Are Professional Athletes Exempt From Overtime Under the Amusement and Recreational Establishment Exemption?

An issue that has been raised in the courts and in a previous blog is whether professional athletes (working in the United States) are exempt from overtime. As discussed here, Major League Baseball settled a case in the Northern District of California (“Northern District”), on the precise issue of whether minor league baseball players are exempt from overtime.

As of the date of this blog, this athlete exempt issue has not been decided by the courts. With that being said, the Northern District’s Summary Judgement Opinion provides insight on the matter- specifically whether professional athletes are exempt under the Amusement and Recreation Exemption. Now, it is well known that baseball players are exempt from overtime, thanks to the Save America’s Pastime Act. This Act was passed in 2018, and makes professional baseball players exempt from the FLSA (aka- overtime).

This blog focuses on the professional athletes who did not get a congressional carve out. There is a theory that perhaps professional athletes are exempt under the Amusement and Recreation Exemption (“AR Exemption”). This blog digs into the details of this exemption and its relationship with professional athletes.

A Bit of Background

Before we get into the nitty gritty of the AR Exemption, it may be helpful to engage in a quick refresher of the Fair Labor Standards Act (“FLSA”). The FLSA requires that employers pay non-exempt employees a premium rate for any hours worked over 40 in one week (“Overtime”). Employees are entitled to Overtime unless they are exempt under one of the 19 statutory exemptions. Section 213 outlines these exemptions. As discussed above, the Save America’s Pastime Act one of the listed exemptions. Another exemption included in the Act is the AR Exemption. This blog focuses on this exemption and it’s relationship with professional athletes. Let’s get started…

The Amusement or Recreational Establishment Exemption

Some clubs and leagues may seek cover under the AR Exemption to avoid paying athletes overtime. The Exemption reads as follows:

Any employee employed by an establishment which is an amusement or recreational establishment, organized camp, or religious or non-profit educational conference center, [is exempt] if:

(A) it does not operate for more than seven months in any calendar year, (“Seasonal Test”)or

(B) during the preceding calendar year, its average receipts for any 6 months of such year were not more than 33 1/3 [percent] of its average receipts for the other 6 months of such year (“Receipts Test”)…

AR Exemption Three Pronged Test

The AR exemption applies if the following prongs are satisfied:

(1) The Employee is employed by the Establishment; and

(2)The Establishment has an Amusement or Recreation purpose; and

(3) The Establishment satisfies the Seasonal Test or the Receipts Test.

Let’s break down this test and discuss how this fits in with professional athletes. (NOTE: Before we evaluate this exemption, it is crucial that clubs and leagues seek counsel to evaluate their clubs. There are state and local laws that must be considered. This blog focuses on the federal law.)

PRONG #1: Employed by the Establishment

If we are thinking about whether a Professional Athlete is exempt under the RA Exemption, we need to first figure out whether the Athlete is employed by the establishment. Let’s break this down into two parts:

First, what is an establishment?

Second, what is “employed by?”

STEP 1: What is an Establishment? If a Club or League were to make the argument that these Athletes are exempt, then we need to figure out for whom these Athletes work. Is the League considered an “Establishment?” Is the Club considered an “Establishment?” Is the Club considered an “Establishment?” Is the Stadium where matches are played, is that an “Establishment?” (Again, this issue has not been determined by the courts.)

The FLSA regulations define an Establishment as “a distinct physical place of business” not then “entire business or enterprise.” It is worth noting that the regulations make an explicit distinction between “employer” and “establishment.” This definition is difficult to apply to the realities of a Professional Athlete. This definition is related to the “retail exemption” which has since been repealed. However, Courts look to this definition for guidance on the definition of Establishment in the sport context. The eminent Supreme Court case supports the “distinct physical place of business” definition when it found that a chain of grocery stores, plus the separate warehouse and central office were each separate businesses.

But where does that leave us with the Professional Athlete? Is the central hub the League Office? Are the Stadiums each its own Establishment? What about the training facilities? The grocery story comparison is not all that analogous to the sports world. As such, it might be worth looking at the Equal Pay Act (“EPA”) regulations for guidance. (REMINDER: The EPA is in fact part of the FSLA). In fact, the Northern District looked to the EPA regulations for guidance on this exact issue.

The EPA Regulations provide two definitions for “Establishment.” The first definition is the non-helpful definition which is “a distinct physical place of business.” The second definition, is more helpful in that it describes the “unusual circumstance” that requires a bit of nuance. Let’s take a look…

The Unusual Circumstance that may call for two or more distinct physical portions of a business enterprise being treated as a single establishment.

The regulation elaborates explaining scenarios where a “central administrative unit may hire all employees, set wages, and assign the location of employment; employees may frequently interchange work locations; and daily duties may be virtually identically performed under similar working conditions.”

These regulations are a bit more on point. Could the League be the administrative unit that hires all the athletes? After all, some leagues have standard player contracts with the league. These athletes move from stadium to stadium to play matches. Even more, footballers perform the same job in similar working conditions (on the pitch).

In the MLB case, the League pushed the argument that the AR exemption applies because all activities related to baseball (training and playing) fit under this “unusual circumstances” definition. The League wanted the “Establishment” to be stadiums, training facilities and the like. The Northern District did not agree. The Court agreed that the stadiums in which the athletes played games, were in fact Establishments. This makes sense, because the athletes all play the same sport at the same time in the same place. The Court did not grant summary judgment on whether training facilities were included in that definition, as the Clubs are not run in an identical way. So, the athletes are not performing an identical job back home at their respective clubs. The Court believed this issue would be decided at trial.

As you can see, courts have not concluded one way or the other on this issue. While the MLB matter got the summary judgment stage, the case ultimately settled. Prudent Clubs and Leagues will carefully assess this issue before concluding the Athletes fit the RA Exemption.

STEP 2: Is the Athlete EMPLOYED BY the Establishment?

Even if the Club/League gets through the hurdle of the Establishment issue, there is still the crucial piece of employment. Is the Athlete employed by the Establishment? Is the Athlete employed by the Stadium? Is the Athlete employed by the League? Is the Athlete employed by the Club? Remember, for the AR Exemption to apply, the Athlete must be employed by the Establishment (which is currently undefined).

It must be noted that there is a distinction between “working in” and “employed by.” Check out the regulation here. The FLSA sets out the test for employment and it is broad. The statute defines Employer as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” This is a fact intensive inquiry. Check out this helpful Cheat Sheet from the DOL.

PRONG #1 TAKEAWAYS

Remember, the exemption only applies to employees who are EMPLOYED BY an ESTABLISHMENT.

Establishment Definition is Unclear. At this juncture, it is unclear what is considered an Establishment. While the Northern District found that a Stadium is considered an Establishment, it is unclear whether training facilities, classroom/office facilities would be considered an Establishment.

Employed by the Establishment is Unclear. As discussed above, even if we confirm the definition of Establishment, it is still unclear as to whether the Athlete is EMPLOYED BY that Establishment.

Let’s move on to the second prong….

PRONG #2- The Establishment has an Amusement or Recreation Purpose.

Even if we get through the first prong, we still need to assess whether the Establishment is used for an Amusement or Recreation Purpose (“AR Purpose”). The FLSA defines an establishment with such purpose as one that is (1) frequented by the public, (2) for amusement or recreation. The DOL issued a helpful Opinion Letter on this topic. Among other things, the DOL explains that the crux of the inquiry is not the work performed at the Establishment, rather the nature of the employer’s business at the Establishment.

PRONG #2 TAKEAWAYS

Based on the above definition, it seems certain a stadium is an Establishment with an AR Purpose. With that being said, this definition brings into question whether a training facility is in fact an Establishment with an AR Purpose. Sure, baseball spring training games are open to the public and could be deemed AR Purpose. But what about film session? What about weight training? What about recovery sessions? Are these open to the public? Is this a recreation purpose? At best, this is questionable. Cautious Clubs and leagues will consult with counsel to vet this issue.

PRONG #3- The Establishment satisfies the Seasonal Test or the Receipts Test.

As mentioned above, there are two tests:

• [The Establishment] does not operate for more than seven months in any calendar year, (“Seasonal Test”) or

• During the preceding calendar year, its average receipts for any 6 months of such year were not more than 33 1/3 [percent] of its average receipts for the other 6 months of such year (“Receipts Test”)…

First, the Receipts Test is a fact intensive, accounting question.

Second, the Seasonal Test requires some local knowledge. Circuits come down differently on this test. For instance, the 6th Circuit, in Bridewell v. Cincinnati Reds, focused on whether a team operated for more than 7 months out of the year- NOT whether it provided amusement or recreation for its customers for more than 7 months per year. Meanwhile, the 11th Circuit, in Jeffrey v. Sarasota White Sox, Inc., focused on the revenue producing operation for the teams activities for 7 months out of the year.

PRONG #3 TAKEAWAYS

Again, prudent Clubs and Leagues will consult with counsel on this third prong. This analysis is a circuit dependent and one that must be addressed carefully.

BOTTOM LINE

Clubs and leagues must heed the warnings of these cases, and the acts of congress. The fact that there is an explicit carve out for baseball players to be exempt from overtime sends a strong message that other athletes may not be exempt. After all, if they were exempt, they would have been included in the statute. Since they are not included explicitly in the exemption, it is crucial that the Clubs and League implement the above analysis when figuring out pay structure.