Seventh Circuit Agrees: Student-Athletes Are Not Employees Under the FLSA

HIGHLIGHTS:

• A three-judge panel of the U.S. Court of Appeals for the Seventh Circuit has affirmed a district court's decision that track and field student-athletes at the University of Pennsylvania were not employees of the school under the Fair Labor Standards Act.
• The court affirmed dismissal of the student-athletes' complaint in its entirety. In its decision, the court relied on the "long tradition of amateurism" in collegiate athletics and the reality that student-athletes play sports voluntarily and "without any real expectation of earning income."
• The decision follows a series of other legal wins for the NCAA and its member institutions, and is a setback to student-athlete litigants seeking status as employees under the law.

A three-judge panel of the U.S. Court of Appeals for the Seventh Circuit in Gillian Berger, et al. v. National Collegiate Athletic Association, et al, 16-1558 (7th Cir. 2016) has affirmed a district court's decision that track and field student-athletes at the University of Pennsylvania (Penn) were not employees of the school under the Fair Labor Standards Act (FLSA). In its decision, issued on Dec. 5, 2016, the court relied on the "long tradition of amateurism" in collegiate athletics and the reality that student-athletes play sports voluntarily and "without any real expectation of earning income." The decision is the latest win for the National Collegiate Athletic Association (NCAA) and its member institutions, which have consistently argued that student-athletes should not be considered employees.

Background and Decision

Two former members of the Penn women's track and field team filed this putative class action in the U.S. District for the Southern District of Indiana. Gillian Berger, et al, v. National Collegiate Athletic Association, et al, 1:14-cv-01710-WTL-MJD (S.D. Ind.). They sued Penn, the NCAA, and more than 120 NCAA Division I universities and colleges, arguing that they were employees of Penn and therefore should have been paid minimum wage under the FLSA. As athletes at an Ivy League institution, the plaintiffs did not receive athletic scholarships.

All of the defendants moved to dismiss. The district court dismissed the claims on the grounds that the plaintiffs: 1) lacked standing to sue the NCAA and its member schools (other than Penn), and 2) failed to state a claim against Penn because they were not employees of the school under the FLSA. (See Holland & Knight's alert, "Court Rules That Student-Athletes Are Not Employees Under the FLSA," March 1, 2016.) The plaintiffs appealed to the Seventh Circuit.

The Seventh Circuit affirmed the dismissal. The court concluded, as an initial matter, that the plaintiffs lacked standing to sue the NCAA and its member schools because the connection between the student-athletes and the NCAA and its members was "far too tenuous to be considered an employment relationship." As a result, the court concluded the plaintiffs could not have "plausibly alleged any injury traceable to, or redressable by," the NCAA or any member school other than Penn.

The court then proceeded to affirm the district court's dismissal of claims against Penn on the ground that the student-athletes were not employees of Penn under the FLSA. The court rejected the plaintiffs' argument that the court should apply the multifactor test used to determine whether an "intern" is an employee under the FLSA, as set forth by the Second Circuit in Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528 (2d Cir. 2015). The court concluded that the Glatt test is inapplicable to student-athletes because it did not take into account the true nature of the relationship between student-athletes and the school.

In concluding student-athletes are not employees, the court endorsed the U.S. Supreme Court's statement in NCAA v. Board of Regents, 468 U.S. 85 (1985) that there exists "a revered tradition of amateurism in college sports." Amateurism, according to the court, "defines the economic reality of the relationship between student athletes and their schools." The court concluded that student-athletes participate in intercollegiate athletics "for reasons wholly unrelated to immediate compensation" and "without any real expectation of earning an income." Accordingly, the court concluded that the student-athletes were not employees of Penn under the FLSA.

The court also relied on decisions in other contexts – including in workers' compensation cases – in which courts concluded that student-athletes were not employees. Additionally, the court relied on guidance in the U.S. Department of Labor's (DOL) Field Operations Handbook setting forth DOL's position that participation in intercollegiate athletics does not create an employer-employee relationship under the FLSA.

The court concluded its analysis by explaining why the student-athletes' activities did not qualify as "work" under the FLSA. The court stated:

"Student participation in collegiate athletics is entirely voluntary. Moreover, the long tradition of amateurism in college sports, by definition, shows that student athletes – like all amateur athletes – participate in their sports for reasons wholly unrelated to immediate compensation. Although we do not doubt that student athletes spend a tremendous amount of time playing for their respective schools, they do so – and have done so for over a hundred years under the NCAA – without any real expectation of earning an income. Simply put, student-athletic 'play' is not 'work,' at least as the term is used in the FLSA."

The court affirmed dismissal of the complaint in its entirety.

Judge David F. Hamilton concurred to add a "note of caution." He distinguished track and field student-athletes at Penn – who do not receive athletic scholarships or participate in a so-called "revenue sport" – from Division I men's basketball players and Football Bowl Subdivision players who receive scholarships and play in programs that generate revenue for their schools. Here, non-scholarship athletes in a non-revenue sport pursued a "broad theory," and "the logic of their claim would have included not only any college athlete in any sport and any NCAA division, but also college musicians, actors, journalists, and debaters." Judge Hamilton concluded that this broad theory is "mistaken" and agreed with the dismissal.

What the Ruling Means

Berger is a clear victory for the NCAA and its members, and a setback to student-athlete litigants seeking status as employees under the law. The court expressly endorsed the "long tradition of amateurism" in college sports in support of its conclusion that student-athletes are not employees. The decision provides further support for the NCAA and its member institutions as they continue to defend cases in which student-athletes seek to receive pay.

This victory for the NCAA and its institutions follows a series of other legal wins. Last year, the National Labor Relations Board dismissed a petition by Northwestern University scholarship football players seeking to unionize. (See Holland & Knight's alert, "NLRB Decision on Student-Athlete Unionization a Win for Colleges, But Title IX Still in Play," Aug. 26, 2015.) A month after that decision, the U.S. District Court of Appeals for the Ninth Circuit in O'Bannon struck down a district court's order requiring that Division I men's football and basketball programs establish a system to pay student-athletes deferred compensation of up to $5,000 per year. (See Holland & Knight's alert, "Title IX Implications of the O'Bannon Decision," Oct. 27, 2015.) While many of these issues continue to play out in the courts and reform efforts, Berger represents an express endorsement of amateurism – the principle at the core of the legal defenses of the NCAA and its member institutions.

David Santeusanio and Max Sternberg are members of Holland & Knight's Collegiate Athletics Team, which advises clients on these and other matters related to collegiate athletic programs. We have deep experience litigating collegiate-athletics matters, advising institutions on the obligations and impact of Title IX, as well as on NCAA and other reporting issues, drafting contracts for individuals in athletic departments, separating from coaches when the situation demands and athletic conference realignment matters.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.