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Section 13(a)(3): What is an Amusement or Recreational Establishment?

Section 13(a)(3): What is an Amusement or Recreational Establishment?

In a January 15, 2021 Opinion Letter, the DOL took a deep dive into the origins and development of the amusement and recreational establishment exemption codified at 29 U.S.C. § 213(a)(3) to address several questions and issues about its nature and scope.  Three separate entities requested guidance on the same exemption, but their questions differed as to specific issues under it.  For ease of analysis, the DOL addressed them all in the same Opinion Letter.

After describing the three entities at issue, the DOL started with background on and detailed historical discussion of Section 13(a)(3).  Unlike other exemptions, this exemption focuses on the character of the employer’s business, as opposed to the nature of the employee’s work and job duties.  The employer’s business must have the character of amusement or recreation that is open to the public.  As a result, if an employer meets the requirements of this exemption, all its employees at the amusement or recreational establishment in question are exempt under the FLSA.

What is an “Establishment”?

With this distinction in mind, the DOL turned its focus on the meaning of the word “establishment” as used in Section 13(a)(3).  After discussing in detail, the historical origins and development of this exemption, the DOL concluded: “to constitute an exempt establishment, an entity that offers amusement or recreational services must have a physical location that is in some way used in any of the activities that comprise its amusement or recreational character.” 

In doing so, the DOL carefully distinguished the concept of an “enterprise”—that is, an entity or organization that owns and/or operates several distinct physical facilities or locations—from the concept of an “establishment.”  According to the DOL, an “establishment” has meaning distinct from an “enterprise” and should not be loosely read to mean or refer to a group or network of different and distinct physical locations, even if controlled or operated by a single business.

Nonetheless, the DOL noted the physical location must “be distinct and controlled by the entity.”  In other words, the location must be distinct and physical—that is, “it must generally be a discrete and fixed location that is used seasonally.”  To be considered “controlled by the entity” or the entity’s place of business, “the entity must also own, lease, or otherwise exercise control over the location and use it for a business purpose.”

The DOL added that discrete locations used on a temporary, non-recurring basis—such as mobile carnivals, circuses, or festivals—could still meet this standard, so long as the entity takes possession of the fixed location, exercises control over it, and uses it for a business purpose.  This is because, when these entities travel from town to town, they obtain the rights to use a particular location for a specific time period and use said location to set up revenue-generating amusement and recreational activities.

Accrual vs. Cash Accounting

After addressing the issue of the meaning of “establishment,” the DOL turned to questions regarding accounting practices for purposes of addressing the “Receipts Test” requirement of the exemption.  Section 213(a)(3) requires an amusement or recreational establishment to satisfy either the “Receipts Test” or “Calendar Test.”  Both tests essentially focus on the required seasonality for the exemption to apply—that is, the requirement that the establishment, by its nature, “have very sharp peak and slack seasons [that] may require longer hours in a shorter season,” which thereby makes payment of “higher wages impractical” or involve “experiences that ‘offer non-monetary rewards.’”

Under the Calendar Test, an establishment must not operate and be open to the public for more than seven (7) months in any calendar year.  Under the Receipts Test, an establishment qualifies for the exemption if its average receipts for any six months of the year were not more than 33% of its average receipts for the other six months in the year.

With this background in mind, the DOL addressed and answered the question of whether accrual accounting (as opposed to cash accounting) comported with the requirements of the Section 13(a)(3) exemption.  “Accrual accounting” involves recognizing revenue as received at the time the entity provides the corresponding service.  “Cash accounting,” on the other hand, involves recognizing revenue as received in the month it is collected. 

Focusing on the meaning and use of the word “receipts” in the statute, the DOL concluded accrual accounting does not satisfy the requirements of the exemption.  This is because, under the statute and contemporaneous dictionary definitions, receipts “refers to money actually received by the employer in exchange for goods or services at the time—here during the month—it was received.”  While sympathetic to the widespread and reasonable use of accrual accounting, and expressly acknowledging that there might be “policy merits” to allowing such accounting practices for purposes of the exemption, the DOL further reasoned that its textual interpretation was also amply supported by prior DOL interpretations as well as Court precedent.

Are Charitable Donations or Gifts “Receipts”?

Finally, the DOL clarified in this opinion letter that charitable donations and gifts do not constitute “receipts” as used in the exemption.  Focusing on “the context and content of both the [FLSA] and the [DOL’s] interpretive guidance,” the DOL ultimately reasoned that such donations and gifts do not occur as part of an exchange for goods or services, such as amusement and recreational experience, and therefore do not fall within the plain meaning of “receipts” as used in the statute and interpreted by the DOL and Courts.


This Opinion Letter contains a wealth of information about the amusement and recreational establishment exemption under Section 13(a)(3).  Individuals and entities engaged within the amusement and recreational industry should carefully read this letter to fully understand their legal rights and obligations with respect to the payment of wages.  Not all lessons provided in the Opinion Letter are intuitive or obvious.  Thus, retaining competent and knowledgeable counsel to review pay practices is always advisable to identify, correct and/or avoid compliance issues.