By Vincent T. Norwillo and Robert Clayton, of Gonzalez Saggio & Harlan LLP
In late October, the National Collegiate Athletic Association (“NCAA”) and its Division I member schools, were sued by another former student athlete, this time in a collective action for alleged violations of the Fair Labor Standards Act (“FLSA”). Once again, the crux of this latest dispute is whether student athletes are “employees.” This time, the lawsuit alleges that as “employees” the student-athletes’ time attending workouts, practices, and games should be regarded as “hours worked” entitling them to compensation at no less than the federal minimum wage rate.
In the Complaint, lead Plaintiff Samantha Sackos, a former collegiate soccer player, alleges that she was “employed” by the University of Houston in her capacity as a student-athlete. She further claims that the NCAA and its Division I member schools (all of which have been named as co-defendants in the suit) have conspired to violate the FLSA by not treating her and other student-athletes as their employees. Sackos purports to bring the suit on behalf of all student-athletes in the NCAA’s Division I over the last three years — the statute of limitations for willful violations under the FLSA.
The FLSA states that “every employer shall pay to each of his employees” at least the minimum wage for all time the employees are “suffered or permitted to work.” Work is defined as “physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business.” See Tennessee Coal, Iron & R.R. Co. v. Muscoda Local No. 123, 321 U.S. 590, 598 (1944) (emphasis added). The ultimate question then is whether the training, practice and game participation by student-athletes are activities engaged primarily for the benefit of their schools, rather than themselves.
Regulations issued by the United States Department of Labor (“DOL”) distinguish between the activities performed by students that are regarded as compensable “hours worked” under the FLSA and the activities of students in programs “conducted primarily for the benefit of the participants as a part of the educational opportunities provided to the students” by their schools. The former activities are conducted primarily for the benefit of the school and thus entitle the student employees to minimum wage and federal overtime protections, while the latter activities are viewed as primarily for the benefit of the student, and thus are not compensable under the FLSA.
The DOL regulations do not regard students engaged in activities such as “dramatics, student publications, glee clubs, bands, choirs, debating teams, radio stations, intramural and interscholastic athletics and other similar endeavors” as “employees” because these activities are considered part of their overall academic curriculum (i.e., primarily benefit the students). Likewise, the DOL regulations exclude from the definition of “employee” students serving as “residence hall assistants or dormitory counselors, who are participants in a bona fide educational program, and who receive remuneration in the form of reduced room or board charges . . . tuition credits, and the like.”
In contrast, the DOL regulations extend “employee” status to students whose duties “are not part of an overall educational program and who receive some compensation,” including “students who work at food service counters or sell programs or usher at athletic events.” The distinction is based upon the premise that the foregoing activities are properly characterized as performed primarily for the benefit of the schools. Therefore, student time spent in the pursuit of these activities is regarded as compensable hours worked under the FLSA.
Sackos’ Complaint compares the training, practice and competition activities of student athletes to that of work study participants who qualify as employees under the FLSA. It alleges that student-athletes dedicate long, rigorous hours to their sport, under strict supervision by full-time staff of NCAA Division I member schools. The Complaint further alleges that all of these activities — not just those affecting the few sports, primarily men’s football and basketball programs that actually generate profit – confer benefits upon the NCAA member schools. Accordingly, the Complaint asserts, NCAA student athletes are entitled to the federal minimum wage just like their work study participant colleagues.
In the Complaint, Sackos’ attorneys stress at length that in general, Division I athletes are dedicated to their sport and work hard within a regimented system designed to improve individual performance and win games. However, the Complaint does not substantively address why the Court should find that these student-athletes — who are free to participate solely in intramural programs or abandon their sport entirely upon graduating high school — do not participate in these training, practice, and competition activities for their own benefit, but rather do so “necessarily and primarily for the benefit of the school.” On this point, the NCAA continues to maintain that even varsity athletics are extracurricular activities, which are part of the students’ overall educational programs, like drama, band and school clubs. Moreover, as referenced above, the “benefit to the school” argument is substantially undercut by the fact that the vast majority of collegiate sports teams do not, and are not intended to, generate positive cash flow. As such, the NCAA contends that the participants in these activities are not FLSA employees.
Notably, unlike the controversial decision issued earlier this year by a Regional Director of the National Labor Relations Board (“NLRB”), which held that Northwestern University football players receiving scholarships are “employees” and may unionize, the Sackos Complaint alleges that scholarship and non-scholarship athletes alike qualify as FLSA employees. Indeed, the Complaint asserts that receipt of a scholarship has no impact on the “employee” analysis because scholarship funds are not treated as taxable income and can be applied only to tuition, fees, and other costs of attendance.
While the argument that scholarship money is irrelevant may help expand the scope of the putative class action to include additional plaintiffs, it appears disingenuous. The Complaint cites a 2010 NCAA report which disclosed that female student-athletes participated and committed to their sports (excluding basketball) an average of 33.3 hours per week. In her Complaint, Sackos details that work study participants on college campuses receive average hourly wages of $9.03 per hour for serving as ushers, lobby attendants, and ticket takers at collegiate sporting events, “But student athletes whose performance creates such student jobs in the athletic department are paid nothing.” To redress this purported unfairness, Sackos claims student-athletes should be compensated at least at “the federal minimum-wage of $7.25 an hour.”
The Complaint does not mention that as a scholarship athlete, Sackos, a resident of New Mexico, made out much better than the student ushers and ticket takers. Specifically, according to the University of Houston website, the total estimated cost of out-of-state tuition, room and board, and fees for the 2012-2013 academic year (a year for which the Complaint seeks damages) was approximately $26,000. http://www.uh.edu/financial/net-price-calculator/index.php. Assuming Sackos committed 33.3 hours per week to soccer activities that year (including the offseason as well as all weeks that classes were not in session) she would have totaled 1731.60 hours in exchange for the $26,000 value of her financial scholarship, or $15.01/hour. While Sackos may not be advocating a 50% reduction in her non-taxable scholarship remuneration in exchange for taxable wages, she should be careful what she asks for. If forced to regard student-athletes as “employees”, financially strapped colleges and universities could resort to limiting scholarship funds to offset the new wage obligations and attendant FICA, FUTA, SUTA and workers compensation costs that would be incurred should the attempts to erode the amateurism of collegiate athletics prove successful.
The Sackos case will take time to work its way through the judicial process, including any inevitable appeals. In the interim, copycat lawsuits are inevitable. Some changes may be warranted, even overdue. In fact, many commentators applaud the recent federal court ruling in favor of former UCLA player Ed O’Bannon, who sued the NCAA over the use of his likeness and image, resulting in NCAA schools having the option of paying athletes up to $5,000 per year for the use of their images, starting in 2016. However, litigation-induced changes to established precedent regarding who is an “employee” under the FLSA may not be the most efficient catalyst for advancing this cause.
Vincent T. Norwillo is Partner at Gonzalez Saggio & Harlan LLP. He represents employers in a complete range of traditional labor as well as employment matters and is a frequent lecturer on these topics.
Robert Clayton has a diverse management, traditional labor, and university sports compliance practice with a focus on Title IX and NCAA enforcement cases.
