Second Circuit Establishes That Concessionaires Operating at Amusement or Recreational Establishments Are Eligible for FLSA Overtime Exemption

November 8, 2016Alerts Labor & Employment Alert

Recently, the United States Court of Appeals for the Second Circuit issued a significant decision in Hill and Brown v. Delaware North Companies, Inc., holding that establishments that operate on the premises of an amusement or recreational host, selling goods or services to the host’s customers for their consumption or use are concessionaires with an amusement or recreational character under the Fair Labor Standards Act (FLSA). This decision allows concessionaires at amusement or recreational establishments to qualify for an FLSA overtime exemption under certain circumstances.

In Hill, Maryland Sportservice, Inc. (“Maryland”), a wholly owned subsidiary of Delaware North Companies Inc., had an agreement with the Baltimore Orioles to operate the food, beverage and merchandise sales concessions at Oriole Park. The plaintiffs were employees at the concessions at Oriole Park, operated by Maryland, who regularly worked in excess of 40 hours per week. However, Maryland classified the individuals as exempt from overtime pursuant to the “amusement or recreational establishment” exemption to the FLSA and paid them only their regular rate of pay for all hours worked in excess of 40 per week. Pursuant to the exemption, eligible employers are not required to pay their employees an overtime premium if their business is an amusement or recreational establishment with seasonal operations.

The district court granted summary judgement for the defendant, finding that Maryland qualified for the “amusement or recreational establishment” exemption from the overtime provisions of the FLSA because the concessions “were an integral part of the amusement and recreational character of Oriole Park.” Moreover, the district court found that Maryland satisfied the seasonality requirement for the exemption as it did not operate for more than seven months of the year. The plaintiffs appealed this decision. On appeal, the Second Circuit affirmed the decision of the district court, but for a partially different reason.

Under the FLSA, an “amusement or recreational establishment” is exempt from paying overtime if its operations or receipts show that its business is seasonal. Per the Second Circuit, in order to qualify for the exemption, a business must meet a two pronged test: (1) the business must be an amusement or recreational establishment; and (2) its operations must be seasonal. In order to satisfy the seasonality requirement, a business must either “not operate for more than seven months in any calendar year” or establish that “during the preceding calendar year, its average receipts for any six months of such year were not more than 33 1/3 percent of its average receipts for the other six months of such year.” In affirming the decision of the district court, the Second Circuit undertook a two-part analysis, first determining whether Maryland qualified as an amusement or recreational establishment and then determining whether Maryland engaged in seasonal operations.

In order to determine whether Maryland was an amusement or recreational establishment, the Second Circuit relied upon the legislative history of the FLSA. The Second Circuit noted that the legislative history of the FLSA explicitly “treat[ed] concessionaires as core examples of amusement or recreational establishments, even when analyzed separately from the amusement or recreation sites they serve.” Based upon Congress’s intent, the Second Circuit concluded that “concessionaires that sell food, drink and merchandise at amusement or recreational sites have the requisite amusement or recreational nature to qualify for the exemption” from the FLSA. The Second Circuit went on to define concessionaires as “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.” Having determined that concessionaires qualify as an amusement or recreational establishment, the court turned to the seasonality aspect of the exemption.

In finding that Maryland met the seasonality requirements of the FLSA exemption, the Second Circuit agreed with the district court that Maryland’s operations were seasonal. However, the Second Circuit came to this decision for a different reason than the district court. The district court determined that Maryland’s operations were seasonal because it does not operate for more than seven months per year. However, the Second Circuit did not fully agree with that rationale because, although Maryland primarily operated during baseball season, they operated certain aspects of the business year round. Although some courts permit such incidental operations during the non-primary business season, the Second Circuit did not feel the need to address that issue in this case. Rather, the Second Circuit deemed Maryland to qualify as a seasonal business since its business receipts for its six least busy months only constituted 4.86 percent of its revenue in its other six months of operations, thus meeting the receipts based seasonality test.

Based upon this decision, employers operating as concessionaires at amusement or recreational establishments are urged to review their annual operational timelines and perform an analysis of their business receipts to determine whether they qualify for the FLSA exemption granted to amusement and recreational establishments.

For more information about this alert, please contact Gregg Kligman at 212.878.7910 or gkligman@foxrothschild.com or any member of the firm’s Labor & Employment Department