Back in August, the National Labor Relations Board threw the higher education community a curve ball ruling that student assistants at Columbia University were employees under the National Labor Relations Act, and were therefore entitled to organize a union. (For more information see our alert on the case.) An obvious question left unanswered by the Columbia University case was whether and under what circumstances students may also be entitled to minimum wage and overtime under the Fair Labor Standards Act. On Monday, December 5, the Seventh Circuit Court of Appeals weighed in on at least part of that issue, holding that two former University of Pennsylvania athletes were not employees of either the University or the NCAA under the FLSA. Berger v. National Collegiate Athletic Association, et al.

Historical Context

The FLSA itself is distinctly unhelpful in assessing when students might be treated as employees, as it defines “employee” as “any individual employed by an employer,” and “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” The statute goes on to define “employ” as “to suffer or permit to work.”

Taken literally, that exceedingly broad definition would seem to sweep in all students who perform anything one could describe as “work.” That could include, for example, students who build sets in the drama department, run the student radio station, or do research work as part of a graduate program. However, the U.S. Supreme Court long ago rejected such a sweeping interpretation of the FLSA, holding in Walling v. Portland Terminal Co. that the FLSA “cannot be interpreted so as to make a person whose work serves only his own interest an employee of another person who gives him aid and instruction.”

In light of that holding, the U.S. Department of Labor Wage and Hour Division has long stated in Chapter 10 of its Field Operations Handbook that graduate students and research assistants who perform work under the supervision of a faculty member as part of their degree program are primarily students, and are not regarded as employees under the FLSA. Likewise, students who participate in activities such as drama, performance groups, radio stations, intercollegiate athletics, and who serve as residence hall assistants as part of their educational experience are not deemed to be employees, even if they receive some remuneration such as reduced room and board charges or tuition credits. Conversely, students who perform work that lacks an educational component, such as washing dishes in the dining hall or basic clerical work, may well be regarded as employees.

The Penn Lawsuit

The recent Seventh Circuit opinion came in a lawsuit filed in the Southern District of Indiana by two former members of the University of Pennsylvania’s women’s track team, Gillian Berger and Taylor Henning. The students, with the help of some apparently very ambitious lawyers, filed suit not only against Penn, but also the NCAA and more than 120 other NCAA Division I member schools. They alleged that all Division I student athletes are “employees” within the meaning of the FLSA, and therefore entitled to be paid at least the minimum wage for all hours worked. The District Court quickly dismissed the claims against the NCAA and all of the schools other than Penn, holding that the students lacked standing to sue those defendants. The District Court also dismissed the FLSA claim against Penn, holding that as a matter of “economic reality,” student athletes are not employees entitled to be paid at the minimum wage. Berger v. National Collegiate Athletic Assoc. et al. (.pdf) The students appealed.

On appeal, the Seventh Circuit affirmed the District Court’s judgment. First, the Court noted that in deciding whether “employee” status exists, courts must focus on the “economic reality” of the relationship to decide whether Congress intended the FLSA to apply to that particular relationship. The Court rejected the students’ contention that it should apply a seven-factor test adopted by the Second Circuit Court of Appeals to help determine whether an intern is an employee under the FLSA, holding that the “economic realities” test requires a “more flexible standard,” and that the multi-factor test was not a helpful guide in the case of student athletes.

Turning to the specifics of the relationship at issue, the Court cited Supreme Court precedent noting the “revered tradition of amateurism in college sports.” It also noted that at least in other contexts, such as in workers’ compensation cases, most courts that have addressed the issue have concluded that student athletes are not employees. While concluding that the DOL’s Field Operations Handbook was not legally binding, the Court also found the DOL’s position that students athletes are not employees to be “persuasive.”

In about as definitive a statement as one could ask for in a legal decision, the Court concluded that the students could not pursue their claims:

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 minimum wage under the FLSA.

However, a concurring opinion by Judge David Hamilton may put a few seconds back on the clock for at least some Division I athletes to make a “Hail Mary” play for FLSA coverage. Judge Hamilton begins by noting his agreement with the majority’s view of the case before the court, pointing out that if plaintiffs’ view of the law were correct, the FLSA would apply not only to college athletes, but to other students engaged in extracurricular activities including “college musicians, actors, journalists, and debaters.” While soundly rejecting that interpretation, Judge Hamilton tempers the majority’s definitive ruling by stating that he is “less confident” that the same reasoning should extend to “students who receive athletic scholarships to participate in so-called revenue sports like Division I men’s basketball and FBS football.” Hamilton stressed that this case did not present such a scenario because, as a member of the Ivy League, University of Pennsylvania did not provide athletic scholarships, and track and field was not a revenue generating sport. “With economic reality as our guide,” he concludes, “there may be room for further debate, perhaps with a developed factual record rather than bare pleadings, for cases addressing employment status for a variety of purposes.”

Upshot for Colleges and Universities

This case is a definitive win for institutions of higher education, and one that undoubtedly resolves some rising tension given the NLRB’s expansive rulings of late. In addition to making it clear that student athletes are not FLSA employees, the Court of Appeals’ ruling bolsters the position set forth in the DOL’s Field Operations Handbook that other students engaged in traditional extra-curricular and co-curricular activities are not FLSA employees. However, it doesn’t address the immediate question posed by the Columbia University decision, which is whether student assistants who exercise their right to unionize under the NLRA would also be entitled to minimum wage and overtime under the FLSA. Judge Hamilton’s concurrence may preview future cases asserting that the economic reality of a relationship governed by a collectively-bargained labor contract is inherently different than the relationship between a university and a student athlete, particularly given that the economic reality test was actually intended to be more expansive than the traditional common law test used under the NLRA. On the other hand, it is also likely that the Seventh Circuit’s ruling in the Penn case may lend support to efforts to challenge the NLRB’s Columbia University decision in court. The incoming Trump administration’s picks for the NLRB may also prompt another reversal in the Board’s position on student assistants as employees. While we frankly don’t know where things will settle, we can say with some confidence that this will continue to be one of the more interesting areas of labor and employment law to watch for some time to come.