Department of Labor Companionship Rule Doesn’t Comply with Best Practices

by Trey Kovacs on March 26, 2012

in Features, Labor, Regulation

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Last Wednesday, Office of Information and Regulatory Affairs (OIRA) Administrator Cass Sunstein sent a memo to executive agency heads concerning the cumulative effects of regulation and offered best practices for rulemaking. The memo reveals the prominent federal agency responsible for workers does not meet the Obama administration’s standards. In particular, the Department of Labor’s (DOL) latest regulatory initiative, amending companionship and live-in worker rule, diverges sharply from Sunstein’s best practices.

The memo to agency heads is purported to reinforce President Obama’s Executive Order 13563, “Improving Regulation and Regulatory Review.” The memo and EO on paper request agencies to reach out and alert the potential affected parties (state/local governments, small business, industries, and individuals) of new or existing regulatory changes. In addition, regulators must consult and offer easy ways for the public to participate in calls for comments.

The regulatory guidelines set forth stress the importance of public involvement in understanding the cumulative effects of regulation: How to minimize administration costs, streamline duplicative rules, and harmonize and reduce excessive regulatory burdens. The memo’s objective, “The goals of this effort should be to simplify requirements on the public and private sectors… propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs.”

Unfortunately for workers, Mr. Sunstein’s memos must go directly to DOL Secretary Hilda Solis’s junk-mail folder. Despite OIRA and executive guidelines for rulemaking, DOL is looking to advance their rule to narrow the exemptions to the companionship and live-in worker regulation under the Fair Labor and Standards Act (FLSA). The congressional intent underlying the companionship exemptions is to make quality in-home care affordable and accessible. Not only does DOL’s proposed rule stray from FLSA congressional intent, but it is far outside OIRA’s suggestions for rulemaking.

The rule’s cost alone (DOL estimates increases from $420 million to $2.3 billion over the first 10 years) seem to suggest costs outweigh the benefits. However, the rule’s cost is unclear and many suspect them to be significantly higher. William Dombi, vice president for law at the National Association for Home Care & Hospice (NACH), testified at a congressional hearing where he spoke to the inadequacy of DOL’s regulatory analysis: It “fails to comply with requirements that the department undertake a comprehensive and reliable impact analysis before issuing the proposal.”

To pick up DOL’s slack, NACH conducted an impact analysis for DOL’s companionship regulation, finding the following adverse effects:

  1. Moderate to significant increases in care costs;
  2. Restrictions in overtime hours to the detriment of the workers overall compensation;
  3. Loss of service quality and continuity; and
  4. Increased costs passed on to the patients and public programs that would decrease service utilization, increase  unregulated “grey market” care purchases, and increase institutional care utilization rather than absorbing and covering the higher cost of care.

More importantly, DOL could easily avoid the detrimental cumulative regulatory effects if it follows OIRA’s memo and reaches out to the effected parties, engaged state governments, or acknowledges “specific consideration” to small business. If DOL participates in an “open exchange of information and perspectives,” it will reveal the corruption, detriment to small business, and restricted access to care caused from state intervention/regulation of the in-home care industry.

Numerous states have implemented analogous regulation, produced from legislation or executive order, to the DOL’s companionship rule. The results have been devastating. Using Michigan as a case study gives a preview of the negative cumulative effects caused by regulating in-home care workers.

In 2006, former Michigan Governor Jennifer Granholm issued an executive order making privately employed in-home care workers public employees subject to collective bargaining if they received government subsidies. The EO created a government agency to act as the employer for home care workers. The Michigan Quality Community Care Council’s (MQCCC) responsibilities included connecting home care workers to patients, providing workers training, and creating a government employer to unionize.

To make a long story short, the intent of the in-home care EO and resulting regulations was to increase access to quality care while protecting workers. In reality, the rule-changes amounted to a unilaterally imposed union dues scheme (for full reporting on the forced unionization scheme, click here). The union provided no support to workers, but collected over $28 million in dues over the time span. Even worse, the union dues were skimmed from patients Medicaid payments, many whom were being cared for by family members. Once the scheme was unveiled, MQCCC was defunded. However, the SEIU has continued to collect dues, $4 million and counting, from the non-existent agency by the strength of collective bargaining agreements.

The impact to small business was apparent during the congressional testimony of Wynn Esterline, owner of in-home care company in Michigan. As Esterline said, “This new Michigan law drastically changed my business, negatively affecting my caregivers and the seniors we serve. No one is better off than they were before this change went into effect, not me, not my clients, and certainly not my employees. I firmly believe that the rest of the country is headed for the edge of this same cliff.”

In light of the unknown costs of the Department of Labor’s companionship rule, adverse effects in the states, and improper rulemaking procedure, it is becoming clear that the new rule would create greater costs than benefits. OIRA chief Sunstein must call for DOL to stop moving forward. Fortunately, the Paperwork Reduction Act of 1980 via Executive Order 12866-Regulatory Planning and Review provides Mr. Sunstein the power to review regulations and send back rules for reconsideration if they do not meet OIRA standards.

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