Court: Court of Appeals for the Second Circuit; August 14, 2015; Federal Appellate Court
John Chen filed a lawsuit against Major League Baseball Properties, Inc. and the Office of the Commissioner of Baseball, claiming violations of the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL) related to minimum wage and recordkeeping. Chen worked as a volunteer at FanFest, an interactive event during MLB’s 2013 All-Star Week, without pay. The defendants moved to dismiss the case, arguing that FanFest qualifies as a seasonal amusement or recreational establishment, which is exempt from FLSA minimum wage requirements. The U.S. District Court for the Southern District of New York dismissed Chen’s FLSA claims and declined supplemental jurisdiction over the NYLL claims. Chen appealed, and the court interpreted "establishment" under the FLSA exemption as a specific physical location, agreeing that FanFest fits this definition. The court did not address whether Chen was an employee. FanFest occurred from July 12 to July 16, 2013, at the Jacob K. Javits Center in New York City, featuring extensive baseball-related activities and staffed primarily by around 2,000 volunteers. Although identified as volunteers, these individuals expected and received non-monetary compensation, including free event admission and various promotional items.
Chen worked approximately fourteen hours over three shifts at FanFest from July 12 to July 16, 2013, performing various tasks, including stamping wrists, distributing baseball items, and instructing attendees. He also attended three hours of mandatory training but received no wages for his work or training, only merchandise. Chen filed a lawsuit claiming violations of the Fair Labor Standards Act (FLSA) for failure to pay minimum wage and sought to certify a collective action for similarly situated volunteers. The Defendants moved to dismiss, arguing Chen was not an employee under the FLSA and that FanFest qualified for an exemption as a seasonal amusement establishment. The district court agreed, determining FanFest fell under the exemption and declined to exercise jurisdiction over state law claims, leading Chen to appeal.
The appeal primarily focuses on the definition of "establishment" under Section 13(a)(3) of the FLSA, which provides exemptions for seasonal amusement and recreational establishments. Chen contends the district court misinterpreted "establishment" as a distinct physical location, asserting that FanFest and Major League Baseball should be viewed as a single establishment, which is not exempt. He advocates for the Department of Labor’s multi-prong test to determine whether a business unit operates separately. As the Circuit has not previously defined "establishment" in this context, the court must clarify its meaning and assess whether the district court correctly concluded that FanFest qualifies for the exemption at the motion to dismiss stage. The review standard for the dismissal is de novo, requiring the complaint to present a plausible claim for relief based on accepted factual allegations.
The term 'establishment' in the context of 29 U.S.C. 213(a)(3) lacks a statutory definition and is interpreted based on its ordinary meaning unless ambiguity arises. If ambiguous, legislative history will be consulted to determine Congressional intent. The Fair Labor Standards Act (FLSA) aims to eradicate harmful labor conditions and mandates minimum wage for covered employees. However, there are specific exemptions, including for employees at amusement or recreational establishments that operate less than seven months annually. This exemption originated in 1961, initially linked to retail and service establishments, and was clarified in 1966 to emphasize that seasonal amusement establishments are generally exempt from minimum wage requirements. Legislative reports indicate that these establishments typically operate for six months or less and include those run by concessionaires. The Supreme Court has historically defined 'establishment' as a distinct physical location of business, a view affirmed in earlier cases regarding the FLSA's provisions.
The Court rejected the argument that a chain of grocery stores, along with its separate warehouse and central office, should be considered a single retail establishment for exemption purposes under the Fair Labor Standards Act (FLSA). Each location was determined to be a distinct establishment based on the Supreme Court's interpretation in A.H. Phillips. The meaning of 'establishment' under the amusement or recreational establishment exemption is understood to be consistent with previous interpretations, as both provisions were enacted together. A House Committee Report from 1961 further clarifies that Congress intended 'establishment' to have a uniform meaning across the FLSA, particularly highlighting potential ambiguities in construction activities across various job sites.
The Department of Labor (DOL) regulations define 'establishment' as a distinct physical place of business, differentiating it from an entire business or enterprise which may comprise multiple establishments. These regulations have been recognized in judicial interpretations and legislative history, affirming that a multiunit business can consist of various establishments operated by one or more employers. For example, a manufacturer may operate different facilities such as a production plant, a warehouse, and several retail stores, each regarded as separate establishments. The DOL’s regulations are viewed as well-reasoned and consistent with judicial interpretations of the exemption, providing a persuasive understanding of the statute.
Congress defined "establishment" in Section 13(a)(3) of the Fair Labor Standards Act (FLSA) as a distinct physical location rather than an integrated business or enterprise. This definition aligns with judicial interpretation in Brennan v. Yellowstone Park Lines, Inc., which states that "establishment" should be understood similarly to its use in Section 13(a)(2). Although Chen asserts that this definition pertains only to retail establishments and claims that the Department of Labor (DOL) employs a multi-factor test for seasonal exemptions, these arguments are rejected. The DOL regulations, while titled regarding retailers, clarify that their meaning applies broadly and is not limited to retail contexts. Section 13(a)(3) does not require amusement or recreational establishments to be retail or service-focused, differing from the previous legislative requirement. Other circuits have similarly referenced these regulations concerning non-retail amusement and recreational businesses. Furthermore, Chen's interpretation of 29 C.F.R. 779.305 as applying a multi-factor test for seasonal operations is incorrect; this regulation identifies criteria for determining whether physically separated business units at the same location constitute separate establishments. These criteria include physical separation, functional independence, and lack of employee interchange. The regulation and its title do not relate to seasonal exemptions, and the cited DOL opinion letters do not support Chen's claims regarding the application of a multi-factor test for seasonal amusement or recreational establishments.
The term 'establishment' under the Fair Labor Standards Act (FLSA) is interpreted as a distinct physical place of business, as supported by Department of Labor opinion letters. This definition is particularly relevant in the context of the amusement or recreational establishment exemption, where separate business units may not share the same location. Court cases, such as Marshall, illustrate that physical separation of business units is not a determining factor if their operations do not overlap temporally. Chen's argument for a multi-factor test in assessing seasonal exemptions lacks support, as the courts referenced applied this test due to the operational overlap at the same location rather than the seasonal nature of the businesses. Additionally, other cases cited by Chen, including Bridewell and Jeffery, do not support a broad definition of 'establishment' across unrelated activities; instead, they emphasize the specific operations at distinct facilities. In contrast, the Brennan case exemplifies a scenario where a broader interpretation of 'establishment' was justified due to centralized management and employee transfers among multiple locations, illustrating that the context can influence the interpretation of 'establishment' under the FLSA.
Chen's case asserts that he was an employee of Major League Baseball and the Office of the Commissioner of Baseball, specifically for his work at FanFest, which was held at the Javits Center, separate from other Defendants' locations. This physical separation is critical in determining whether the various business units are considered a single establishment. Previous case law indicates that geographic separation negates the relevance of operational overlap in such determinations.
For the purposes of the Fair Labor Standards Act (FLSA) exemption, it has been established that exemptions must be narrowly construed against employers. The burden lies with the employer to prove that an establishment qualifies for an exemption. In this case, Defendants must demonstrate that FanFest is both seasonal and classified as a recreational or amusement establishment. FanFest is acknowledged to meet the seasonality requirement, operating from July 12 to July 16, 2013, thereby not exceeding seven months in a calendar year.
The remaining question is whether FanFest's amusement or recreational nature is evident in the Complaint. The district court found that FanFest, described as a 'sports event' and a 'theme park,' clearly falls within the exemption's scope. Since Congress did not provide specific definitions for 'amusement' or 'recreation,' these terms are interpreted based on their common meanings.
DOL regulations broadly define amusement or recreational establishments as those frequented by the public for amusement or recreation, with concessionaires at amusement parks as examples of exempt entities. FanFest, characterized as a gathering for entertainment featuring games and sporting activities, aligns with this definition. Despite not being a traditional sports venue, FanFest included interactive sports simulations and was promoted by MLB as a "baseball theme park." The event's offerings resemble those of amusement parks or carnivals, which fall under the exemption in Section 13(a)(3).
Chen argues that FanFest should be classified as a "convention" according to the DOL’s Field Operation Handbook, which states that employees at conventions are not exempt. However, the term "convention" is not defined in the Handbook, and Chen fails to provide case law supporting his interpretation. While he suggests that FanFest could be seen as an organized meeting of enthusiasts, the Defendants contend that "convention" could also refer specifically to industry events. The presence of some convention-like activities at FanFest does not change its overall classification as an amusement or recreational establishment. The Handbook is not legally binding and only persuasive to a degree; since Chen does not effectively dispute FanFest’s classification, the court does not defer to the DOL’s guidance that contradicts Congress’s intent to exempt amusement and recreational establishments.
FLSA exemptions are interpreted narrowly against employers, yet FanFest is recognized as qualifying for the exemption under Section 13(a)(3) for seasonal amusement or recreational establishments. The determination of FLSA exemption applicability is fact-dependent; however, the Complaint's detailed factual allegations and supporting documents sufficiently demonstrate the exemption criteria. Under 29 U.S.C. 213(a)(3), minimum wage provisions do not apply to employees of establishments like FanFest that operate for no more than seven months annually. In 2013, admission to FanFest was $35, while volunteers received in-kind compensation valued at $40. Relevant circuit opinions emphasize the exemption's intent to allow seasonal employment of young people at recreational facilities without the burden of high minimum wages, acknowledging the economic realities of such establishments. Legislative history clarifies that "establishment" refers to individual business locations, not entire enterprises. The district court's interpretation is consistent with Long Island Care at Home, Ltd. v. Coke, which supports limited deference to related regulations. The court distinguishes this case from Goose Creek but leaves open the possibility for different definitions of "establishment" in other FLSA contexts. Chen's arguments against the motion to dismiss focused on the MLB's operational duration and the definition of establishment, but did not contest the amusement or recreational nature of FanFest as established in the Complaint. The judgment of the district court is affirmed.
