March madness is underway.  But are those office pools legal?  As employment lawyers, is it our responsibility to wipe out another workplace tradition (just like we did with binge drinking and perverted behavior at office holiday parties)?

According to Penal Code section 337a, gambling can be a felony or a misdemeanor.  But Penal Code section 336.9 creates an exception for betting pools between people who are not acting for profit, other than the same stakes available to every participant.  The exception applies as long as the pool isn’t being run online and no more than $2,500 is at stake.  This doesn’t make the pools legal.  But instead of a potential felony, it’s an infraction and the maximum penalty is a $250 fine.

So are the pools illegal?  Technically, yes.  But just a little illegal.  For most people, the odds of getting in legal trouble for an office pool are very slight.  But probably not as slight as the odds of a 16th seed winning the NCAA tournament.  The WSJ puts those odds at  384,000,000 to 1. 

And if you win, congratulations.  Now don’t forget that your winnings are reportable as income.  If the IRS audits you and finds out you didn’t report your winnings, your odds of legal problems just went up considerably.

Updated February 2012: I made some edits, including correcting a numerical error pointed out by the commenter below.  As for his or her question about employer liability, the penalties in Penal Code section 336.9 apply to anyone who "knowingly participates."  And I don’t see that it matters if some of the money goes to charity.  Section 337a applies whether the motive is "for gain, hire, reward, gratuitously, or otherwise."