Major League Baseball and the New Overtime Rules

This past Wednesday, the U.S. Department of Labor released its long-awaited update of the regulations governing overtime pay under the Fair Labor Standards Act (FLSA). Specifically, the new Labor Department rule modifies the FLSA’s so-called “white collar” exception, under which certain salaried workers employed in an executive, administrative, or professional capacity are not entitled to overtime compensation.

Currently, anyone working in a white-collar position who receives a salary of at least $23,660 per year is exempt from the FLSA’s overtime requirement, meaning that they do not receive any additional pay even when working more than 40 hours per week. Beginning in December 2016, however, that salary threshold will rise to $47,476, so that any white-collar workers earning less than that amount annually will now be owed one-and-a-half times their normal hourly rate anytime they work 41 or more hours per week.

Because MLB teams employ dozens of front-office and business employees working in an executive, administrative, or professional capacity, and because many of these individuals may earn less than $47,000 per year despite routinely being expected to work more than 40 hours per week, this new rule has potentially significant ramifications for the baseball industry.

As a general matter, employees in the United States are normally entitled to overtime pay for any hours they work over 40 per week. However, under Section 13(a)(1) of the FLSA, workers employed in an executive, administrative, or professional capacity are exempt from the overtime requirement.

There is no definitive list of positions that are considered sufficiently “white collar” to qualify for this exception, nor does the title of one’s position determine your eligibility for overtime. Instead, courts employ various tests to determine if a particular job is executive, administrative, or professional in nature and thus within the scope of the exception.

In order to be employed in an “executive” position, for instance, a worker must generally be responsible for managing a department or subdivision of the business in which he or she regularly supervises at least two other full-time employees. “Administrative” positions, meanwhile, are those in which the employee’s primary duties involve the management of part of the company’s business operations, with the employee regularly exercising discretion and independent judgment in “matters of significance.” Finally, “professional” positions are those requiring advanced knowledge in a field of science or learning — typically acquired through a prolonged course of specialized intellectual instruction — and which involve work of a predominantly intellectual nature.

As one might imagine, there are a variety of positions within a professional baseball franchise that arguably fall under one or more of these definitions. A team’s ticket sales, corporate relations, marketing, and media relations personnel would all arguably qualify as “administrative” workers, for instance, while many baseball operations or analytics staff members would fairly be considered “professional” employees. Meanwhile, various members of a team’s major- and minor-league coaching and strength-and-conditioning staffs would likely fall within the definition of an “executive” position.

Not all of these white-collar MLB workers will necessarily be affected by the Labor Department’s new overtime regulation. Some of these individuals will already make more than $47,500 per year, and thus will continue to be exempt from the overtime laws, while others may rarely be required to work more than 40 hours per week.

However, for those executive, administrative, or professional personnel who currently make less than $47,476 per year, and who do at least occasionally work more than 40 hours per week, beginning in December these employees will no longer qualify for the white-collar exception. As a result, their teams will have to decide how to best comply with the new regulation moving forward.

One option for teams would obviously be to try to limit these employees’ working hours to 40 or fewer per week as often as practical, while paying overtime to those employees who do exceed that threshold. In order to do so, however, teams would have to start tracking exactly how many hours these employees work, a process that will inevitably entail added administrative burdens and costs for the franchise.

Indeed, it may prove quite difficult for MLB teams to track the number of hours that some of these employees work each week. Under existing law, for example, it’s not clear whether the time that minor-league coaches or trainers spend traveling to away games would count as “work” for overtime purposes. Assuming such travel does count, though, then tracking these hours could be fairly burdensome for teams.

Alternatively, then, the easiest way for a team to comply with the new regulation may often simply be to raise the salaries of some of these individuals to $47,477 or more, in which case the employees would once again fall within the white-collar exception and thus not be entitled to receive overtime pay for working 41 or more hours per week. This will likely prove to be the most cost-effective option for those employees who routinely log hours well above the 40-hour limit for overtime, for instance, while also eliminating the need to track the hours these employees work.

Of course, a third option would be for teams to simply ignore Wednesday’s rule change and instead continue to maintain their current pay practices despite the new regulation. Along these lines, MLB teams have, at times, argued in the past that they are completely immune from the FLSA’s overtime (and minimum wage) requirement under a separate exception in the law covering seasonal amusement or recreational establishments. As I noted last summer, courts are currently divided over whether this exception applies to professional sports teams.

Such a strategy would be fairly risky, however, as the pay practices of MLB teams have recently attracted considerable attention from the Labor Department. At least four different MLB franchises have been the subject of federal investigations over the past few years, with three teams reaching settlements with the Labor Department in which they’ve agreed to pay hundreds of thousands of dollars in back pay and damages to various club employees who were alleged to have been illegally deprived of the minimum wage and/or overtime compensation.

As a result, it would seem likely that most MLB teams will elect to comply with the new overtime regulation in some manner.

That having been said, it’s difficult to predict exactly how much this new regulation is likely to cost MLB franchises. Without access to a club’s payroll data, it’s impossible to know how many of a team’s employees may be affected, let alone how the club will ultimately decide to comply with the new regulation for these workers. As a rough estimate, however, the Labor Department’s new rule is projected to cost Division I intercollegiate athletic departments — which, at the lower levels, may employ less than half the number of people of an MLB team — at least $700,000 per year in added salary and expenses.

Finally, it’s also worth noting that the new regulation could also impact MLB’s highest-profile wage dispute, the minimum-wage lawsuits filed against MLB by minor-league baseball players. Specifically, one of the defenses MLB has asserted in these lawsuits is that minor-league players are “professionals” under the FLSA’s white-collar exception, and thus are not owed overtime compensation.

The applicability of this exception to professional baseball players has always been somewhat dubious considering that a minor-league baseball player’s job duties would not appear to satisfy the definition of a professional job set out above. In any event, the new regulation will make it even more difficult for MLB teams to make this argument going forward, as the exception will now be inapplicable to any minor-league player making less than $47,000 per year beginning next season.

Thus, even if MLB is able to avoid liability under this exception for its past failure to pay minor-league players overtime compensation in the current litigation, Wednesday’s rule change means that MLB teams would nevertheless have to begin paying overtime to minor-league players making less than $47,000 per year in the future.