The U.S. Court of Appeals for the Seventh Circuit has affirmed U.S. District Judge William T. Lawrence’s dismissal of the student-athlete litigation against the NCAA and over 120 NCAA Division I member schools alleging that student-athletes are employees who are entitled to a minimum wage under the Fair Labor Standards Act. Berger v. NCAA, No. 16-1558 (7th Cir. Dec. 5, 2016).

Jackson Lewis had the privilege of representing 30 of the Universities named in the lawsuit. Our litigation team involved partners and associates spanning more than a dozen offices and several of our practice groups, including wage and hour, sports, and higher education.

Earlier this year, the district court granted Defendants’ motions to dismiss under F.R.C.P. 12(b)(1) and 12(b)(6), holding that (1) Plaintiffs lacked standing to sue any of the Defendants other than the University of Pennsylvania, and (2) Plaintiffs failed to state a claim against Penn because student-athletes are not employees under the FLSA. Plaintiffs appealed this decision. In its precedential ruling, the Seventh Circuit stated, “[w]e agree with the district court and hold that student-athletes are not employees and are not covered by the FLSA.”

As a brief recap of the attached Seventh Circuit decision, the Court considered the district court’s dismissal of the suit against all of the schools except Penn for lack of standing and agreed with the Defendants’ position that as the Plaintiffs attended Penn, their connection to the other schools and the NCAA is “far too tenuous to be considered an employment relationship.” Next, the Court turned to the merits with regard to the district court’s dismissal of the suit against Penn for failure to state a claim. The Plaintiffs had argued that student-athletes are similar to interns and, thus, the Second Circuit’s recent internship case law should apply. Ultimately, the Court agreed with the district court’s determination that the “factors used in the trainee and private-sector intern context fail to capture the nature of the relationship between the Plaintiffs, as student athletes, and Penn” and rejected the internship analogy.

The Court also discussed the “revered tradition of amateurism in college sports,” and held that the multifactor test proposed by the Plaintiffs does not take into account this tradition “or the reality of the student-athlete experience.” Further, the Court analyzed the Department of Labor’s position, as stated in its Field Operations Handbook, that student-athletes are not employees under the FLSA. Ultimately, the Court found the FOH’s interpretation of the student-athlete experience to be persuasive and stated, “[w]e therefore hold, as a matter of law, that student athletes are not employees and are not entitled to a minimum wage under the FLSA.”

Judge David Hamilton joined in the Court’s opinion, but also wrote a separate concurrence to “add a note of caution” that attempted to narrow the scope of the ruling, as the Plaintiffs did not receive athletic scholarships and participated in a non-revenue sport. The concurrence suggested that the Court’s reasoning does not necessarily extend to students who receive athletic scholarships to participate in so-called revenue sports as, in those sports, “economic reality and the tradition of amateurism may not point in the same direction.”

Judge Hamilton’s potential “economic reality” argument for collegiate athletes playing revenue-generating sports will be addressed in a similar lawsuit filed by former University of Southern California football player Lamar Dawson against the University, the Pac-12 conference and the NCAA. In that action, Dawson alleges that he and his fellow football players were employees who did not receive minimum wage and overtime as required under the FLSA and California wage and hour laws. While Dawson’s legal theory in his class action suit is essentially the same as the theory asserted by the Plaintiffs and just rejected by the Seventh Circuit in the Penn suit, the lawyers who brought that case will try to urge the court to disregard the Seventh Circuit’s ruling because their case involves only scholarship athletes who participated in revenue-generating sports.

Whether the federal district court in Northern California currently considering the NCAA’s recently filed motion to dismiss the case will find this distinction to be relevant and potentially significant, as Judge Hamilton suggested in his concurring opinion or will elect to follow the reasoning of the Seventh Circuit’s majority opinion, will be followed closely in the months ahead.

The Seventh Circuit’s ruling has implications beyond athletics. The Court’s decision provides greater clarity regarding the non-employee status of participants in a wide range of extracurricular activities at the nation’s colleges and universities. By endorsing the Department of Labor’s guidance specifying that participation in extracurricular activities generally does not result in an employment relationship, schools can be more confident in the status of their participants in a wide range of activities from the student-newspaper to the drama club to the orchestra. Indeed, those other types of activities, drew questions and comparisons from the Court during oral argument, with one judge pressing the Plaintiffs’ counsel on why his theory would not apply equally to those other extracurricular activities. The decision reflects a broad endorsement of the traditional understanding that participation in the full range of extracurricular activities does not, in and of itself, create an employment relationship subject to the broad range of associated obligations.