Seventh Circuit finds that student athletes not employees entitled to minimum wage under FLSA

By Ron Miller

This week, Division One college football set its playoff schedule, and basketball is already in full swing. College sports generate significant revenue for their schools and big-time college coaches enjoy lucrative financial packages. But what do student athletes get out of the deal? The NCAA has been criticized from a number of quarters about the disparity of the current system which limits the types of compensation that athletes can receive. However, regardless of what changes that the NCAA ultimately may make, it seems clear that student athletes will not be regarded as employees by the courts.

In Berger v. National Athletic Collegiate Association, the Seventh Circuit affirmed the judgment of a district court that former members of the University of Pennsylvania’s women’s track team were not employees of the university under the FLSA, and so were not entitled to be paid minimum wage for their work performed as student athletes Applying the economic realities test, and taking into the account the tradition of amateurism in college sports, and eligibility rules that define what it means to be a student-athlete, the appeals court concluded that student athletes participate in their sports for reasons wholly unrelated to immediate compensation. Moreover, the court observed that student participation in collegiate athletics is entirely voluntary, and so concluded that the plaintiffs in this case had not alleged that the activities they pursued as student athletes qualified as “work” sufficient to trigger the minimum wage requirements of the FLSA.

Collegiate athletic teams are regulated by the NCAA. In this case, the former student athletes sued Penn, the NCAA and more than 120 other universities and colleges alleging that student athletes are employees who are entitled to a minimum wage under the FLSA. According to the students, the NCAA and its member schools violated the FLSA by not paying their athletes a minimum wage. On motions to dismiss filed by the defendants, the district court held that the students lacked standing to sue any of the defendants other than Penn, and that they failed to state a claim against Penn because student athletes are not employees under the FLSA. This appeal followed.

Standing. As an initial matter, the Seventh Circuit agreed with the district court that the students lacked standing to sue any of the defendants other than Penn. Here, the appeals court found that the students’ connection to the other schools and the NCAA was far too tenuous to be considered an employment relationship. Thus, they did not plausibly allege any injury traceable to, or redressable by, any defendant other than Penn.

Economic reality test. Next, the appeals court turned to consider the merits of the students’ claim with regard to Penn. To survive the motion to dismiss, the students had to allege facts, which taken as true, established that they were employees and performed work for Penn. The court first observed that because status as an “employee” for purposes of the FLSA depends on the totality of circumstances, courts must examine the “economic reality” of the working relationship between the alleged employee and the alleged employer to decide whether to apply the FLSA to that particular relationship.

Amateur tradition. In determining whether the students were employees in this instance, the Seventh Circuit rejected application of the Second Circuit’s test set forth in Glatt v. Fox Searchlight Pictures, Inc. Rather, relying on its decision in Vanskike v. Peters, the Seventh Circuit has declined to apply multifactor tests in the employment setting when they “fail to capture the true nature of the relationship” between the alleged employee and the alleged employer.

Accordingly, the Seventh Circuit agreed with the district court’s decision to follow the reasoning of Vanskike. The appeals court observed that there exists a tradition of amateurism in college sports, and that long-standing tradition defines the economic reality of the relationship between student athletes and their schools. The eligibility rules devised by the NCAA and its member institutions “define what it means to be an amateur or a student-athlete, and are therefore essential to the very existence of” collegiate athletics. The multifactor test does not take into account this tradition of amateurism or the reality of the student-athlete experience.

Student-athlete experience. Further, the appeals court noted that the Department of Labor, through its Field Operations Handbook (FOH), has also indicated that student athletes are not employees under the FLSA. The court rejected the students’ attempt to compare NCAA-regulated athletes to the work-study participants of Sec. 10b24(b) in the FOH. The court pointed out that Section 10b24(a) categorically states that students who participate in “extracurricular” activities are generally not considered employees. Moreover, Sec. 10b03(e) includes “interscholastic athletics” in a list of activities that do not constitute “work.” Thus, the court found the FOH’s interpretation of the student-athlete experience to be persuasive.

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