA. This deference will be of special interest to fi nance and mortgage companies currently embroiled in litigation over the exempt status of stock and mortgage brokers. As we discussed in the last issue of this newsletter, the DOL’s revised regulations provide that fi nancial service industry employees who analyze customer fi nancial situations and recommend appropriate fi nancial products generally satisfy the administrative exemption. 29 C.F.R. § 541.203(b).

A word of caution: Some states do not defer to the DOL’s interpretation of exempt status under the FLSA. In Illinois, for example, employers must pay minimum wage and overtime to companion employees regardless of whether they are employed directly or through a third-party employer. Thus, employers of companion employees should review their state’s laws in determining whether companion employees should be paid overtime.