by Kevin C. McCormick
In a recent decision, the U.S. Court of Appeals for the 2nd Circuit found that the employees who worked concessions at Oriole Park at Camden Yards were not entitled to overtime compensation under the Fair Labor Standards Act (FLSA) because a concessionaire is an “amusement or recreational establishment” exempt from the overtime requirement.
|
The court went on to hold that an establishment that operates on the premises of an amusement or recreational host and sells goods or services to the host’s customers for their consumption or use as they engage in the host’s amusement and recreational activities is a “concessionaire” with an amusement or recreational character. Let’s take a closer look at this interesting decision.
Facts
In November 2010, Maryland Sports Services, Inc. (MSS), a wholly owned subsidiary of DNC Sports Service, entered into a concession agreement with the Baltimore Orioles Limited Partnership. The agreement granted MSS the right to operate the food, beverage, and merchandise sales concessions at Oriole Park.
Oriole Park consists of two structures: the baseball stadium itself and part of the Baltimore & Ohio Railroad warehouse, separated by a pedestrian promenade known as Eutaw Street. MSS operates entirely within Oriole Park.
On game days, MSS operates dozens of stands throughout the ballpark, selling food and beverages or souvenirs and merchandise. Television monitors in the concourse show the baseball game live so that baseball fans need not miss any of the action on the field while purchasing concessions at a stand.
MSS also operates numerous portable concession carts throughout the ballpark, and its vendors walk through the seating areas of the ballpark, selling food and beverages. These services are available only in connection with the home baseball games being played in Oriole Park and only to ticket holders who are at Oriole Park to watch a major league baseball game.
Other parts of MSS operations at Oriole Park occur on nongame days. It operates a number of clubs and lounges in the ballpark that are available only to ticket holders on game days and are available for rental on other days with food that it caters.
In addition, MSS operates the Orioles Team Store, which sells Orioles apparel and team supplies, and Dempsey’s Brew Pub and Restaurant. Both of these are in the warehouse section of Oriole Park and are likewise open only to ticket holders on game days. However, they are also open on nongame days and during the off-season. Individuals do not need a game ticket to enter them on those days.
Although MSS has some operations on nongame days, the parties agreed that the overwhelming majority of its business is conducted exclusively with ticket holders during baseball games. Its average receipts at Oriole Park for the 6months of 2011 in which receipts were the smallest were not more than 33.33% of the average receipts for the other 6 months when receipts were the largest.
In September 2011, a group of employees working for MSS concessions at Oriole Park filed a collective action alleging that they were not paid overtime compensation in violation of the FLSA.
The magistrate judge recommended that the district court grant the employer’s motion for summary judgment (dismissal before trial), reasoning that the employer qualified for the amusement or recreational establishment exemption under the FLSA because the concession activities were an integral part of the amusement and recreational character of Oriole Park.
The district court adopted the magistrate judge’s recommendations, and the case was dismissed. The employees then appealed that decision to the 2nd Circuit.
The Appeal
In considering the appeal, the 2nd Circuit carefully reviewed the language of the FLSA as well as its legislative history and relevant U.S. Department of Labor (DOL) opinions. The appellate court found that as an initial matter, Oriole Park, the host facility, clearly has an amusement or recreational character because of the baseball games it hosts.
Next, the court found that MSS operates entirely within Oriole Park, and the fact that Eutaw Street runs through it is of no legal significance. The court noted that MSS business is predominantly with ticket holders during game days, and it was clear that the establishment’s primary purpose is selling food, drink, and Orioles merchandise to customers of Oriole Park for their consumption and use as they watch the baseball games held there.
The court also found that the fact that MSS did some business outside of game days with non-ticket holders did not change this analysis. According to the court, operations on nongame days include the Orioles Team Store, Dempsey’s Brew Pub, and the rental of clubs and lounges at Oriole Park. On game days, MSS employed as many as 600 employees. On nongame days, that figure plummeted to 12, which the court found to be minimal.
The court went on to find that simply operating as an amusement or recreational establishment is not sufficient to qualify for the exemption from overtime compensation. Rather, such an establishment is exempt only if (1) it does not operate for more than 7 months in any calendar year or (2) during the preceding calendar year, its average receipts for any 6 months were not more than 33.33% of the average receipts for the other 6 months.
These tests are commonly referred to as “Test A” and “Test B.” Roughly speaking, Test A is based on when during the year the establishment is open for business, whereas Test B is based on when it receives most of its revenue.
With regard to Test A, MSS clearly did not satisfy the seasonal operational test. Although most of its business is tied to baseball games that occur during a baseball season lasting no more than 7 months, it continued to operate the Orioles Team Store and Dempsey’s Brew Pub during the off-season. Even though the revenue from these operations could be considered minimal, the court held that such operations could not be ignored.
With regard to Test B, however, the appellate court found that the employer fully satisfied this test. The employer established that the average receipts for the 6 months of 2010 with the smallest revenues were not more than 33.33% of the average receipts of the 6 months of 2010 with the largest receipts.
This was true even if MSS combined its revenues with ARAMARK, its immediate predecessor operating at Oriole Park. Since ARAMARK operated these concessions until November 2010, combining its receipts in 2010 with MSS’s receipts for the remainder of that year yielded the best estimate of what MSS receipts would have been in 2010 had it operated the concessions the entire year. The 2010 receipts imply clear entitlement to the exemption since the least busy 6 months had only 4.8% of the receipts of the other 6 months.
As a result, the appellate court found that MSS is an amusement or recreational establishment because it is a concessionaire at an amusement or recreational facility, which Congress intended to be exempt if it met at least one of the seasonality tests.
Because MSS satisfied Test B, its employees were exempt from the overtime requirements of the FLSA. William A. Hill and Tanica Brown v. Delaware North Companies Sports Service, Inc., and the Baltimore Orioles Ltd. Partnership, 2nd Cir., August Term 2015, No. 15-2109-cv, decided October 3, 2016.
Bottom Line
This is an interesting case not only for baseball fans but also for all employers that might be engaged in any recreational or seasonal business. The decision reminds all employers that concessionaires that operate at an amusement or recreational establishment may be exempt from providing overtime pay if they meet the seasonality tests either in terms of duration (Test A) or in the amount of receipts received during the year (Test B). As long as the recreational or amusement employer meets one of those tests, it should be safe from employee overtime claims.
Kevin C. McCormick, an editor of Maryland Employment Law Letter, can be reached at kmccormick@wtplaw.com or 410-347-8779.