New Law Could Increase Home Health, Hospice Labor Costs 30%

Lawmakers in one state recently passed a labor bill that could be damaging to the bottom lines of many home health and hospice agencies there.

California’s Assembly Bill 5 (AB 5) passed in the Senate Wednesday and is headed to the desk of Governor Gavin Newsom, who is expected to sign the proposed legislation into law. AB 5 widens the scope of who is considered an employee — and who, in turn, is entitled to labor rights such as overtime, benefits and unemployment.

The bill was designed to take aim at California’s gig economy, making it harder for employers to inappropriately label workers as direct contractors. But the home-based care industry seems to be caught in the crossfire.


“One of the new standards for direct contractors is that workers must be free from control and direction of the hiring entity,” Angelo Spinola, a shareholder and attorney at Littler Mendelson, told Home Home Health Care News. “That would prevent home health and hospice from passing the test.”

Littler Mendelson is a law firm focused on representing management in employment and labor matters.

While California home care agencies are required to hire their caregivers as employees, home health and hospice providers are allowed to bring in certain workers — such as therapists and workers from staffing agencies — on a contract basis.


Due to the nature of the industry, however, those workers must then receive direction from agencies to ensure appropriate care of patients. Under AB 5, that could mean all home-based care workers would have to be hired as employees — but that’s not always possible, Spinola said.

“For example, with therapists: Some home health companies can’t hire them,” he said. “They would like to hire them as employees, but therapists are in such high demand they can basically write their own ticket. A lot of these therapists prefer to work with multiple companies and pick and choose their own schedules.”

AB 5 also requires that direct contractors perform a task outside of the company’s usual course of business and that workers are “customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.”

Executives at the California Association for Health Services at Home (CAHSAH) are exploring what that means for providers in the state, according to CAHSAH President Dean Chalios.

“The bill contains a few exemptions to these provisions, but nurses and other health care professionals (with the exception of physicians and dentists) are not included in that group,” Chalios told HHCN in an email.

While CAHSAH advocated for the exemption of home-based care providers before the bill’s passage, their efforts ultimately failed.

“However, the bill’s author has indicated that she is open to perhaps addressing these additional exemptions in legislation next year, so our battle on this front continues,” Chalios said.

Meanwhile, Littler Mendelson is also exploring AB 5’s impact on the home-based care industry. But there’s one thing of which Spinola is sure: the changes will come at a price.

“[Home health and hospice agencies] would have a significant increase in labor costs,” he said. “Most estimate the labor cost increase — when you talk about benefits, overtime and all that — is at least 20% to 30% of a hike.”

If Gov. Newsom signs the AB 5 into law, it will go into effect Jan. 1, 2020. And from there, it could expand beyond California.

“In the same vein as other laws that start in California and spread across the country, I think we’re going to see the same thing with AB 5,” Spinola said.

For example, a similar bill is already being considered in New York.
Both New York and California have seen their fair share of proposed legislation targeting the home-based care industry lately. Earlier this month, lawmakers in New York proposed legislation that would eliminate 24-hour workdays in home care. In California, a new policy that gives labor unions access to caregivers’ personal information for the purpose of organizing is currently the target of a lawsuit from industry groups.

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