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One court has spoken. You may have to pay some of your interns and trainees. According to Hon. William T Lawrence, judge of the US District Court for the Southern District of Indiana, universities do not have to pay their student athletes  for their participation in athletic activities–because student athletes are not employees.

The case is Berger et al v. NCAA et al, Case No  1:14-cv-01710 (also referred to by some as Anderson et al v NCAA). Wait a minute. Doesn’t the Fair Labor Standards Act take a rather inclusive approach to defining who is an employee? Yes . Why then did Judge Lawrence, rule that student athletes aren’t employees under the FLSA? Let’s find out after the jump…

Let’s first get a thumbnail sketch of the case. The three named plaintiffs, Lauren Anderson, Gillian Berger and Taylor Hennig had been members of the University of Pennsylvania’s track and field team.  They sued  the National Collegiate Athletic Association and 123 NCAA member schools on behalf of themselves and “all current and former NCAA Division I student athletes and on NCAA women’s and men’s sports rosters for the [123 schools ] for the academic year 2012-13 to the present”. The plaintiffs alleged that their participation on athletic teams is “work”, that it renders them temporary “employees” under the FLSA and that they are therefore entitled to payment of at least minimum wage for their work. (Ultimately the claims against the other 122 schools were dismissed for legalistic procedural reasons and I will not bore you with the details.)

So why did these students believe they were “employees” entitled to protection–and payment of at least minimum wage–under the Fair Labor Standards Act?  They advanced two arguments. The first one was essentially a fairness argument, in which they accused the NCAA and the schools of taking the position that ““student athletes are less deserving of employee status and pay, under the FLSA, than work-study participants, ‘who work at food service counters or sell programs at athletic events, or who wait on tables or wash dishes in dormitories,’”.  The students cited the DOL’s Field Operations Handbook to point out that the aforementioned work-study participants are designated as employees. The court essentially dismissed this argument, stating, “the question is not whether the Plaintiffs, as student athletes, are “deserving” of employee status, but rather whether Congress intended for the FLSA to apply to them”. The court did, however explain in a footnote, that it was making no judgment on  fairness or whether student athletes should be compensated in some way, but felt that “[T]his case is not the proper forum for resolving that societal debate.”

The student athletes next argued that their situation was much like that of interns, and that the factors in the DOL’s Fact Sheet #71 were applicable. The factors would, according to the student athletes show that they were interns that were entitled to minimum wage and overtime pay. (I won’t bore you with a detailed listing of these factors, either –you’re welcome–but if you’re curious, you can find them here.) The court was not persuaded by this argument either, and spent a fair amount of time explaining why. Let’s get back to this in a moment.

Before it addressed the intern analogy, the court pointed out that the FLSA itself applies an unhelpful, circular definition of “employee” as ” ‘any individual employed by an employer.’” So who and what is an employee then?  The court, citing the 7th Circuit Court of Appeals 1992 case, Vanskike v. Peters, 974 F.2d 806, stated that one looks to the economic reality of the working relationship, to determine if the workers are dependent upon the business to which they render service, and that the totality of circumstances, rather than any one factor is dispositive.

So how about the interns analogy? According to the court, the factors in DOL Fact Sheet #71 were intended to apply to students working in traditional employment setting, and not being  paid. The court found no indication that DOL Fact Sheet #71 was ever intended to apply to student athletes. Moreover, most if not all courts have refused to even apply the test in Fact Sheet #71 to interns. While the 6 factors in the Fact Sheet attempt to distill facts discussed in Walling v. Portland Terminal Co., a 1947 US Supreme Court case, most appellate courts take the view that Portland Terminal requires a more flexible test, and instead focus on which party primarily benefits from the relationship. Even so, the court reasoned that factors used in the trainee and private-sector intern context fail to capture the true nature of the relationship between the student athletes and the University of Pennsylvania. In analyzing the totality of circumstances the court cited the following factors:

1. The US Supreme Court’s recognition of  “revered tradition of amateurism in college sports,” National Collegiate Athletic Ass’n v. Board of Regents of Univ. of Okla., 468 U.S. 85, 120 (1984), which it found to be ” an essential part of the “economic reality” of the relationship between the Plaintiffs and Penn”;
2. Generations of U Penn students have vied for the “opportunity to be part of that revered tradition” with no thought of compensation, indicating that student participants view it as a benefit to themselves.
3. The well-known existence of thousands of unpaid student athletes on college campuses each year and the lack of any action by the DOL to apply the FLSA to them.
4. The DOL’s own statements in its Field Operations Manual that students can be required to participate in certain activities, primarily for their benefit and as part of their educational opportunities provided to them are not ‘work’ and do not create an employer-employee relationship–even when the students receive minimal payment for their participation in such activities.