by Matthew A. Goodin, Epstein Becker & Green, P.C.
Both federal and state law requires employers to pay employees overtime. However, the laws are very different, and each contains many exemptions. Some of the more common exemptions, such as those for professional, administrative, or executive employees, are similar under both laws. But even then, there are critical differences. On the other hand, some of the exemptions are industry-specific and unusual.
In the following case, the court examined whether employees who worked for a California state agency that owned and operated the Del Mar Fairgrounds in San Diego were exempt from California and federal overtime laws.
Employees not amused about failure to pay overtime
Jose Luis Morales and 177 other similarly situated employees sued their employer, California’s 22nd District Agricultural Association (DAA), alleging they weren’t paid overtime as required by state law under Labor Code Section 510 and by federal law under the Fair Labor Standards Act (FLSA).
The DAA is a California public agency that owns and manages the Del Mar Fairgrounds and the Del Mar Horsepark. The employees assisted the DAA with amusement and seasonal operations. They were limited to working 119 days during a calendar year and were internally referred to as “119-day employees.”
The trial court granted the DAA’s motion to dismiss the state-law overtime claim on the grounds that California’s overtime laws do not apply to public employees. After a jury found in favor of the DAA on the FLSA claim, the employees appealed.
Were employees exempt under FLSA’s ‘amusement exemption’?
Like California law, the FLSA requires employers to pay overtime wages unless employees are properly classified as exempt. However, the FLSA requires overtime pay for a workweek longer than 40 hours and contains no daily overtime requirement.
One of the FLSA exemptions is the amusement exemption, which applies to any employee of an establishment whose primary business is to provide amusement or recreation.
The amusement exemption has two main elements:
The business must qualify as an “amusement or recreational” establishment.
It must not operate for more than 7 months in any calendar year, or its average receipts for any 6 months may not exceed 33-1/3% of its average receipts for the other 6 months in the same year.
The parties agreed that the DAA met the receipts test, and their primary dispute was whether eligibility for the exemption turns on the nature of the employer’s activity or the work performed by the employees. Finding no California authority on the issue, the court looked to federal law.
The court observed that several circuit courts of appeal have held that eligibility turns on the employer’s principal or primary activity, and it found this view to be persuasive. In determining whether the DAA was primarily an amusement establishment, the court looked to its primary purpose, services and activities it offers incidental to its recreational facilities (such as shops or restaurants), and its revenue sources.
The court had little trouble concluding that the primary purpose of the DAA is to provide amusement or recreational services, including the San Diego County Fair, the Del Mar National Horse Show, and hundreds of interim events such as flower shows, bridal bazaars, and dog and cat shows. As a result, the court affirmed the jury’s verdict that the employees were exempt from the FLSA’s overtime requirements.
Should state-law claim be dismissed because DAA is a public entity?
Before trial, the DAA filed a motion to dismiss the employees’ state-law overtime claim on the grounds that California’s overtime laws do not apply to public entities like the DAA. The employees challenged the dismissal of this claim on appeal.
California law requires overtime compensation for any work in excess of 8 hours in one workday and any work in excess of 40 hours in one workweek. Under well-established authority, California’s general statutes do not apply to public entities unless they are expressly included by the statute; however, for an entity to be excluded, it must be found that applying the statute to the entity would affect its governmental purpose or function.
The court noted that the Industrial Welfare Commission has a specific Wage Order regulating the amusement and recreation industry. The Wage Order applies to “all persons employed in the amusement and recreation industry” and limits them to an 8-hour workday or 40 hours per workweek but contains a number of exceptions, including an exemption for “employees directly employed by the State or any county, incorporated city or town or other municipal corporation, or . . . outside salespersons.”
Because it was undisputed that the DAA is a state entity expressly formed for the purpose of providing fairs, expositions, and exhibitions, the court concluded that public employees in the amusement and recreation industry are exempt from state overtime requirements. Morales v. 22nd District Agricultural Association, Court of Appeal, 4th District, Case No. D067247, July 13, 2016.
Bottom line
It’s important to remember that there are critical differences between state and federal overtime laws. Some employers or employees may be exempt from state law and will be subject only to the FLSA, and vice versa.
In addition, state and federal law both contain many exemptions, but the specifics of those exemptions can differ greatly. When you’re analyzing whether your employees are exempt or nonexempt, it’s important to consider California and federal law. Because this is an extremely complex area of the law, enlisting the assistance of qualified outside counsel is strongly advised.
Matthew A. Goodin, a contributor to theCalifornia Employment Law Letter, can be reached at Epstein, Becker & Green, P.C., in San Francisco, mgoodin@ebglaw.com.
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