Employers seeking to hire interns need to review the circumstances under which interns must be paid — or not.
In January 2018, the Wage and Hour Division of the U.S. Department of Labor (DOL) issued a fact sheet that acknowledged new internship standards being imposed by various courts. The DOL adopted a "primary beneficiary test" to determine whether an intern or student hire is, in fact, an employee under the Fair Labor Standards Act (FLSA).
This test allows courts to examine the economic reality of the relationship of interns and employers so as to determine which party is the "primary beneficiary" of the relationship. The DOL recognized the court decisions that have described the primary beneficiary test as a flexible assessment. It identified seven factors, the extent of each to be considered. No single one is determinative:
The intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employeed — and vice versa.
The internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
The internship is tied to the intern's formal education program by integrated coursework or the receipt of academic credit.
The internship accommodates the intern's academic commitments by corresponding to the academic calendar.
The internship's duration is limited to the period in which the internship provides the intern with beneficial learning.
The intern's work complements, rather than displaces, the work of paid employees, while providing significant educational benefits to the intern.
The intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
As the above factors illustrate, whether an intern or student is an employee under the FLSA depends on the unique circumstances of each case. If these factors indicate that an intern or student is actually an employee, then the intern or student is entitled to both minimum wage and overtime pay under the FLSA. On the other hand, if the analysis confirms that the intern or student is not an employee, then the intern or student is not entitled to either minimum wage or overtime pay under the FLSA.
The DOL clarified that these factors do not change the FLSA exemption for certain people who volunteer to perform services for a state or local government agency or for humanitarian purposes such as a food bank.
Consequences of not following the DOL guidelines include back pay, penalties and potential court battles, including the possibility of a costly class-action lawsuit.
Contact Nicola, Gudbranson & Cooper, LLC for an employment attorney who can review your specific circumstances.
—Nov. 22, 2019
In a unanimous decision, a three-judge panel of the 9th U.S. Circuit Court of Appeals has upheld the ruling of the trial court that the Federal Antitrust Exemption applies to minor league baseball players, including their employment and salaries.
The judges convincingly cited opinions of the Supreme Court and other federal appellate courts that reached the same conclusion. The 9th Circuit also relied upon the Curt Flood Act of 1998 in concluding that employment of major league baseball players is subject to antitrust laws, but the employment of minor league baseball players is not.
Note that major league baseball players are represented by a union, but minor league baseball players are not.
By bringing this case, the representative class of minor league players attempted to improve the bargaining position of all minor league baseball players. Instead, their efforts created yet another important legal precedent against the players.
—July 10, 2017
Under certain conditions, employers are exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act (FLSA). In the realms of sports and entertainment, some operations may be exempt if they are separate entities, as explored in the following article by Gia M. Velasquez. She is a Harvard University law student interning at Nicola, Gudbranson & Cooper LLC.
The "amusement or recreational establishment" exception to the Fair Labor Standards Act (FLSA) includes yet another class of plaintiffs seeking overtime pay: stadium concessionaires. This action comes after an August 2015 2nd Circuit Court of Appeals decision denying enforcement of FLSA minimum wage requirements to volunteers at Major League Baseball's FanFest, and is the latest update in determining what circumstances trigger the minimum wage and overtime requirements in sports law.
Though application of the FLSA to baseball players is most publicized, questions involving club employees or employees of vendors are equally as important, and could affect concessionaire business models.
In September 2011, an employee of Maryland Sportservice Inc., a subsidiary of Delaware North, filed a class action on behalf of fellow employees who worked more than 40 hours per week during the baseball season, but received their regular wage for overtime hours worked. (Maryland Sportservice is the food, beverage & retail provider of the Baltimore Orioles at Oriole Park at Camden Yards.)
An entity can be exempt from the FLSA — and thus exempt from paying minimum wage and overtime — if it is an "amusement or recreational establishment." Here, the major question before the court was whether a baseball concession qualifies as an "amusement or recreational" event, though it itself is not providing the source of amusement or recreation.
Lawyers for the employee-plaintiffs attempted to argue Delaware North's operations did not have characteristics of a recreation or amusement establishment because their purpose was to sell concessions and retail goods. The court rejected this argument, stating Maryland Sportservices' activities enhanced the recreation and amusement of watching baseball games, and they sold predominately to ticket holders at events. The court also deemed any activities Maryland Sportservice conducted on non-game days were trivial and did not "detract from an establishment's overall amusement or recreational character."
The three-judge appeals panel also upheld the lower court's determination that Maryland Sportservice was a seasonal operation, a requirement to qualify for an FLSA exemption. There are two ways to be considered seasonal. One is the seasonal operations test, under which a business cannot operate for more than seven months in any calendar year. The other is the receipts test, which requires that during the preceding calendar year, average receipts for any six months of that year were not more than one-third of the employer's average receipts for the other six months.
The court found Maryland Sportservice satisfied the receipts test. As long as large parent companies operate stadium concessions through various subsidiaries, applying the receipts test will likely trigger the FLSA exemption. Thus, even though Delaware North itself had consistent revenue, forming Maryland Sportservices, a subsidiary that operated seasonally, freed it from the purview of FLSA.
Last September, Judge Paul G. Gardephe of the U.S. District Court for the Southern District of New York dismissed a class action on behalf of baseball scouts, holding the class representative did not have standing to sue all MLB teams. (He also cited baseball's antitrust exemption, which he said applied to scouts.) This demonstrated a second hurdle for plaintiff-employees: certifying the class. It appears nearly impossible for a group of scouts to have standing to sue all MLB teams. The judge did, however, let stand the wage-and-hour complaint by the lead plaintiff against the Kansas City Royals, his employer.
—Gia M. Velasquez, January 19, 2017
A recurring theme in the industry of minor league baseball is the need for public financing for the construction, improvement and maintenance of ballparks. Often, perhaps almost always, opposition arises questioning the return on investment to the taxpayer.
During the recession, private and public money was tight. By contrast, over the past few years, minor league franchise transactions have increased, both in number and in individual values. However, the fundamental calculus remains in effect. It takes a cooperative financial effort, as well as a political effort, to construct, improve and maintain a ballpark that benefits the local community. A municipality that does not recognize its role and obligation to do its part will run the risk of losing its team to another municipality that is more willing to provide an attractive ballpark package.
In part, this year's announcement of the transfer of two franchises from the California League to the Carolina League follows prolonged concern that the local municipalities were not able to improve or properly maintain the ballparks, and the franchise owners were not willing to invest private funding for those purposes.
But where there's a will, there's a way. Aberdeen, Md., home of the IronBirds, is struggling with the financial reality that it is spending approximately $2 for every $1 it receives from leases and admissions taxes. The shortfall comes from tax revenue from other sources. This issue is related to maintenance of and necessary public improvements for a ballpark that is only 15 years old. In September the Aberdeen City Council approved about $1 million to replace deteriorated railings at the ballpark.
Also along the East Coast, ownership of the Potomac Nationals in 2015 announced a largely privately funded ballpark project to be constructed on privately owned land adjacent to commercial property. The $70 million project was expected to benefit from a nearby parking garage being financed by the state of Virginia, and the ballpark financing would largely come from private funds. The plan included creative naming rights, namely sponsorship deals that would generate sufficient annual revenue to cover the debt service. However, since last spring the plan appears to be on hold.
In nearby Richmond, Va., plans for a new stadium to replace "The Diamond," home of the Flying Squirrels, are being discussed. Public sector land and money may well be in the picture, although details have not been announced.
—October 26, 2016
Two lawsuits that involve baseball illustrate why employers and others should think more carefully about how they comply with government regulations, or about conditions affecting ballpark liability. The lawsuits are both in a California federal court. If certified as class actions, and if successful, they could result in far greater monetary settlements or verdicts than separate lawsuits.
One is the well-publicized lawsuit regarding minimum wage and overtime for MiLB players under both the federal and state versions of the Fair Labor Standards Act (FLSA). In July, U.S. Magistrate Judge Joseph C. Spero issued a 100-page opinion denying class-action certification, but left open reconsideration. He scheduled a hearing on the issue for December.
A point that emerges in his order for the hearing on the plaintiffs' request for reconsideration is that an FLSA case will be very difficult to prove without detailed, contemporaneous records of hours worked. The technical requirements of an FLSA case will be difficult to meet if the individual players must assert their cases one-by-one.
A second class action, also pending in the U.S. District Court for the Northern District of California, involves an attempt at class action certification for spectators injured at major league ballparks. This case is at an early stage. The attorneys, we expect, will be arguing about the certification as a class action, especially in light of the small percentage of fans injured by foul balls and broken bats flying into the stands.
Class-action lawsuits must meet certain tests. They are often brought in consumer cases, and have been criticized for resulting in small awards for all except a few of the aggrieved, with sizeable fees for lawyers. Arguments in their favor include access to relief even when the value of damages is small.
—October 17, 2016
Whether Minor League Baseball players are exempt from the federal minimum wage law is an issue that mightor might notbe settled by proposed legislation winding its way through Congress. The Save America's Pastime Act (H.R. 5580) would add minor league players as an exception to the federal Fair Labor Standards Act (FLSA).
MiLB expressed its support for the bill in light of a class-action lawsuit challenging whether the players are exempt. The bill was introduced last month by Reps. Brett Guthrie (R-Ky.) and Cheri Bustos (D-Ill.) and was referred to the House Committee on Education and the Workforce.
But last week, Bustos withdrew her support. She said in a statement that she had new information and, "I cannot support legislation that does so at the expense of the players that draw us to stadiums like those in the Quad-Cities and Peoria."
A news release on Guthrie's website argued, "If the law is not clarified, the costs to support local teams would likely increase dramatically and usher in significant cuts across the league, threatening the primary pathway to the majors and putting teams at risk."
The FLSA is a complex law that governs not only minimum wage but other issues such as overtime. It does exempt certain employers, including amusement or recreational establishments and seasonal events, but only under certain circumstancessome of which fit MiLB.
Aside from the issue regarding players pay, much of which is borne by MLB, MiLB team management should review its pay practices to ensure they are in line with all the provisions of the FLSA.
—July 7, 2016