Appeal from the Order of the Commonwealth Court entered on September 4, 2008 at No. 477 M.D. 2007.
The opinion of the court was delivered by: Madame Justice Todd
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, GREENSPAN, JJ.
A provision of the Pennsylvania Minimum Wage Act of 1968 (the "Act")*fn1 exempts from the statute's minimum wage and overtime requirements employment for "[d]omestic services in or about the private home of the employer." 43 P.S. § 333.105(a)(2). A regulation promulgated by Appellee, Pennsylvania Department of Labor and Industry (the "Department"), defines "domestic services" as "[w]ork in or about a private dwelling for an employer in his capacity as a householder, as distinguished from work in or about a private dwelling for such employer in the employer's pursuit of a trade, occupation, profession, enterprise or vocation." 34 Pa. Code § 231.1(b). In this direct appeal, we consider initially the doctrines of ripeness and exhaustion of administrative remedies to determine whether this matter is justiciable. We then address the issues of whether the Department's application of its regulation is reasonable and whether a third-party agency employer may benefit from the "domestic services" exemption from the Act's overtime requirements. For the reasons that follow, we determine this matter is justiciable, uphold the Department's regulation, and conclude that a third-party agency employer does not qualify for the domestic services exemption, and, therefore, must pay its employees overtime. Thus, we affirm the order of the Commonwealth Court.
Appellant Bayada Nurses, Inc. ("Bayada") is a Pennsylvania corporation with its principal office located in Moorestown, New Jersey. Bayada has approximately 38 offices and employs over 1,000 individuals in the Commonwealth. It offers home care services, ranging from skilled nursing and personal care to rehabilitation and therapy for pediatric, adult, and geriatric clients. In order to provide these services, Bayada employs licensed practical nurses, registered nurses, and home health care aides ("aides"). Bayada's aides, who are the focus of this litigation, assist their clients in performing activities associated with daily living and provide general companionship. Bayada pays these aides an hourly rate, with each hour of service billed to the client. Bayada, however, does not pay its aides overtime.
On September 27, 2005, the Department notified Bayada that an audit of its payroll records would be conducted based on information "that possible discrepancies may exist in the manner payment is made to [Bayada's] employees with regard to the Minimum Wage and Overtime Law." Letter, 9/27/2005 (Exhibit B to Petition for Review) (emphasis in original). The Department requested Bayada to examine payroll records for a period of two years with regard to compliance with the Act, and to compile any information in audit format. Id. The focus of the Department's inquiry related to Bayada's payment of overtime to its aides. The Department took the position that, pursuant to its regulation, Bayada was not entitled to the domestic services exemption from overtime requirements. In January 2006, Bayada responded to the Department's request, claiming that it was entitled to the domestic services exemption, and, after additional meetings, and further correspondence between the parties, the Department notified Bayada on March 22, 2007 that the audit would proceed. Evidently, to date, however, the Department has not audited Bayada.
On October 2, 2007, Bayada filed a petition for review in the nature of a complaint for declaratory judgment in the original jurisdiction of the Commonwealth Court. In its petition, Bayada challenged the validity of the Department's regulation which, according to Bayada, improperly limited the application of the domestic services exemption set forth in the Act. Specifically, Bayada maintained that the Act makes no distinction between domestic services provided to a householder by a direct and sole employee of the householder and domestic services provided to a householder by employees of a home health care agency (or third party) at the request of the householder. According to Bayada, the language of the Act is consistent with the same exemption provided in the federal Fair Labor Standards Act ("FLSA"),*fn2 which does not prohibit an exemption for agency employment. Bayada contended the two statutes should be interpreted in pari materia, and that the federal approach should govern, permitting agency employers to benefit from the domestic services exemption. Therefore, Bayada asserted that the Department's regulation does not reflect a reasonable interpretation of the Act and that it is void to the extent it denies third party agency employers, such as Bayada, the benefit of the domestic services exemption.
Furthermore, Bayada argued the Department's regulation prohibits recognition of a joint employer relationship. Specifically, Bayada submits that its clients control its aides. As its aides are "under the total discretion and control of the client while performing services in the client's home," the client is a joint employer with Bayada. Petition for Review at 17, ¶ 73. As a joint employer, Bayada asserted it should enjoy the benefit of the exemption. Moreover, Bayada offered the policy concern that, if the regulation is enforced, thus denying agency employers the domestic services exemption, the cost of such services will increase and clients will be forced either to reduce the number of hours of service the clients will receive or use additional aides "in their homes at great inconvenience, hardship and burden." Id. at 18, ¶ 83.
Ultimately, Bayada sought a judgment declaring (1) the definition of domestic services found in the regulation to be inconsistent with the Act and void to the extent it denied agency employers the domestic services exemption; (2) Bayada's clients are employers for purposes of the Act, such that Bayada and its clients may take advantage of the domestic services exemption; and (3) the domestic services exemption should be interpreted consistent with the FLSA. Id. at 20.
On November 2, 2007, the Department filed preliminary objections in the nature of a demurrer, based upon the legal insufficiency of the pleading. Pa.R.Civ.P. 1028(a)(4). Specifically, the Department contended Bayada's petition contained no specific allegation that the Department's regulation was illegal, that the Department lacked the authority to issue the regulation, or that any illegality existed in the regulatory promulgation process. Moreover, the Department urged that its regulation was consistent with, and a reasonable and proper interpretation of, the Act; and that the Pennsylvania legislature and the Department are not bound by the FLSA and may impose stricter requirements than those found under the federal statute. Thus, the Department requested the Commonwealth Court to grant its demurrer.
The Commonwealth Court first determined that the Act does not define the term "domestic services," but concluded the Department was within its granted power and in accordance with proper procedures when it adopted its regulation defining the term. Applying principles of statutory construction, the court found that the regulation tracked the meaning of the Act's domestic services exemption and was reasonable. The court also rejected Bayada's argument that the domestic services exemption in the Act should be construed in pari materia with the FLSA, which would allow third-party agency employers to benefit from the exemption for employees, finding the domestic services exemptions under the Act and the FLSA to be substantially different, and that the FLSA did not preempt state regulation of wages and overtime if the state's standards are more beneficial to workers. Finally, the court rebuffed Bayada's assertion that its household clients were "joint employers," reasoning that, even taking as true all of Bayada's allegations regarding its clients' right to control the aides, Bayada failed to demonstrate the requisite control necessary to find a joint employer situation. Thus, the Commonwealth Court sustained the Department's preliminary objections in the nature of a demurrer and dismissed Bayada's petition for review.
Judge Pellegrini, joined by Judges Cohn Jubelirer and Leavitt, dissented. The dissenters concluded the matter was not ripe for review, and that Bayada's pre-enforcement challenge was improper. Bayada appealed the Commonwealth Court's determination.
We granted oral argument, and in addition asked the parties to provide supplemental briefing on the issue of whether the appeal was ripe for review under Arsenal Coal Co. v. Dep't of Envtl. Res., 505 Pa. 198, 477 A.2d 1333 (1984).*fn3 Bayada raises the following issues for our review:*fn4
1. Whether Bayada should have been afforded an opportunity to create a factual record on the critical issue of whether it jointly employs the Home Health Aides at issue in concert with its householder clients where Bayada has pled the requisite facts necessary to establish such joint employment relationship?
2. Whether Bayada is entitled to the benefits and protections of the "domestic services exemption" if it can establish a joint employment relationship between itself and its household clients with respect to the Home Health Aides at issue?
3. Whether the Department's current application of the Minimum Wage Act and its Regulation to exclude agency employers from the benefits and protections of the "domestic services exemption" is unreasonable and in direct conflict with the express terms of both the Minimum Wage Act and the Department's own Regulation?
4. Whether Bayada should be afforded the opportunity to amend its Petition to address any lack of specificity on which the Commonwealth Court based its dismissal of the Petition?
Before we address Bayada's issues on appeal, we must address a threshold issue, and one on which we ordered supplemental briefing: whether this appeal is ripe for our review in light of our decision in Arsenal Coal.
As noted above, the dissenters found the matter not ripe for review and found a pre-enforcement challenge to be improper. More specifically, the dissenters opined that Bayada had suffered no injury, as no audit has taken place, and no fees have been assessed against it. Thus, the dissenters concluded the matter was not ripe for review. Related thereto, according to the dissenters, an administrative remedy was available, and, because Bayada failed to utilize such remedy, they believed the proper disposition of the matter was the dismissal of Bayada's petition for review. The dissenters acknowledged the exception to the requirement of the exhaustion of administrative remedies articulated in Arsenal Coal, noting a pre-enforcement challenge to a regulation was approved therein because the effect of the challenged regulation was direct and immediate and a lengthy administrative process would result in ongoing uncertainty in the day-to-day business operations of the industry. Yet, finding the regulation challenged by Bayada was adopted in 1977, the dissenters reasoned a regulation of such vintage could not cause the requisite "ongoing uncertainty in the day to day business operations" required for the exception to apply. Arsenal Coal, 505 Pa. at 210, 477 A.2d at 1340. Therefore, according to the dissenters, Bayada's challenge to the 31-year-old regulation did not fall within the Arsenal Coal exception to the general rule requiring exhaustion of administrative remedies.
Contrary to the position of the dissenters, both Bayada and the Department assert that these issues are justiciable. Specifically, Bayada refutes the dissenting judges' reasoning by first pointing to the Declaratory Judgment Act and noting that it extends to the Commonwealth Court the authority to "declare rights, status, and other legal relations whether or not further relief is or could be claimed." 42 Pa.C.S.A. § 7532. Bayada offers that it initiated its action in the Commonwealth Court's original jurisdiction without advancing its challenge through an administrative proceeding, two years after the Department's initial notice of its intent to audit Bayada's payroll records and its then-recent change in its interpretation and application of the regulation. As the Department had not commenced enforcement ...