Amusement or Recreational Establishments FLSA Overtime Exemption Applies to Their Concessionaires: Second Circuit | Practical Law

Amusement or Recreational Establishments FLSA Overtime Exemption Applies to Their Concessionaires: Second Circuit | Practical Law

In Hill v. Delaware North Companies Sportservice, Inc., the US Court of Appeals for the Second Circuit held in a Fair Labor Standards Act (FLSA) overtime class action, that the owner of a concessions stand at Baltimore's Oriole Park baseball stadium, is an "amusement or recreational establishment" exempt from overtime compensation under Section 213(a)(3) of the FLSA because it is a "concessionaire" at an amusement or recreational facility, and satisfies the Department of Labor's (DOL) receipts test.

Amusement or Recreational Establishments FLSA Overtime Exemption Applies to Their Concessionaires: Second Circuit

by Practical Law Labor & Employment
Published on 11 Oct 2016 • USA (National/Federal)
In Hill v. Delaware North Companies Sportservice, Inc., the US Court of Appeals for the Second Circuit held in a Fair Labor Standards Act (FLSA) overtime class action, that the owner of a concessions stand at Baltimore's Oriole Park baseball stadium, is an "amusement or recreational establishment" exempt from overtime compensation under Section 213(a)(3) of the FLSA because it is a "concessionaire" at an amusement or recreational facility, and satisfies the Department of Labor's (DOL) receipts test.
On October 3, 2016, in Hill v. Delaware North Companies Sportservice, Inc., the US Court of Appeals for the Second Circuit affirmed summary judgment for the employer in an FLSA overtime putative class action. It held that Delaware North Companies Sportservice Inc. (Sportservice), the owner of a concessions stand at Oriole Park (home of the Baltimore Orioles baseball team), is an "amusement or recreational establishment" exempt from overtime compensation under Section 213(a)(3) of the FLSA because it:
  • Is a "concessionaire" at an amusement or recreational facility.
  • Satisfies the receipts test as applied to new businesses under DOL guidance.
( (2d Cir. Oct. 3, 2016).)
The Second Circuit noted that:
  • Under the FLSA, an "amusement or recreational establishment" is exempt from paying overtime if its operations or receipts show that its business is seasonal (29 U.S.C. § 213(a)(3)).
  • To pass the seasonality test, an employer must show that either:
    • "it does not operate for more than seven months in any calendar year" (seasonal operations test); or
    • "during the preceding calendar year, its average receipts for any six months of such year were not more than 33 ⅓ per centum of its average receipts for the other six months of such year" (receipts test).
      (29 U.S.C. § 213(a)(3).)
  • The FLSA does not define either "amusement or recreational establishment."
  • In Chen v. Major League Baseball Properties, Inc., the Second Circuit's only case to deal with this exemption, it held "establishment" to mean "a distinct, physical place of business as opposed to an integrated multiunit business or enterprise." However, the court did not discuss the meaning of "amusement or recreational." (798 F.3d 72 (2d Cir. 2015).)
  • The meaning of "amusement or recreational" in the context of this FLSA exemption is ambiguous (Chao v. Double JJ Resort Ranch, 375 F.3d 393, 396–97 (6th Cir. 2004)).
  • Legislative history suggests a congressional understanding that concessionaires that sell food, drink, and merchandise at amusement or recreational sites have the required "amusement or recreational character" to qualify for the FLSA exemption. For example:
    • committee reports for the 1961 amendments to the FLSA make clear that concessionaires at places of amusement or recreation had the amusement or recreational character required for the exemption. The reports state that "[a] similar exemption is provided for employees of amusement and recreational establishments operating on a seasonal basis. These establishments are typically those operated by concessionaires at amusement parks and beaches and are in operation for 6 months or less a year" (H.R. Rep. No. 87–75, at 10 (1961)). Use of the term "at" allows Congress to distinguish between concessionaires and their host sites, suggesting that the legislative history treats concessionaires as core examples of amusement or recreational establishments, even when considered separately from the establishments they are hosted by;
    • the dictionary definition of "concessionaire" suggests a conclusion that "the essence of serving as a concessionaire is having a contractual arrangement with a host to operate on the host's premises to sell goods to the host's customers for them to use or consume, also on the host's premises, during the host's amusement or recreational activities"; and
    • language in the 1961 committee reports describes the "amusement or recreational establishment" FLSA exemption as "similar" to the exemption for "employees of a retail or service establishment employed primarily in connection with the preparation or offering of food for human consumption on the premises" (S. Rep. No. 87–145, at 28; accord H.R. Rep. No. 87–75, at 10). It is unlikely that Congress would have intended to exempt food service employees, but not those selling food as part of the concessions at an amusement or recreational establishment.
  • The DOL interpretive rule that discusses the "amusement or recreational establishments" FLSA exemption most extensively is persuasive. The rule implies that concessionaires at amusement or recreational sites can be "establishments frequented by the public for its amusement or recreation":
    "Amusement or recreational establishments … are establishments frequented by the public for its amusement or recreation and which are open for seven or fewer months each year or which meet the seasonal receipts test provided in clause (B) of the exemption. Typical examples of these establishments are the concessionaires at amusement parks and beaches" (29 C.F.R. § 779.385).
  • Two other interpretive rules note that the FLSA "amusement or recreational establishments" exemption appeared in the 1961 amendment and was moved to a different section in 1966, without the exemption being narrowed in 1966 (29 C.F.R. §§ 779.338 and 779.381). Further no other rules dealing with retail establishments under the FLSA conflict with these two rules. Therefore there is consistency between the legislative history and the DOL's interpretive rules in indicating that concessionaires can have an amusement or recreational character.
  • Relevant DOL opinion letters conflict with legislative history, including 29 C.F.R. § 779.385, and the DOL's Field Operations Handbook. Therefore the DOL does not have a consistent position as to whether or how concessionaires will be deemed to have an amusement or recreational character. But whether a non-legislative interpretation deserves deference depends on whether it is "consisten[t] with earlier and later pronouncements" (Skidmore v. Swift, 323 U.S. 134 at 140 (1944)).
  • The DOL's Field Operations Handbook offers new establishments two ways of satisfying the receipts test:
    • "if the enterprise of which the new establishment is a part operates other seasonal amusement or recreational establishments ... of the same type in the same general area under substantially the same conditions and all such establishments conclusively and clearly meet the condition of the receipts test"; or
    • "if such employer does not have other such establishments but other employers operating the same type of establishment in the same general area under substantially the same conditions and manner of operation clearly are entitled to exemption under the receipts test."
The Second Circuit held that:
  • Relying on legislative history:
    • concessionaires at amusement or recreational establishments qualify on their own as exempt establishments if they meet at least one of the seasonality tests in 29 U.S.C. § 213(a)(3); and
    • concessionaires are "establishments whose purpose is to sell goods and services on the premises of an amusement or recreational host facility to the host's customers for their use or consumption on the host's premises as they participate in the host's amusement or recreational activities."
  • It will not give any weight to conflicting DOL opinion letters and other non-legislative interpretations of the FLSA.
The Second Circuit ruled that:
  • Host premises Oriole Park clearly has an amusement or recreational character because of the baseball games it hosts.
  • Sportservice possesses the characteristics of a concessionaire because:
    • it operates entirely within the premises of Oriole Park;
    • its primary purpose is selling food, drink, and Orioles merchandise to ticket holders during game days, for their consumption and use as they watch the games held there; and
    • a de minimis level of non-concessionaire activities (operations on non-game days with non-ticket holders including Orioles Team Store sales, Dempsey's Brew Pub, and club and lounge rental) does not detract from an establishment's overall amusement or recreational character, especially because only about 12 employees work on non-game days compared to 600 on game days.
  • The food, drink, and merchandise that Sportservice sells at Oriole Park do have an "amusement or recreational character" because they:
    • are predominately for baseball game attendees' use and consumption as they watch the game;
    • enhance the amusement or recreational value of watching the game; and
    • provide a measure of amusement or recreation otherwise absent from the stadium.
  • Sportservice's operations at Oriole Park do not obviously satisfy the seasonal operations test. Although most of its business is tied to baseball games during a baseball season lasting less than seven months, it continues to operate the Orioles Team Store and Dempsey's Brew Pub during the off-season. The fact that non-ticket-holders can enter during the off-season suggests that Team Store and Dempsey's employees are operating for revenue, and are not simply performing maintenance or preparation work.
  • The receipts test must be adapted when an establishment begins operating in the middle of the preceding year. Since Sportservice started in November of the preceding calendar year, it would seem to automatically satisfy the receipts test because its receipts from January through June 2010 would not be more than a third of the average receipts for July through December 2010.
  • Sportservice satisfies the DOL's Field Operations Handbook criteria because:
    • for Sportservice's other baseball-only ballpark stadium concessions, which operated "under substantially the same conditions" as the Oriole Park concessions, the average receipts of the six months of 2010 with the smallest receipts, were not more than 33 ⅓% of the average receipts of the six months of 2010 with the greatest receipts; and
    • Aramark, Sportservice's immediate predecessor operated the same concessions at Oriole Park until November 2010. Combining Aramark's receipts in 2010 with Sportservice's receipts for the remainder of 2010 implies a clear entitlement to exemption under the receipts test because the least busy six months had only 4.86% of the receipts of the other six months.