Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
On January 15, 2021, the Wage and Hour Division (WHD) of the U.S. Department of Labor issued an opinion letter addressing three issues pertaining to utilization of the “amusement or recreational establishment” exemption to the overtime and minimum wage requirements of the Fair Labor Standards Act (FLSA). First, the WHD clarified that an employer must operate a “discrete physical location” of amusement or recreational character in order to qualify for the exemption. Second, the WHD rejected the use of the accrual accounting method for ascertaining whether the employer’s “receipts” were sufficiently seasonal. Third, the WHD determined that charitable gifts do not qualify as “receipts” under the exemption.
Amusement or Recreational Establishment Exemption
While most FLSA exemptions focus on the duties performed by the employee, the amusement or recreational establishment exemption turns on the attributes and operations of the place of business where the employee works. If an employer’s place of business qualifies as a seasonal amusement or recreational establishment, all employees working at the establishment are exempt—irrespective of the duties they perform. A place of business satisfies the exemption if it operates an amusement or recreational establishment and it satisfies one of two tests of seasonality: (a) it does not operate for more than seven months in a calendar year (the “calendar test”); or (b) its average receipts for any six months of the preceding calendar year are not more than 331/3% of the receipts for the other six months of that year (the “receipts test”).1
Definition of “Establishment”
When analyzing the exemption, the threshold issue is determining whether the place of business qualifies as an amusement or recreational establishment. The FLSA regulations are somewhat circular, stating only that a place of business is an amusement or recreational establishment if it is frequented by the public for its amusement or recreation.2 In a series of opinion letters over the years, the WHD has concluded that athletic stadiums, golf courses, theaters, beaches, boardwalks, fairgrounds, swimming pools, and ice skating rinks may be considered amusement or recreational establishments.
In the most recent opinion letter, the WHD responded to an inquiry from two employers as to whether their businesses constituted an amusement or recreational establishment. The first business organizes, leads, and facilitates nature walks, hikes, day trips, and backpacking excursions. The second business provides amusement rides, attractions, concessions equipment, and entertainment for corporate and public outings and fairs. Both employers maintain office and storage locations and provide their services offsite at locations that they do not own or control. The key issue raised by both requests turned on whether an employer could utilize the amusement or recreational establishment exemption without operating a permanent “establishment” of an amusement or recreational character. The WHD answered in the negative.
The WHD reasoned that the term “establishment” refers to “a distinct physical place of business.”3 Thus, to constitute an exempt “establishment,” an entity that offers amusement or recreational services “must have a physical location that is in some way used in any of the activities that comprise its amusement or recreational character.” Moreover, “the entity must also own, lease, or otherwise exercise control over the location and use it for a business purpose . . . even if its presence is temporary.”
Applying these principles, the WHD concluded that neither employer qualified as an amusement or recreational establishment. The first entity’s only physical location was an office that provided bookkeeping and administrative support. The second entity maintained an office and warehouse, but its amusement and recreational activities occurred elsewhere. The employers’ events “do not appear to involve taking temporary possession of an event space, such as a fairground or a convention center, and converting it into its place of business.” Because the entities are not distinct amusement or recreational establishments, they did not qualify for the exemption.
A third employer inquired whether the “receipts test” could be satisfied through an accrual accounting system and whether charitable donations constituted “revenue” under the receipts test. The WHD answered both questions in the negative.
First, the WHD opined that the term “receipts” refers to money actually received by the employer in exchange for goods and services at the time the money was received. According to the WHD, the term does not incorporate concepts of accrual accounting, even though that method of bookkeeping is widespread, more accurately reflects the operation of most businesses than a cash receipts method, and may be an effective method of identifying seasonality. For example, if a baseball fan purchases season tickets in January, the receipts associated with that purchase will be attributed to January—even though the fan will not be enjoying the amusement experience provided by the baseball games until April. A legislative solution may be the only way to ensure that the receipts test actually aligns with its purpose to identify seasonable businesses.
Second, the WHD concluded that the term “receipts” is limited to payments received in exchange for amusement or recreational products or services provided by the employer. Charitable donations do not qualify because they are, by definition, not given in exchange for an amusement or recreational experience, good, or service. Thus, charitable donations are not indicative of an establishment’s seasonal character. The WHD also reasoned that allowing charitable donations to constitute receipts could incentivize non-profit entities to strategically time their receipt of charitable gifts to satisfy the receipts test even if their activities are not seasonal in nature.
The amusement or recreational establishment exemption is a highly technical exemption, and the WHD’s opinion letter provides much-needed clarity on what it takes to qualify as an amusement or recreational establishment with seasonal receipts. Employers should also take note that many states do not include an amusement or recreational establishment exemption or apply different standards to their exemption. As such, a thorough analysis of the WHD’s opinion letters and other precedents, as well as a review of pertinent state laws, should be conducted by any employer considering whether to utilize the exemption.
1 See 29 U.S.C. § 213(a)(3).
2 See 29 C.F.R. § 779.385.
3 See A.H. Phillips, Inc. v. Walling, 324 U.S. 490, 496 (1945); see also 29 C.F.R. §§ 779.23, 779.303-.305.