Legal Alert

Increased Scrutiny and New Theories of Liability Raise Risks for Care-Focused Industries

by Shannon D. Farmer, Beth Moskow-Schnoll, Philip E. Legendy, and David Goroff
June 26, 2023

Federal and local authorities are targeting enforcement efforts against home health agencies and other participants in the caregiving industry in a variety of ways. Industry stakeholders should take note and evaluate whether pre-emptive remedial steps are warranted.

The caregiving industry has long grappled with a shortage of workers, an issue that became acute during the pandemic. Now, national and local enforcement authorities are increasing pressure on the industry by stepping up scrutiny of employment practices.

In this analysis, we focus on the intersection of three developments that will add to the risks facing care-focused employers, namely an ongoing nationwide Department of Labor investigative initiative, the emergence of a novel legal theory that may be used to enforce traditional wage and hour issues as federal and state False Claims Act violations, and the development in New York of a specialized task force that will focus on labor issues at home health agencies and other employers.

The United States Department of Labor is Continuing a Broad, Nationwide Investigative Initiative Focused on Labor Violations in Caregiving Professions

In November of 2021, the Department of Labor’s Wage and Hour Division (DOL) launched an aggressive education, outreach, and enforcement effort directed at ensuring lawful wage and working conditions for professional caregivers, such as home health and long term care workers. The DOL reported that in its first year, the initiative resulted in over 1,600 investigations of employers in the residential care, nursing facilities, and home health services sectors. The DOL found violations in 80 percent of those investigations, resulting in the recovery of $28.6 million in back wages and damages and almost $1.3 million in civil monetary penalties.

In a recent example, the DOL announced on May 11, 2023, that investigators from its Wage and Hour Division had recovered back wages and damages for 16 employees of California assisted living facilities. Those facilities, the DOL stated, had failed to pay overtime to their employees as required by the Fair Labor Standards Act (FLSA). Similarly, in 2022, the DOL recovered $1.2 million in back wages from four home health care agencies in Texas and Louisiana who had misclassified employees as independent contractors and failed to pay overtime as required by the FLSA. The DOL has announced hundreds of these recoveries over the past 2 years by caregiving providers, as well as staffing agencies that supply workers to caregiver agencies.

This enforcement initiative, though focused on the health care sector in this case, proceeds as any other DOL investigation, which can be initiated based on an employee complaint or by the DOL acting on its own. These investigations are designed to ensure that workers are properly classified as employees, not independent contractors, and that federal laws administered by the DOL are being followed. That means that workers are being paid at least the federal minimum wage (currently $7.25 per hour) for all hours worked, are receiving overtime at time-and-a-half their regular rate of pay when they work more than 40 hours in a workweek, child labor laws are being followed, and workers are receiving leave under the Family and Medical Leave Act when they are eligible for it.

Where the DOL investigation finds violations, it will pursue back pay for a period of 2 years (or 3 years if it believes it can prove the violation was willful), liquidated damages in an amount equal to the back pay owed, and often, civil monetary penalties. In misclassification cases (where the workers are treated as independent contractors rather than employees), the DOL also reports the results of its investigation to both the Internal Revenue Service (IRS), which will often pursue an audit of the employer for unpaid employment taxes, and to state taxing authorities in the majority of states with whom the DOL and IRS now have information sharing agreements. State authorities may pursue claims for unpaid state employment taxes, including unemployment taxes and payroll taxes, as well as any penalties available under their own state laws for wage and hour violations, some of which have longer statutes of limitations than the FLSA.

Enforcement Authorities in New York Have Upped the Ante by Advancing a New Theory of Liability for Wage and Hour Violations Based on the False Claims Act

Even as DOL’s enforcement initiative proceeds in the background, government enforcement agencies at both the state and federal level appear to be looking beyond traditional wage and hour theories to bring enforcement actions for employment law violations. Home health agencies and facilities may be particularly exposed.  

For example, on December 9, 2022, the U.S. Department of Justice (DOJ) and the New York State Attorney General announced a settlement with White Glove Community Care, a Brooklyn-based home health agency. The settlement addressed allegations that White Glove violated the federal False Claims Act (FCA) and New York’s FCA by certifying it paid its home health care workers the minimum wage required under the New York Wage Parity Act. That Act requires home health agencies that provide services to Medicaid recipients in certain counties to pay their home care aides a specified minimum base wage. White Glove’s false assertion that it had complied with the Act caused it to receive reimbursement from Medicaid to which it was not entitled, in violation of the Federal and the New York FCAs. White Glove resolved the allegations by paying more than $1.2 million.

This novel basis of FCA liability greatly expands what would traditionally have been a classic wage and hour claim. The use of federal and state FCAs to police wage and hour laws marks an intensification in enforcement because it implicates an independent theory of liability, which can attach in tandem with traditional employment liability (as was the case for White Glove). Moreover, liability under the federal FCA can be material and in some cases unsurvivable, as FCA penalties include treble damages, civil monetary penalties of up to $27,000 per claim, and possible exclusion from participation in government health care programs.

New York Task Force to Target Violations by Home Health Agencies and Other Facilities

New York in particular may be poised to escalate enforcement of employment issues in home health settings. On February 16, 2023, the Manhattan District Attorney’s Office announced the creation of a new Worker Protection Unit, which will focus on wage law and workplace safety violations. The announcement of the unit’s formation specifically stated that the unit would focus on “home healthcare agencies,” among others.

While the implications of this particular development remain to be seen, home health industry participants should take note. The formation of this task force, together with the national focus at DOL on similar issues, and the new FCA-based legal theory that DOJ unveiled in the White Glove settlement, signal a potential shift toward a more active enforcement environment. 

DOL’s high rate of findings in its national initiative (80% of investigations identified violations) suggests that the kinds of practices that could bring home health agencies into enforcement crosshairs may be widespread. As such, industry participants in New York and elsewhere would be well advised to take a close look at their internal practices and to analyze local laws and regulations that could subject them to requirements similar to New York’s Wage Parity Act, and by extension, expose them to FCA liability.

Ballard Spahr’s Health Care, Labor and Employment, and White Collar Defense/Internal Investigations attorneys are experienced in these matters and are available to counsel home health and other care-focused clients on these and other issues, with a view toward reducing enforcement risk, or if enforcement action materializes, mounting a vigorous defense. 

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