Most regular readers of this blog will be familiar with the most common exemptions to the overtime requirements of the Fair Labor Standards Act, those being the “white collar” exemptions for executive, administrative, and professional employees. However, the FLSA also contains a number of less well-known exemptions covering specific establishments or industries. In this post, we take a look at the exemption for seasonal amusement and recreational establishments.
Seasonal Establishment Exemption: Basics
FLSA Section 13(a)(3) (29 U.S.C. § 213(a)(3)) provides an exemption from the FLSA’s minimum wage and overtime provisions for employees of amusement or recreational establishments, organized camps, or religious or non-profit educational conference centers if either:
- The establishment does not operate for more than seven months in any calendar year, or
- During the preceding calendar year, the establishment’s average receipts for any six months were not more than 1/3rd of its average receipts for the other six months of the year.
For purposes of the first test, whether an establishment “operates” during a particular month depends upon whether it operates as a covered establishment during the month. For example, a seasonal camp that is closed to guests but that carries on maintenance operations during a given month is not regarded as “operating” in that month.
For purposes of the second test, the monthly average receipts for the six individual months (not necessarily consecutive) in which receipts were lowest are compared to the monthly average receipts for the six months in which receipts were highest. For example, consider a seasonal camp whose monthly revenue looks like this:
- January – Closed ($0)
- February – Closed ($0)
- March – $15,000
- April – $20,000
- May – $30,000
- June – $70,000
- July – $75,000
- August – $50,000
- September – $50,000
- October – $25,000
- November – $10,000
- December – Closed ($0)
In this scenario, the six months with the highest revenue are May, June, July, August, September, and October. Revenue in those six months totals $300,000, or an average of $50,000 per month. The six months with the lowest revenue were January, February, March, April, November, and December. Total revenue for those months was just $45,000, or an average of $7,500 per month. Because $7,500 is less than 1/3rd of $50,000, the camp meets the average receipts test and would qualify for the FLSA exemption.
What Is An “Establishment”?
One of the key questions that arises when applying the seasonal establishment exemption is what, exactly, constitutes an “establishment”; for purposes of the exemption.
Consider, for example, a summer “camp” for high school students on the campus of a college or university. It is not clear from the statute whether such a camp would constitute a separate “establishment” for purposes of the Sec. 13(a)(3) exemption, particularly if the camp is operated by the college or university itself rather than by a separate organization that just happens to be using the the campus by arrangement with the school. However, the Department of Labor Wage and Hour Division’s Field Operations Handbook suggests at Section 25j09 that at least some camps of this type may qualify for the exemption:
Some elementary or secondary schools or institutions of higher education which are academically accredited during the fall through spring semesters operate establishments that provide summer recreation or summer camp programs. Where such programs meet the requirements of Sec 13(a)(3)(A) or (b) and are not a part, continuation, or extension of the accredited academic program of the school, such an establishment may qualify as “an amusement or recreational establishment, organized camp, or religious or nonprofit educational conference center” pursuant to the exemption, even though some credit courses may be offered on a voluntary basis along with the recreational activities. The applicability of Sec 13(a)(3) to employees of such an establishment is not defeated by the fact that the same distinct physical place of business is for part of the year a “school”, and for part of the year an “amusement or recreational establishment, organized camp, or religious or nonprofit educational conference center.”
This does not, however, necessarily resolve the matter in all cases. For example, in a 2004 non-administrator opinion letter, the DOL considered whether a summer camp operated by a non-profit organization that also ran a year-round horseback riding school out of the same facility could qualify for the Sec. 13(a)(3) exemption. According to the letter, the summer camp was independent from the organization’s regular riding lessons, with separate accounting and a dedicated staff of 15-20 counselors and instructors. In the letter, the DOL relied upon the definition of “establishment” in the regulations interpreting the exemption for retail and service establishments. Specifically, 29 C.F.R. § 779.305 states that two or more physically separated portions of a business located on the same premises can constitute separate “establishments” if:
- Their activities are physically separated;
- They function as separate units with separate records and separate bookkeeping; and
- There is no interchange of employees between the units.
The DOL determined that, although it was in most respects separately organized and operated, the summer camp could not be considered a separate “establishment” under Sec. 13(a)(3) because two of the organization’s employees – its general manager and administrative assistant – also spent a significant portion of their time during the summer administering the summer camp, and because the camp was not physically separated from the rest of the operation.
Applied to a college or university summer camp, this could suggest that a camp held on campus and administered in part by college or university employees may not qualify for the Sec. 13(a)(3) exemption, even if the bulk of the camp staff was hired solely for purposes of the camp. This is not to say that college or university employees can have nothing to do with the camp – the regulation makes clear that the problem arises when employees float freely between the two purportedly separate “establishments”:
The requirement that there be no interchange of employees between the units does not mean that an employee of one unit may not occasionally, when circumstances require it, render some help in the other units or that one employee of one unit may not be transferred to work in the other unit. The requirement has reference to the indiscriminate use of the employee in both units without regard to the segregated functions of such units.
The question of what constitutes an “establishment” for purposes of the Sec. 13(a)(3) exemption was addressed just last month in two district court decisions, Feagley v. Tampa Bay Downs, Inc. and McMillan v. BSA Aloha Council. In Feagley, there was no dispute that the defendant racetrack’s employees were exempt under Sec. 13(a)(3), but the plaintiff, a card dealer in a poker room on the race track’s premises, claimed that the poker room was a separate establishment and that the company had violated his FLSA rights by forcing him to pool his tips with non-tipped employees such as supervisors. The court held that the 3-factor test from 29 C.F.R. § 779.305 applied, but found that there were disputed factual issues that required the case to proceed to trial.
In McMillan, the plaintiff was employed as a Camp Ranger, working at three Boy Scout camps operated by the Aloha Council. While he worked year-round, the camps primarily operated a 4-week summer camp program. Taken together, the camps satisfied the average receipts requirement for the seasonal establishment exemption. However, McMillan argued that he was actually employed by one of the camps, Camp Pupukea, and that the 4-week summer camp held there was a separate establishment from the year-round operation that employed him. The court rejected this argument, finding no evidence that the Aloha Council operated the 4-week summer camp as a unit separate from the other activities at the camp or that it did not interchange employees with the rest of the camp’s operations.
Insights for Employers
Like other FLSA exemptions, the exemption for seasonal recreational and amusement establishments can be complicated and difficult to apply in practice. When applying this exemption, employers should be mindful of several factors:
- The exemption is limited to amusement or recreational establishments, organized camps, and religious or non-profit educational conference centers. Other kinds of seasonal businesses need not apply.
- The exemption will only apply to establishments that operate no more than seven months out of the year, or that meet the average receipts test described above. Again, it is important to understand what constitutes “operating” and how to properly calculate the average receipts.
- To properly apply the exemption, it is vital to understand how the regulations and courts define the term “establishment.”