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Acosta v. At Home Personal Care Services LLC

United States District Court, E.D. Virginia, Alexandria Division

April 15, 2019

R. ALEXANDER ACOSTA, Secretary of Labor, Plaintiff,
v.
AT HOME PERSONAL CARE SERVICES LLC, et al, Defendants.

          MEMORANDUM OPINION

          Leonie M. Brinkema United States District Judge.

         R. Alexander Acosta, the Secretary of Labor ("plaintiff or the "Secretary"), brings this civil action under the Fair Labor Standards Act ("FLSA" or the "Act") against At Home Personal Care Services LLC ("AHPC") and its owner, Robin Wright ("Wright"). AHPC provides in-home personal care services for individuals enrolled in Medicare and/or Medicaid. The Secretary claims that AHPC and Wright (together, "defendants") violated the FLSA by failing to pay time-and-a-half overtime compensation to 44 personal care aides ("PC As" or "aides")[1] listed in Schedule A, which is attached to the Secretary's complaint, and by failing to maintain accurate employee workweek records. The Secretary seeks back pay, liquidated damages, and an injunction barring defendants from violating the Act in the future. In response, defendants argue that at least some of the workers in question were independent contractors during the relevant time period and thus were not "employees" covered by the FLSA's overtime provisions; that Wright is not liable as an "employer" under the Act; that AHPC maintained adequate records; that the Secretary's back pay calculations are excessive; and that it would be inappropriate to award liquidated damages or injunctive relief.

         A two-day bench trial was held in March 2019.[2] For the reasons stated below, judgment will be entered in favor of the Secretary, and defendants will be held jointly and severally liable for back pay and liquidated damages in a total amount of $128, 445.80.

         I. BACKGROUND

         A. Statutory and Regulatory Background

         This litigation stems from a dramatic shift in the treatment of third-party providers of home care services like AHPC. In 1974, Congress amended the FLSA to cover domestic service employees, see Fair Labor Standards Amendments of 1974, Pub. L. No. 93-259, § 7(a), 88 Stat. 55, 62 (codified at 29 U.S.C. § 202(a)), but exempted from the Act's overtime compensation requirements "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," Id. § 7(b)(3) (codified at 29 U.S.C. § 2l3(a)(l5)). Congress expressly delegated to the Department of Labor ("DOL") the responsibility for defining the terms relevant to that exemption, see 29 U.S.C. § 2l3(a)(l5), and the DOL did so the following year, defining "domestic service employment" as "services of a household nature performed by an employee in or about a private home," Application of the Fair Labor Standards Act to Domestic Service, 40 Fed. Reg. 7404, 7405 (Feb. 20, 1975) (codified at 29 C.F.R. § 552.3). The DOL also defined "companionship services" as "those services which provide fellowship, care, and protection for a person who, because of advanced age or physical or mental infirmity, cannot care for his or her own needs," Id. (codified as amended at 29 C.F.R. § 552.6). Importantly, the 1975 regulations stated that "[e]mployees who are engaged in providing companionship services ... and who are employed by an employer or agency other than the family or household using their services ... are exempt from the Act's minimum wage and overtime pay requirements," Id. at 7407 (codified at C.F.R. § 552.109(a) (amended 2013)). Under the 1975 regulations, third-party employers like AHPC were exempt from the FLSA's overtime compensation provision.

         In 2013, the DOL substantially amended the governing regulations. Application of the Fair Labor Standards Act to Domestic Service, 78 Fed. Reg. 60, 454 (codified at 29 C.F.R. pt. 552). Those amendments, which became effective on January 1, 2015, see Id. at 60, 455, were consequential for companies like AHPC for multiple reasons. They restricted the definition of "companionship services," making clear that the term "does not include the performance of medically related services" and instead applies only to "the activities of daily living (such as dressing, grooming, feeding, bathing, toileting, and transferring)," Id. at 60, 557 (codified at 29 C.F.R. § 552.6). More significantly, they reversed course and provided that "[t]hird party employers of employees engaged in companionship services ... may not avail themselves of the ... [§ 2l3(a)(l5)] exemption ..., even if the employee is jointly employed by the individual or member of the family or household using the services," Id. (codified at 29 C.F.R. § 552.109(a)) (emphasis added). The DOL explained that because structural changes in the home care industry had expanded the number of large, professionalized companies claiming the companionship services exemption, it was necessary to adjust the regulations "[t]o better ensure that the domestic service employees to whom Congress intended to extend FLS A protections in fact enjoy those protections." Id. at 60, 455; see also id. at 60, 460 (emphasizing the "high percentage of home care workers employed by third parties or agencies"); Id. at 60, 481-83 (further explaining the reasons for the change).[3]

         The DOL's decision to withdraw from third-party employers such as AHPC the ability to claim the companionship services exemption is relevant both for understanding defendants' actions giving rise to this litigation and in assessing whether the PCAs at issue are "employees" subject to the FLSA's requirements.

         B. Factual Findings

         AHPC is a limited liability company organized under Virginia law with a principal place of business in Manassas, Virginia. During the period relevant to this litigation-which the parties stipulate runs from January 26, 2016 through October 1, 2017-AHPC was an enterprise whose employees were engaged in commerce and which had an annual gross volume of business of at least $500, 000. See Order [Dkt. No. 71] 1 n.1.

         AHPC provides in-home healthcare and personal care services to individuals enrolled in Medicare and/or Medicaid. When an eligible patient signs up with AHPC, the company develops a plan of care and schedule for providing the services to which the patient is entitled. The PCAs at issue in this litigation-who account for roughly 40% of AHPC s revenues- provide a variety of services, including bathing, dressing, grooming, light cleaning, cooking, feeding, accompanying patients on errands, and otherwise assisting patients with day-to-day activities. Although the work they perform requires a high degree of attention, care, and discretion, PCAs are generally considered low-skilled workers and are typically paid at a rate between $9 and $11 per hour.

         How PCAs come to AHPC and receive assignments can vary significantly. Some apply to AHPC as individuals, hoping that the company will match them with patients. These PCAs do not have preexisting relationships with the patients they serve and often work for multiple patients during their tenure, sometimes attending to more than one patient during a given week. When a patient passes away, loses his entitlement to personal care, or otherwise stops needing personal care services, AHPC attempts to reassign the aide to a new patient with a plan of care and schedule that fits the aide's scheduling needs. Other PCAs apply to AHPC based on preexisting relationships they have with Medicare- or Medicaid-eligible patients. Some of the aides come to AHPC from another third-party provider of home services, and some of these aides bring their patients along with them. PCAs may even be family members or close friends of the patients they serve and may have no interest in caring for anyone else. Indeed, several of the PCAs in this case provided services only for family members, had no prior history of working as PCAs, and will cease working in that capacity when their services are no longer required by their family members.

         Regardless of these differences, all of AHPC s PCAs are subject to the same set of policies and practices. Each is given a copy of the AHPC employee manual, see PLEX 11, [4] and asked to fill out a signed verification that she has reviewed its contents. Before they can be assigned to work for any patients, PCAs must undergo an orientation and training program designed to familiarize them with common challenges and best practices for providing in-home care services and must complete monthly online continuing education programs offered through AHPC's workers' compensation policy, which covers all of the PCAs. The same timekeeping procedure applies to all PCAs. Under this procedure, PCAs virtually clock in and out when they arrive at or leave a patient's home, [5] and each Monday, they are responsible for dropping off with AHPC's human resources department "provider aide records"-which throughout this litigation were referred to as "timesheets"[6]-indicating the number of hours and tasks performed for each patient on a day-by-day basis. See, e.g., PLEX 24. Failure to submit provider aide records in a timely fashion can lead to disciplinary action. See, e.g., PLEX 19.

         AHPC processes payroll and billing as follows. Each day, the company's human resources department monitors the Kinnser data to ensure that all PCAs have reported for their assignments. If an aide forgets to clock in or out through Kinnser, she is contacted to make sure she is following the appropriate schedule. On a weekly basis, human resources staff collects the PCAs' provider aide records, works to correct any apparent issues with those records, [7] and combines the hours worked by each PCA in each week into a single, consolidated spreadsheet known as a "worksheet summary." See PLEX 2. What complicates the recordkeeping in this case is that the provider aide records are placed in each patient's individual files, as required by Medicare and Medicaid regulations. AHPC does not keep separate copies of the records arranged by aide. The worksheet summaries are then forwarded to the payroll department. PCAs are paid every two weeks based on the hours reported on the worksheet summaries, and the record of those biweekly payments are maintained in the company's ADP system. See PLEX 8. Because PCAs are sometimes late in submitting their provider aide records, they are often compensated for services performed in previous pay periods. Separately, AHPC bills Medicare and Medicaid directly on behalf of the patients. If AHPC over- or underbills for a given time period, Medicare and Medicaid regulations allow it to adjust the relevant amounts retroactively.

         PCAs have limited flexibility with respect to how they go about their duties. They must perform the required tasks listed in each patient's plan of care and cannot be paid for activities or hours beyond that plan because AHPC cannot bill Medicare or Medicaid for those additional services or hours. Although AHPC can recommend that a patient receive an increase in hours or additional services, those decisions are ultimately made by insurance companies, and the PCAs must abide by those decisions. If a PC A is unable to work an assigned shift, she must inform AHPC and cannot arrange for a substitute on her own. Failure to provide notice of unavailability or adequate documentation can lead to disciplinary action. See, e.g., PLEX 12 (indicating that a PCA was terminated because she failed "to bring in a medical clearance to return to work, per company policy," after being injured in a car accident). PC As also have little room to bargain for a given rate; although AHPC will on occasion pay a higher rate for an undesirable assignment such as a patient who lives in a remote area, PCAs are otherwise assigned a rate upon hiring that typically remains stable even if the aide changes assignments or works for a number of years. When a PCA's assignment ends, she must wait for AHPC to reassign her to another patient, a process that can take weeks. And a PCA may not be compensated if she fails to remain in compliance with AHPC policies-many of which stem from Medicare or Medicaid requirements-relating to training, vaccinations or immunizations, certifications, and the like. See, e.g.. PLEX 24 (indicating that a PCA was not paid for services rendered because she "had no TB," which refers to a vaccine for tuberculosis).

         Before 2015, all PCAs working for AHPC were treated as employees for tax purposes. Their earnings were reported on W-2 forms, and taxes were withheld. Things changed after the DOL issued the new regulations establishing that third-party home care companies could no longer claim the FLSA exemption for domestic workers providing "companionship services." Initially, AHPC's governing board determined that due to this change, the company would be "require[d] to pay all companions, [home health aides], [and certified nursing assistants] overtime," or else alter the aides' schedules "to accommodate the 40 hour work week requirement." PLEX 10, at 1.

         AHPC subsequently decided to reclassify PCAs as "independent contractors." In AHPC's view, once reclassified, if a PC A worked more than 40 hours in a week, she would not have to be paid overtime, but rather could be paid at her normal hourly rate. AHPC did not seek guidance from an attorney or from the DOL before making this decision. The only investigation involved defendant Wright's going to the DOL's website, after which she concluded that at least some of the PCAs qualified as independent contractors under the applicable standards-a conclusion she shared with her accountant in seeking advice on the tax consequences of reclassification.

         Sometime in 2015, AHPC held a meeting with its PCAs to discuss the possibility of changing their classifications. Many of the PCAs testified that they did not understand, or were never given a meaningful explanation of, any bona fide difference between working as an employee and working as an independent contractor. Instead, they focused only on the consequences of being reclassified, which many understood would allow them to continue to work more than 40 hours per week without receiving permission from the company. They also understood that that they would have to set aside part of their wages to pay taxes. One aide, for instance, described the reclassification effort as a change in AHPC's "pay system," and another indicated that it was simply a matter of shifting the burden of withholding taxes from AHPC to the PCAs.

         Whatever their understanding, many PCAs took part in the reclassification.[8] AHPC provided those "independent contractor" PCAs with W-9 forms and helped them fill out the forms, instructing them to list "At Home Personal Care" as their "[b]usiness name" and to check the "[i]ndividual/sole proprietor or single-member LLC" box. See DEX 9 (containing W-9 forms for over 20 of the PC As). AHPC then began reporting the compensation for those PCAs on 1099-MISC forms rather than on the traditional W-2 forms. See DEX 9R. Although most of the reclassified PCAs continued to operate as "independent contractors" until the end of the relevant period, several opted to switch back to the "employee" classification, typically because they felt it was too inconvenient or confusing to set aside taxes for themselves. Without exception, all the aides who testified at trial indicated that other than the tax-, compensation-, [9]and schedule-related consequences of the reclassification, there was no difference in the duties they performed or how they interacted with AHPC before and after being reclassified.

         Defendant Wright is AHPC's president and director of nursing, and during the relevant period she held a 100% ownership interest in AHPC. Although Wright does not actively participate in every aspect of the company, she is intimately involved with setting and implementing many of AHPC s policies and procedures for PCAs. For example, she is in charge of the process of hiring new PCAs, conducts the orientation and training once an aide is set to begin work, collaborates with new patient clients to develop the schedules and plans of care that will govern the PCAs' day-to-day responsibilities, and sets each aide's rate of pay based on an analysis of prevailing Medicare and Medicaid rates and the company's costs. She also oversees the human resources personnel in charge of the scheduling and payroll processes. Although staff coordinator Elizabeth Mendez ("Mendez") is responsible for day-to-day supervision of employees' hours and submission of provider aide records, [10] Mendez made clear at trial that she communicates any issues that cannot be immediately resolved up the chain of command to Wright, who is ultimately responsible for ensuring that AHPC's billing practices comply with Medicare and Medicaid requirements. Wright is also directly involved in disciplinary actions taken against employees who fail to abide by timekeeping or other rules. See, e.g., PLEX 19 (showing that Wright signed a PCA's disciplinary record as the "[s]upervisor"); PLEX 12 (containing, among other documents, a record of disciplinary action signed by Wright faulting a PC A for bringing her dog to a patient's home; forms signed by Wright denying approval for several requests made by a PC A to "call out" of a care assignment; and several reports completed by Wright assessing a PCA's work performance); see also PLEX 20, at 1 (showing that Wright signed a request for time off as the PCA's "[s]upervisor").

         Wright was the point person for AHPC when the DOL sent Rhonda Roberts ("Roberts"), a Wage and Hour Investigator, to look into the company's overtime compensation practices in the summer of 2017. See PLEX 7. Roberts met with Wright to discuss AHPC's classification of some PCAs as "independent contractors," informing Wright that she felt the classification was inappropriate and accordingly that the aides were not being paid overtime to which they were entitled. Roberts recommended that the "independent contractor" PCAs be immediately reverted to employee status. AHPC complied, although many of the aides were furious about the change.[11] Roberts also worked with Wright to collect worksheet and payroll summaries for the period under investigation in preparation for calculating back wages due under the Act.

         Since October 2017, in an effort to comply with the DOL's guidance, AHPC has treated all PCAs as employees, paying time-and-a-half compensation for hours worked over 40 in a workweek. See PLEX 27, at 6.

         II. ANALYSIS

         The Secretary claims that defendants violated the FLSA in two ways: (i) by failing to pay the requisite time-and-a-half overtime compensation to PCAs who worked more than 40 hours in a workweek, in violation of 29 U.S.C. § 207; and (ii) by failing to maintain adequate employee records in accordance with 29 U.S.C. §211. Each claim is addressed below.

         A. Overtime Compensation

         The FLSA is designed to combat "conditions detrimental to the maintenance of the minimum standard of living necessary for the health, efficiency, and general well-being of workers." 29 U.S.C. § 202(a). One of the principal evils the Act was intended to remedy is "the imposition of lengthy hours of work at low wages." Marshall v. W. Union Tel. Co., 621 F.2d 1246, 1250 (3d Cir. 1980). Accordingly, with a few exceptions, any covered employee who works more than 40 hours in a workweek must "receive[] compensation for his employment in excess of [40] hours at a rate not less than one and one-half times the regular rate at which he is employed." 29 U.S.C. § 207(a)(1). Ensuring adequate overtime compensation has two salutary effects: It "compensate[s] those who labor[]... for the wear and tear of extra work and ... spread[s] employment [by] inducing employers to shorten hours because of the pressure of extra cost." Bay Ridge Operating Co. v. Aaron. 334 U.S. 446, 460 (1948).

         Defendants concede that all but 5 of the 44 aides in Schedule A worked at least some overtime for which they were not compensated at a time-and-a-half rate.[12] Nonetheless, they seek to limit their liability under § 207 in four ways. First, they argue that roughly one-quarter of the aides are not covered by the FLSA's overtime provision because they are properly classified as independent contractors. Second, they claim that the Secretary's back wages calculation rests on unreliable documents and results in an inflated total. Third, they argue that liquidated damages are not appropriate in this case or, alternatively, that such damages should be granted as to some PCAs but not to all. Finally, they contend that Wright is not individually liable for any damages as an "employer" under the FLSA. None of defendants' arguments is availing.

         1. The Employee-Independent Contractor Distinction

         i. Legal Principles

         The FLSA imposes obligations on "employers" with respect to their "employees" but does not reach beyond employment relationships. Under the act, "employee" is defined as "any individual employed by an employer," 29 U.S.C. § 203(e)(1); "employer is defined to "include[] any person acting directly or indirectly in the interest of an employer in relation to an employee," 14 § 203(d); and "employ" is defined to "include[] to suffer or permit to work," id § 203(g).

         These notoriously circular definitions have prompted the courts to fill in the contours of which workers qualify as employees such that they enjoy the Act's protections. The term "employee" has generally been given broad construction, see Harbourt v. PPE Casino Resorts Md.. LLC, 820 F.3d 655, 658-59 (4th Cir. 2016), consistent with the principle that the FLSA is "remedial in nature" and thus must be construed "liberally, recognizing that broad coverage is essential to accomplish" the statute's goals, Schilling v. Schmidt Baking Co., 876 F.3d 596, 602 (4th Cir. 2017) (internal quotation marks and citations omitted). Nonetheless, that term "does have its limits," Steelman v. Hirsch, 473 F.3d 124, 128 (4th Cir. 2007) (citation omitted), and as relevant here does not extend to "independent contractors" who "work for their own advantage" rather than for the benefit of the putative employer, Id. at 128-29 (citation omitted).

         In deciding whether a worker is an "employee," and thus covered by the FLSA, rather than an "independent contractor" outside the Act's scope, "a court considers the 'economic realities' of the relationship between the worker and the putative employer." Salinas v. Commercial Interiors, Inc.. 848 F.3d 125, 150 (4th Cir. 2017) (citation omitted). The touchstone of this inquiry is "whether the worker is economically dependent on the business to which he renders service or is ... in business for himself." Id. at ...


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