Minor league wages | Michael Maffie

Last year, three minor league baseball players filed a suit in federal court alleging that Major League Baseball had violated the minimum wage and overtime provisions of the Fair Labor Standards Act (FLSA). Since that time, the number of claimants has risen to 32, representing all 30 MLB clubs. These 30 claimants seek to proceed as a class and represent all Minor League Baseball Players in their case against Major League Baseball.

I am writing my masters thesis on the Fair Labor Standards Act and I love baseball. This case is like my own personal Christmas.

Why are Minor League Baseball Players Suing MLB and not the Minor League clubs? Minor league baseball players are employed by their major league affiliate, not their minor league club. MLB pays all minor league player salaries, makes personnel decisions regarding promotion to A, AA, AAA, compensation and playing time. MLB teams pay for coaching salaries and most equipment. Due to this, MLB is the named plaintiff.

Stan Brand, Minor League Baseball’s vice president (and representative of the industry to Congress) has recently stated that,

“Just as we did in the 1990s to save the antitrust exemption, we will need your help to explain to our legislators the importance of this issue to the future of minor league baseball and their communities’ investments in stadia and infrastructure. I do not want to overstate the threat this suit presents, but I think my honest assessment is that it is equally perilous for our future as the antitrust repeal was in the 1990’s.”

Craig Calcaterra at Hardball Talk eloquently described Mr. Brand’s position as “total crap” because MLB, not Minor League owners, foot the bill for player compensation. This may be superficially true, but what Brand is arguing is that MLB will push the costs of player development onto the Minor Leagues, thus reducing their profits. It is unclear if MLB teams would do this.

What is the salary range for Minor League players? There is no public listing of minor league salaries, but the lawsuit claims that a AAA player makes between $1,100 and $2,150 per month for the season (these are not 12-month contracts. More on that in a minute.)

What are minor league players arguing in the suit? Minor league players are arguing that they work for 60 to 70 hours a week in game time, practice, and conditioning. For industries covered by the Fair Labor Standards Act, any work beyond 40 hours a week must be compensated at time-and-a-half pay.

Second, the players will argue for “liquidated damages”, which means that an employer did not make a “good faith” effort to comply with the FLSA (you can already see this language emerging in MLB’s statements to the press). Liquidated damages would mean the players would qualify for double damages in the case.

Third, minor league players will claim they have been forced to work unpaid time. Minor league players are not compensated for spring training or instructional leagues. Some minor league players are required to attend both as a condition of their employment.

If MLB clubs cannot produce time records for their players, they face double damages in the case, although I assume MLB would prefer to settle prior to this occurring. It gets worse: if MLB was determined to be “willful” in their violation of the FLSA, then the statute of limitations could extend back three years.

The players will argue that a few players can represent all of the minor league players as a class at trial. There are roughly 240 minor league baseball teams with around 22 players a team. At double damages for three years, the worst-case scenario for MLB will be a payment in the hundreds of millions of dollars.

Wait, I thought that baseball players are unionized. Don’t unions settle these things in collective bargaining? Yes, unions do. Minor League Players who are not on the 40-man roster are not part of the MLBPA. This is why minor league players are able to file a claim under the FLSA. If minor league players were covered by the MLBPA collective bargaining agreement, they would not be going to court but instead would be using the collectively bargained grievance procedure (think Ryan Braun appeals). Yet since minor league players are non-union employees in an industry covered by the FLSA, they have standing to file a case in court.

This case raises an interesting and unusual aspect of the legal status of minor league players. For decades, the four major American sports have had a system of restricted labor mobility. Only after six years of MLB service time does a player have the right to free agency and to pursue their full market value without restriction. In order to maintain competitive balance, there is a draft system where the worst team is able to select and control the best amateur talent at a discounted rate.

For most industries, a “draft” style system would violate anti-trust laws. These laws are used to break up monopolies and prevent firms from using their market power to disadvantage either their employees or consumers. For the purpose of baseball, the most important anti-trust law is the Sherman Anti-trust Act of 1890. In the early 20th century, a series of legal challenges resulted in the courts finding that baseball was never intended to be covered by the Sherman Act.

Furthermore, under American labor law it is legal for labor practices to violate antitrust laws as long as they are established by a collective bargaining agreement that is freely negotiated between labor and management. This is why the NFL Players Association (a union) decertified prior to the NFL draft in their last round of bargaining. This move allowed the players to file suit under anti-trust law.

Minor league baseball players fall in the middle of all this. These players are regulated by the MLB collective bargaining agreement yet are not members of the union. This means minor league players do not have the same protections MLB players have from the collective bargaining agreement, such as a grievance system or the ability to legally strike under the National Labor Relations Act. Even worse, in the past the MLBPA has agreed to tighter restrictions on minor league players in exchange for benefits for existing Players Association member:

With this baseball season comes a new collective bargaining agreement, negotiated by Major League Baseball’s owners and players association this offseason. As it usually does, the MLBPA secured a minimum wage increase; by 2014, the lowliest major leaguer will earn at least half a million dollars. But the labor deal also sets new limits on the bonuses paid in the amateur draft, which the players’ union gets to negotiate even though they don’t represent draftees. Indeed, today’s major leaguers rarely hesitate to sell out their eventual replacements: In the agreement that took hold in 2007, the players signed off on a change that kept minor leaguers out of free agency for an extra year. Gene Orza, who recently retired as the MLBPA’s No. 2 lawyer, says there’s nothing wrong with that. “We don’t represent them,” Orza told me, referring to minor leaguers, “and have no obligation.” (from Slate)

Other sports face a similar dilemma but do not have as strong restrictions on the labor mobility of amateurs. For example, in the NFL, practice squad players are free to sign with any other team if a team offers the player a spot on their 53-man roster. In MLB, a player must complete seven years of service in the minor leagues before they are granted free agency rights.

While MLB enjoys a general pass on anti-trust laws, the cases governing the relationship between baseball and antitrust laws were all determined prior to the modern baseball era. It will be interesting to see if there is a wider challenge to MLB’s exemption from anti-trust laws following the FLSA action.

How will MLB respond? Major and Minor League Baseball have opened several lines of argumentation in this case.

First, Minor League Baseball lobbied Congress to add minor league baseball as one of the 35 exempt industries exempt from the FLSA. If MiLB and MLB were able to convince the Congress to grant them this exemption, it would stem any future litigation, but would not settle the current collective action filed in federal court.

Second, MLB will argue that Minor League players are seasonal workers (generally characterized as working less than seven months) and therefore exempt from the FLSA. Bill Gould, professor of sports law at Stanford, recently commented that he does not believe that MLB would qualify for a seasonal exemption to the Act because the league earns profits year-round. Indeed, there is a steady history of case law (including one involving our Cincinnati Reds) that indicates MLB does not qualify for a seasonal exemption.

Third, MLB will argue that the structure of the FLSA is inconsistent with the structure of baseball. There is some merit to this argument. Strictly applying the FLSA to minor league baseball could leave teams in the difficult position of having to keep track of the hours for each minor league player. Would teams have to say, “sorry, no extra innings this game because we can’t afford the overtime” or “we can’t train you because that would cost too much”? Furthermore, would at-home training regiments count as hours worked since strength and conditioning is  an important part of being a productive employee? Or, since donning and doffing important equipment and gear is considered work time, does that mean that teams would have to set a limit on how much time players have in the locker room after games in order to keep within their cost projections?

Although these fringe time issues may sound troublesome, every firm since 1938 has been tasked with keeping track of employee hours. Moreover, its hard to cry poor when baseball just recorded $8 billion in profits for 2013.

The “FLSA doesn’t fit with baseball” argument will get forced into the “trainee” exemption in the FLSA. For anyone who has ever worked in the food industry, this will sound familiar. If someone is a “trainee” then they are not an “employee” under Act and therefore not protected by the minimum wages/maximum hour provisions of the FLSA.

There are several problems with this argument. First and foremost, I think it will be tough to convince the court that someone can be a trainee, and therefore exempt from minimum wage/maximum hour laws, for seven years. Furthermore, for someone to be a “trainee”, their employer cannot derive any immediate advantage from the work of the employee. Considering that young, cost controlled players are almost generally considered the most valuable commodities in baseball, this argument will be a tough sell.

Now, the clever reader might say, “well, MLB teams don’t receive any advantage from minor league player’s work because MLB teams do not gain any value from winning minor league games”. This may be true (although, debatable). Yet preventing these players from signing with other teams does provide substantial value. Even if that trainee’s immediate work does not benefit the team, the team receives value from owning the exclusive rights to the employee’s future labor.

These three arguments are probably long shots and not really the heart of this case. MLB’s real strategy revolves around limiting the size of the players’ class.

Instead of trying to prove that players did not work overtime, MLB will attempt to break the class into smaller pieces to gain settlement leverage. They will do this two ways:

First, MLB will argue there is no basis for a collective action. Following the Supreme Court’s recent WalMart gender discrimination decision, it has become more difficult to certify that a class faces similar enough conditions to allow a small group of plaintiffs to represent the class. Almost 50% of all FLSA litigation in the United States is filed as collective action cases, and the “insufficiently similar” line of argumentation has been tested and demonstrated successful in a series of cases.

MLB will argue that the plaintiffs, ranging from high-A ball to AAA players, employed by 30 different franchises, and being subject to different talent development tracks and playing time, could not be accurately aggregated into a single class.

If MLB can convince the court that each club is sufficiently different, then the players will have to go through 30 (or more) different collective actions, each with their own delays, cost of evidence production, and litigation expenses. This would make a low-paying settlement more likely.

Second, MLB will argue that minor league players do not have the right to sue in court because each player signs an arbitration agreement.

First, a quick refresher on arbitration: An arbitration agreement is a simple contract where two parties agree to not litigate their disputes in court. Instead, both sides agree to pick a neutral third party who will act as a judge in their disagreement. You might not know it, but if you have a cell phone, computer, or use software on your computer, you are most likely under an arbitration agreement.

Unlike court decisions, arbitration decisions cannot be appealed and are almost impossible to overturn (more on this in a second).

The standard employment contract for minor league players requires them to agree to arbitrate their claims against major league baseball. The problem, however, is that the commissioner of baseball would sit as the arbitrator in this case.

On the one hand, the commissioner’s role makes sense because if a player has a dispute with his team, the commissioner is in a position where he can balance the interests of the team and players in the league. On the other hand, the commissioner can be named as a party in the complaint. Although it’s hard to get an arbitration agreement overturned, having one party sit as both accused and arbitrator would raise an eyebrow in federal court. (Hooter’s used to have this provision in their standard employment contract. It was struck down.)

This is the exact issue in the recent Adrian Peterson trial. In that case, the commissioner selected Harold Henderson to take his place to hear Peterson’s appeal. Henderson, who was a longtime NFL executive, ruled in favor of the league. Peterson appealed the decision, and while it is normally difficult to overturn an arbitration agreement in federal court, it is unclear how the court will rule on this issue. The uncertainty around the Peterson case adds another layer on an already murky legal situation.

The suit filed by minor league baseball players is a complex case that will continue to unfold over the next few years. Its outcome could have far-reaching impacts on the sport.