Proposed FLSA reform: Potential impact on employers and athletes

January 8, 2024Sports Business Journal

Whether athletes qualify as employees protected by the Fair Labor Standards Act’s wage and hour regulations has long been recognized as a complex issue. And if athletes were determined to be “exempt” under the FLSA -- meaning they would be eligible for overtime pay -- more questions would surely arise. For example, would “hours worked,” for the purposes of calculating overtime, be limited to time spent playing during in-season games? What about hours spent practicing, recovering from a play-related injury or training in the offseason?

Major and minor league baseball players disputed these issues for years before reaching a $185 million litigation settlement in 2022. They claimed time spent exercising and conditioning constituted hours worked, arguing against the contention that they were seasonal workers (and therefore likely exempt from FLSA protections). A few years earlier, in 2018, the Save America’s Pastime Act extinguished FLSA protections for in-season play for minor league players on a going-forward basis. Minor league players ultimately reached a collective bargaining agreement, resolving many of these disputes. And while college athletes are not currently considered employees, pending litigation by various groups hopes to upend that, which would open the door to further inquiries into the application of the FLSA.

Some college athletes hope to be classified as FLSA employees in the pending case Johnson v. NCAA, in which a group of college athletes claims they are employees of the NCAA and seek payment for hours worked in relation to their athletic activities, commensurate with traditional work-study students. A ruling in the students’ favor would likely trigger even more questions, including inquiries into Title VII, Title IX, tax implications, and even the future of the NCAA.

However, a different path to employee status may be forged by the NLRB, which filed a complaint in May 2023 against the NCAA, Pac-12 and USC for unfair labor practices, claiming they are joint employers of various college athletes under the National Labor Relations Act. Another notable effort for college athletes’ recognition as employees arose from Dartmouth College, whose men’s basketball team filed a petition for recognition as a labor union in September 2023.

These efforts represent a growing movement to deem college athlete as employees, who could then look to form unions, negotiate collective bargaining agreements with their schools, conferences, and the NCAA, or sign employment contracts with their schools to determine compensation terms. Those compensation terms -- including the rate of pay and method of payment, along with nature of the work, are key factors in determining whether athletes would be FLSA-exempt. FLSA exemption would render these students eligible for overtime pay -- which could be considerable, particularly since hours spent traveling, practicing, training, and even study time might count alongside game play time as “hours worked.”

Given the potential implications of FLSA-exempt status on student and professional athletes alike, the U.S. Department of Labor’s (DOL) recent proposal to increase the exemption thresholds bears discussion.

Current FLSA exemption criteria:

The FLSA establishes various labor standards applicable to employers with gross annual sales volume or business of $500,000 or more. Other covered employers include hospitals, medical or nursing care facilities, schools, and public agencies.

The FLSA mandates that employees receive a minimum wage and overtime pay for hours exceeding 40 in a week, at a rate of 1.5 times the employee’s regular pay rate. There are exceptions to this rule.  If an employee is employed in a “bona fide executive, administrative, or professional capacity” (“EAP exemption”), they are exempt from receiving overtime pay.1 In order to qualify for the EAP exemption, an employee must satisfy both: (a) a salary basis test; and (b) a duties test.

With respect to the salary test, an employee must receive at least $684 per week (equivalent to $35,568 annually for a full-year employee) to be exempt from receiving overtime pay. A highly compensated employee (a separate exemption) must receive a total annual compensation of $107,432 or more (and be paid at least $684 per week) to be exempt from overtime. With respect to the duties test, the employee’s specific job duties must also meet the DOL’s requirements and cannot be satisfied by job titles alone.

The DOL’s proposal:

On August 30, 2023, the DOL announced a proposal to increase the compensation thresholds to qualify for the EAP exemption. The proposal would raise the salary threshold to $1,059 per week (or $55,068 annually for a full-year worker) and to $143,988 for a highly compensated employee. The proposal also provides for future updates to the earnings thresholds, requiring automatic updates every three years. The proposal results in the following, among other things: (1) more employees being non-exempt, and thus, qualifying for overtime pay; and (2) more employees receiving salary increases in order to qualify for the exemption from overtime pay. Both requirements have a significant impact on employers’ bottom lines.

The DOL estimates that the proposal would require recategorizing approximately 3.4 million employees from FLSA-exempt to non-exempt and remove high compensation eligibility for nearly 250,000 employees.

As it relates to the athletes, and in particular, student athletes, these threshold increases raise the odds that an athlete’s pay will not reach FLSA’s exemption floor. As the movements for broader rights for athletes and increased eligibility for FLSA wage and hour protections for the general population converge, the impact on athletes and those they play (or, rather, work) for could be significant.

Irwin A. Kishner and Shivani Poddar are partners, and Silvia Stockman is an associate, with Herrick, Feinstein. Partners Daniel A. Etna and John H. Chun contributed to this column.

This article originally appeared in Sports Business Journal. To read on online version of this publication, please click here. Access may require a subscription.