Large Employers Like MLB Can Claim Overtime Exemption at Distinct "Establishments," 2nd Cir. Rules

Author: Michael Cardman, XpertHR Legal Editor

Employees of seasonal and recreational establishments that operate no more than seven months per year or take in most of their revenue during only half of the year - such as certain ski resorts, summer camps, swimming pools and amusement parks - are exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA).

But what if a seasonal and recreational establishment is part of a larger employer that operates year-round or is not exclusively in the business of amusement or recreation?

In Chen v. Major League Baseball Props., 2015 U.S. App. LEXIS 14275 (2d Cir. Aug. 14, 2015), the 2nd Circuit Court of Appeals ruled that seasonal and recreational establishments that are part of a larger business or enterprise may still take advantage of the FLSA exemption as long they are a "distinct, physical place of business."

The plaintiff in the case, John Chen, had volunteered for FanFest, an "interactive baseball theme park" organized by Major League Baseball (MLB) as part of the 2013 All-Star Game festivities in New York City. FanFest was held at a convention center two miles away from MLB's Park Avenue headquarters.

Chen sued for unpaid wages, claiming that FanFest and MLB (which, MLB conceded, is not covered by the exemption) should be considered a single establishment under the FLSA.

In a district court ruling, MLB found cover in a US Department of Labor (DOL) regulation that defines establishment as a distinct physical place of business rather than "an entire business or enterprise" that may include several separate places of business.

On appeal, Chen argued this regulation was intended only for retail establishments. Instead, he urged the 2nd Circuit to apply another DOL regulation that considers establishments to be part of a broader establishment unless:

  • They are physically separated from other units' activities;
  • They are functionally operated as a separate unit with separate records and bookkeeping; and
  • There is no interchange of employees between the units.

The 2nd Circuit rejected Chen's appeal, noting that the regulation defining establishment states that it "is not restricted to any particular exemption." As for the second regulation, "neither the explanatory text of the regulation nor its title, '[s]eparate establishments on the same premises,' indicates any relationship to the seasonal exemption at issue here," the ruling states.