Last week, an Indiana federal court dismissed a lawsuit brought by former University of Pennsylvania (“Penn”) athletes against the National Collegiate Athletic Association (“NCAA”) and a number of its member schools over their alleged employment status and corresponding minimum wage protection under the FLSA. Berger, et al. v. NCAA, et al., S.D. Ind., No. 1:14-CV-01710, 2016 U.S. Dist. LEXIS 18194, Feb. 16, 2016. In Berger, the Named Plaintiffs pursued a nationwide collective action against not only their own alma mater, but also more than 120 schools they never attended. Plaintiffs’ alleged in their Amended Complaint that, by virtue of their participation on Penn’s track and field team, they became employees of Penn for purposes of the FLSA entitled to be paid at least minimum wage for the “work” they performed as student athletes. The Court did not agree.

The Court, Judge William T. Lawrence, began its analysis by addressing Plaintiffs’ standing to sue Defendants other than Penn.  Accepting Defendants’ argument that Plaintiffs lacked standing to sue schools they did not attend, the Court stated “[t]he well-pleaded facts in the Amended Complaint do not plausibly suggest that the Plaintiffs have standing to sue any Defendant other than Penn.  Accordingly, all of the Defendants other than Penn are dismissed without prejudice for lack of jurisdiction.”

The Court next rejected Plaintiffs’ claim that the 2010 U.S. Department of Labor “fact sheet” for determining whether certain internships qualify as employment under the FLSA applied to this analysis. The Court deemed the problem with Plaintiffs’ proposed framework as twofold: 1) the Intern Fact Sheet is not intended to apply to student athletes; and, 2) in any event, courts have refused to apply the test contained in the Intern Fact Sheet even to interns participating in internship programs the Fact Sheet purports to address.   Judge Lawrence concluded that the DOL’s factors “were not designed to apply to student athletes, and there is nothing to suggest that the Department of Labor intended them to be applied outside of the internship context.”

Judge Lawrence then framed the proper inquiry for determining who is an employee under the FLSA as the “economic reality” test, acknowledging that the Seventh Circuit’s historical approach to this test has been a flexible one. In addition to relying on Seventh Circuit guidance, the Court cited the Supreme Court’s decision in NCAA v. Board of Regents of University of Oklahoma, 468 U.S. 85 (1984), for the proposition that the “revered tradition of amateurism in college sports . . . cannot reasonably be disputed” and, further, “is an essential part of the ‘economic reality’ of the relationship between the Plaintiffs and Penn.” Moreover, the Court noted that the existence of thousands of unpaid college athletes is not a secret, and yet the DOL has not taken any action to apply the FLSA to them. To the contrary, in § 10b03(e) of the Wage and Hour Division’s Field Operations Handbook, the DOL has taken the position that participation in “interscholastic athletics” does not result in an employee-employer relationship between the student and the institution. The Court ultimately held that “the economic reality of the situation and the DOL’s position on the issue both point to one conclusion: the fact that the Plaintiffs participate in an NCAA athletic team at Penn does not make them employees of Penn for FLSA purposes.” Plaintiffs’ claims against Penn were dismissed with prejudice.

While this decision is a victory for the NCAA member institutions sued as Defendants in Berger, those Defendants must now prepare for an appeal, and all businesses (including non-profit institutions) must analyze their relationship with service providers, volunteers, and participants of all kinds.