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On December 5th, 2016, the United States Court of Appeals for the 7th Circuit decided Berger v. National Collegiate Athletic Association. In Berger, former student athletes at the University of Pennsylvania (“Penn”) sued Penn, the National Collegiate Athletic Association (“NCAA”), and more than 120 other NCAA Division I universities and colleges alleging that student athletes are employees who are entitled to a minimum wage under the Fair Labor Standards Act (“FLSA”).  The district court disagreed and dismissed the case.  The 7th Circuit affirmed the district court’s dismissal.

While this outcome was widely anticipated and follows a number of rulings that have concluded that student athletes are not employees, we are highlighting key issues in the opinion that should be of interest to educational institutions.  We also have included a copy of the opinion for additional reading.

Crucial to the 7th Circuit’s decision was the historical significance given to amateurism in college athletics.  The Court set forth the following in its analysis:

“As the Supreme Court has noted, there exists “a revered tradition of amateurism in college sports.” Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 120 (1984). That long-standing tradition defines the economic reality of the relationship between student athletes and their schools. To maintain this tradition of amateurism, the NCAA and its member universities and colleges have created an elaborate system of eligibility rules. See O’Bannon v. Nat’l Collegiate Athletic Ass’n, 802 F.3d 1049, 1054–55 (9th Cir. 2015) (outlining the development of these rules). We have held that these rules “define what it means to be an amateur or a student-athlete, and are therefore essential to the very existence of” collegiate athletics. Agnew v. Nat’l Collegiate Athletic Ass’n, 683 F.3d 328, 343 (7th Cir. 2012). The multifactor test proposed by Appellants here simply does not take into account this tradition of amateurism or the reality of the student-athlete experience. In short, it “fails[s] to capture the true nature of the relationship” between student athletes and their schools and is not a “helpful guide.” Vanskike, 974 F.2d at 809.”

The Court also noted that a majority of courts have concluded, albeit in different contexts, that student athletes are not employees. See generally Adam Epstein and Paul M. Anderson, The Relationship Between a Collegiate Student-Athlete and the University: An Historical and Legal Perspective, 26 Marq. Sports L. Rev. 287, 297 (2016) (collecting cases and concluding that “the courts have been consistent finding that student athletes are not recognized as employees under any legal standard, whether bringing claims under workers’ compensation laws, the NLRA or FLSA). For example, most courts have held that student athletes are not employees in the workers’ compensation context and are thus not entitled to compensation from their schools for injuries they suffer while playing their respective sports. See e.g., Rensing v. Ind. State Univ. Bd. of Trustees, 444 N.E.2d 1170 (Ind. 1983); State Comp. Ins. Fund v. Indus. Comm’n, 314 P.2d 288 (Colo. 1957); Waldrep v. Tex. Emp’rs Ins. Ass’n, 21 S.W.3d 692 (Tex. App. 2000); Coleman v. W. Mich. Univ., 336 N.W.2d 224 (Mich. Ct. App. 1983).

Likewise, the Court noted that the Department of Labor, through its Field Operations Handbook, has also indicated that student athletes are not employees under the FLSA. The handbook provides Wage and Hour Division investigators and staff with interpretations of statutory provisions and procedures for conducting investigations, and general administrative guidance.   The Court agreed with the Appellants that the provisions in the handbook were not dispositive, but found them to be certainly persuasive. In fact, the Court cited this handbook as persuasive authority several times. See Driver v. AppleIllinois, LLC, 739 F.3d 1073, 1075 (7th Cir. 2014); Yi v. Sterling Collision Ctrs, Inc., 480 F.3d 505, 508 (7th Cir. 2007).

Subsection (a) of Section 10b24 of the handbook discusses situations when university or college students are not treated as employees under the FLSA. Under this subsection, University or college students who participate in activities generally recognized as extra-curricular are generally not considered to be employees within the meaning of the FLSA. Subsection (b) discusses situations in which an employment relationship will generally exist with regard to students. Under this subsection, students who participate in a work study program and, for example, work at food service counters or sell programs or usher at athletic events, or who wait on tables or wash dishes in dormitories in anticipation of some compensation are generally considered employees under the FLSA.

The Appellants compared NCAA-regulated athletes to the work-study participants of § 10b24(b) and argued that these athletes should be deemed employees under the FLSA. In so doing, Appellants contended that § 10b24(a)’s reference to “extracurricular” activities and §10b03(e)’s reference to “interscholastic athletics” referred only to “student run, interscholastic club sports,” and not to NCAA regulated sports. To support this argument, Appellants pointed to the many differences between club sports and NCAA-regulated sports—the most obvious of which being that club sports are largely student run, whereas NCAA regulated sports are heavily supervised by university employed staff.  The Court agreed that NCAA regulated sports are very different from club sports, but disagreed that this difference warranted different treatment under the clear language of the handbook.

Because NCAA-regulated sports are “extracurricular, interscholastic athletic” activities, the Court did not believe that the Department of Labor intended the FLSA to apply to student athletes. The Court found the handbook’s interpretation of the student-athlete experience to be persuasive. The Court stated:

“Appellants in this case have not, and quite frankly cannot, allege that the activities they pursued as student athletes qualify as “work” sufficient to trigger the minimum wage requirements of the FLSA. 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. We therefore hold, as a matter of law, that student athletes are not employees and are not entitled to a minimum wage under the FLSA.”

Finally, the Court addressed whether this issue could, or should, be resolved by way of a motion to dismiss. The Court rejected plaintiffs’ argument that employment status is an inherently fact intensive inquiry and thus should not be decided at the motion to dismiss stage. Because it concluded, as a matter of law, that student athletes are not employees under the FLSA, no discovery or further development of the record could help Appellants. Appellants did not and could not allege facts, even taken as true, that give rise to a cause of action.

This opinion provides a clear guide to use for educational institutions when determining whether student athletes should be paid at least minimum wage for FLSA purposes, apart from their participation in the athletic activity itself. Students who participate in a work study program, who work at food service counters or sell programs, or usher at athletic events, or who wait on tables or wash dishes in dormitories, or even work as ball retrievers at soccer or volleyball games in anticipation of some compensation are generally considered employees under the FLSA .