3 Establishing an Employment Relationship
3.1 The Legal Significance of Employee Status
Lemmerman v. A.T. Williams Oil Co., 350 S.E.2d 83 (N.C. 1986)
Frye, Justice.
The sole issue on this appeal is whether the Court of Appeals correctly affirmed the trial court’s conclusion that plaintiff Shane Tucker was an employee of the defendant, A.T. Williams Oil Company. For the reasons set forth in this opinion, we conclude that the Court of Appeals was correct in so affirming.
On 1 December 1982, plaintiff Shane Tucker, then aged eight, slipped on a sidewalk on defendant’s property and fell, cutting his hand. He and his mother, plaintiff Sylvia Tucker, filed this action against defendant on 26 June 1984. In their complaint, plaintiffs alleged in essence that Shane Tucker’s injuries were proximately caused by defendant’s negligence. They sought damages for medical expenses, lost wages, and pain and suffering. R. Douglas Lemmerman was appointed guardian ad litem for the minor plaintiff Shane.
Defendant filed an answer and raised as one of its defenses lack of subject matter jurisdiction. It asserted that the child Shane was its employee as defined by the Workers’ Compensation Act and that the Industrial Commission accordingly had exclusive jurisdiction over plaintiffs’ claim. Following preliminary discovery, defendant moved to dismiss for lack of subject matter jurisdiction. Upon the parties’ stipulation that the trial judge find jurisdictional facts, Judge DeRamus made findings and concluded that Shane was an employee injured within the course and scope of his employment with defendant as defined in the Workers’ Compensation Act. The judge therefore dismissed plaintiffs’ action for lack of subject matter jurisdiction. Plaintiffs appealed to the Court of Appeals, which affirmed with a dissent by Webb, J., on the question of whether the evidence supported the conclusion that plaintiff Shane was an employee of defendant.
“By statute the Superior Court is divested of original jurisdiction of all actions which come within the provisions of the Workmen’s Compensation Act.” The Act provides that its remedies shall be an employee’s only remedies against his or her employer for claims covered by the Act. Remedies available at common law are specifically excluded. Therefore, the question of whether plaintiff Shane Tucker was defendant’s employee as defined by the Act is clearly jurisdictional. This issue is not affected by the fact that the minor may have been illegally employed because the Act specifically includes within its provisions illegally employed minors.
The trial judge made the following findings of facts pertinent to this issue:
3. Prior to the incident referred to in the complaint, Ken Schneiderman was employed as the manager of the defendant’s place of business on Wendover Avenue in Greensboro, North Carolina. As manager, Schneiderman had the authority to hire and fire such employees as he deemed necessary to assist him in the operation of the business, and all wages paid to any of the employees which he hired were deducted from the commission which he received from the defendant.
4. Ken Schneiderman employed the minor plaintiff, and paid him varying amounts to perform duties at the defendant’s service station—convenience store, including putting up cigarettes, picking up trash, stocking bottles in the cooler, and other odd jobs from time to time while the minor’s mother, Sylvia A. Tucker, worked as a cashier for the store.
EXCEPTION NO. 1
5. At the time the minor plaintiff was injured in the accident referred to in the complaint, the minor plaintiff had been performing chores of stocking cigarettes, picking up trash, and other work which was in the course of the trade or business of defendant A.T. Williams Oil Company.
EXCEPTION NO. 2
6. At the time of the incident described in the complaint, the minor plaintiff Jonathan Shane Tucker was a casual employee of defendant A.T. Williams Oil Company, and was performing duties within the course of the trade and business of A.T. Williams Oil Company in the operation of the gas station and convenience store on Wendover Avenue in Greensboro, North Carolina.
EXCEPTION NO. 3
7. Defendant A.T. Williams Oil Company employs more than four persons, and is subject to the provisions of the North Carolina Workers Compensation Act.
Our review of the record shows that there is ample evidence to support each disputed finding.
Plaintiff Shane testified at his deposition that he routinely accompanied his mother to her job as part-time cashier at defendant’s store and service station, a Wilco. According to his description, he ordinarily did his homework, ate a snack, and performed odd jobs about the station. These jobs consisted of picking up trash in the store, taking out the garbage, and stocking cigarettes and drinks. He had been doing these jobs for almost a month at the time of the accident. The child said that the jobs generally took him between half an hour and one hour to complete. In return, the store manager, Ken Schneiderman, would pay him a dollar, occasionally more depending on the amount of work he had done. A fair reading of the child’s testimony discloses that he clearly expected to be paid for his efforts.
The child also testified that on the day of the accident he had nearly finished his tasks and was on his way to ask Schneiderman if there was anything else Schneiderman wanted him to do when he slipped and fell. He said at one point that he believed that Schneiderman did later give him his dollar, although he was not clear on this point.
The child’s mother, Sylvia Tucker, corroborated Shane’s account. She testified that at the time of the accident, she was working from 4 p.m. to 7 p.m. as a part-time cashier at Wilco. Schneiderman had Shane “put up stock, straighten the shelves up and pick up trash inside the building” and occasionally outside as well. Mrs. Tucker testified that her understanding was that the child was going to be paid for what he did. Although she told Schneiderman originally that Shane would work without being paid, he rejected this offer and told both her and the child that he would pay Shane for his work. She believed that Schneiderman paid Shane a dollar a day.
Schneiderman signed an affidavit, introduced into evidence, stating that he had hired Shane Tucker for a few dollars to put up cigarettes but with no set hours or wages.
Also before the judge was plaintiffs’ verified complaint, which describes plaintiff Shane as defendant’s employee and says that he was “casually hired and paid $1.00 a day by the manager of defendant’s station, Ken Schneiderman, to put up cigarettes and to do other odd jobs on defendant’s premises whenever assistance was needed.”
We believe that this evidence amply supports the trial judge’s findings that Schneiderman, who had the authority to hire and fire employees, hired the minor plaintiff to do odd jobs as needed in defendant’s service station/convenience store business. Specifically, these tasks included stocking cigarettes and drinks, and picking up trash. At the time of the accident, Shane was engaged in doing these tasks.
We also agree with the trial judge’s conclusion that plaintiff Shane was defendant’s employee at the time of the accident. Once the underlying facts are established, the nature of the relationship is a question of law and fully reviewable on appeal. This Court has previously defined an employee as follows:
An employee is one who works for another for wages or salary, and the right to demand pay for his services from his employer would seem to be essential to his right to receive compensation under the Workmen’s Compensation Act.
The statutory definition (N.C.G.S. § 97-2(2)) adds nothing to the common law definition. The trial judge found that Schneiderman had hired the child, that he had authority to hire and fire employees for defendant, and that the jobs Shane did were in the course of defendant’s business and that he was engaged in doing them when he fell. We believe these facts, taken together, will support the conclusion that the plaintiff Shane was an employee of defendant at the time of the accident.
Plaintiffs, however, contend that the evidence does not support the facts and the facts do not support the conclusion.
First, they argue that none of the parties considered Shane to be defendant’s employee. They note that Shane at one point said that his employment was “not exactly” a job. Furthermore, in his deposition testimony, Schneiderman explicitly denied hiring Shane, retracting the statement in his affidavit.
We do not find plaintiffs’ argument on this point persuasive.
Initially, we note that the parties’ own conclusion about their legal relationship is not binding on the court. Moreover, immediately after Shane said that his employment was “not exactly” a job, he described the relationship as helping in the store and getting paid for it. He repeated this description in a later portion of his testimony.
Nor do we believe that Schneiderman’s denial of hiring Shane was binding upon the trial judge. Schneiderman essentially gave inconsistent testimony. Initially, in his affidavit, he said that he had hired Shane. Later, in his deposition, he denied hiring him. His deposition testimony contradicted that of Shane and Mrs. Tucker on some points—most notably on the frequency of the child’s presence at the Wilco. The trial judge resolved these contradictions and declined to adopt Schneiderman’s version. His findings are not vitiated merely by the presence of conflicting evidence. We also note on this issue that Schneiderman repeatedly said that he could not remember details and was evasive on important points. Furthermore, at one point in his deposition, he said, “He [Shane] wasn’t an employee. Did you ever hear of child labor? You know, I’m smart enough to know that.”1
1 (n.4 in opinion) Schneiderman testified that he hired his own children to work at the Wilco and that defendant promoted this arrangement because “you could work your kids for less money.”
Moreover, we note that Mrs. Tucker was unsure of her own status. She testified that she did not know whether she herself was a “real employee.”
Second, plaintiffs argue that Shane could not have been an employee because Schneiderman did not comply with certain procedural formalities. He did not take an application from Shane or report him on the list of employees he turned into his supervisor for withholding purposes. His normal practice was to pay employees from the cash register;2 he paid Shane from his pocket.
2 (n.5 in opinion) He paid their net pay out of the register and submitted their names and pay records to his supervisor for payment of payroll taxes.
We do not believe that any of these factors is dispositive. Our Court of Appeals has held that failure to follow technical procedures such as withholding F.I.C.A. and income taxes is not controlling on the issue of whether an employer-employee relationship exists. We also do not think that Schneiderman’s method of paying Shane was as significant under the facts of this case as it might otherwise be, because all wages came out of Schneiderman’s commission. He therefore paid all of the employees at Wilco out of his own money.
Third, plaintiffs contend that Shane was not an employee but instead performed gratuitous services. In addition to Schneiderman’s testimony denying that he hired Shane, rejected by the trial judge, plaintiffs cite Mrs. Tucker’s original statement to Schneiderman that he did not have to pay the child. However, this evidence in fact supports the opposite conclusion, that Shane was an employee. Schneiderman was offered the chance to avail himself of Shane’s gratuitous services, but he specifically rejected it and said that he wanted to pay the child for his work. The evidence shows, and the judge found, that he did so.
Finally, plaintiffs contend that if Shane was an employee, he was Schneiderman’s personal employee. We disagree. Schneiderman had the authority to hire employees for defendant, and the evidence shows and the trial judge found that the tasks the child performed were in the course of defendant’s business, not Schneiderman’s personal affairs. We find the facts of this case similar to those of Michaux v. Bottling Co., 205 N.C. 786 (1934). In Michaux, defendant company gave its truck drivers permission to hire and fire helpers as needed to assist them in the distribution of defendant’s products. The drivers paid the helpers out of their own wages or commissions. Plaintiff’s intestate, a minor, was such a helper who was killed while assisting in a delivery. This Court, noting that the deceased minor’s services had been “necessary to the proper and efficient distribution” of defendant’s products, essentially found that the deceased was defendant’s employee at the time of his death.
For all of the foregoing reasons, the decision of the Court of Appeals is affirmed.
Martin, Justice, dissenting.
I must respectfully dissent. First, the majority opinion allows the defendant corporation to profit from its own illegal act. Here, defendant corporation claims that it hired plaintiff Shane, an eight-year-old child, as an employee. Defendant’s act would be a direct violation of N.C.G.S. § 95-25.5(d), punishable by imposition of civil penalties. This statute establishes the public policy of this state that it is unlawful for employers to employ children thirteen years of age or less.
The public policy of North Carolina also will not permit a wrongdoer to take advantage of or enrich itself as a result of its own wrong. “It is a basic principle of law and equity that no man shall be permitted to take advantage of his own wrong.” Further citation of authority is not necessary for this basic principle of law. The principle is especially applicable where, as here, the power of the parties is so disparate—an eight-year-old child versus a large corporation! The inequity of defendant’s plea in bar is thus magnified by the relationship of the parties.
Defendant corporation seeks to defeat the infant plaintiff’s cause for personal injuries resulting from the negligence of defendant by using as a shield its own unlawful act of employing the child. This case is not like McNair v. Ward, 240 N.C. 330 (1954), where plaintiff’s own evidence established that he was an employee of defendant. In McNair the defendant did not present any evidence. To the contrary, here defendant affirmatively attempted to prove that plaintiff child was its employee. Defendant’s unlawful employment of the child was one of the direct causes of his injuries, and defendant now seeks to use that unlawful employment to avoid responsibility for those injuries. This will not do, and this Court should not in all good conscience permit defendant to take advantage of its own wrongful act.
Even if this Court allows defendant to rely upon an inequitable defense, the evidence fails, in at least one respect, to support a finding that plaintiff child was defendant’s employee. We must not overlook that defendant has the burden of proof to sustain its plea in bar. As the majority states, the right to demand payment from the employer, A.T. Williams Oil Company, is an essential element of the employment status. Defendant has failed to carry its burden as to this element.
The evidence in many respects is in conflict. However, defendant has failed to produce a shred of evidence that the eight-year-old child had a right to demand payment for his services from A.T. Williams Oil Company. Also, there is no evidence that plaintiff child could have made such a demand from Schneiderman, albeit defendant argues that plaintiff was its employee and not Schneiderman’s. All of the testimony showed that the infrequent payment of amounts ranging from twenty-five cents to a dollar came out of Schneiderman’s own money, out of his own pocket. The payments were not made from the cash register, as were payments to defendant’s employees. Thus, the record is simply devoid of any evidence that the child could have demanded payment from the corporate defendant for services he rendered to Schneiderman.
On the other hand, the record is replete with evidence that plaintiff child was not an employee of defendant’s. Shane was not a listed employee for workers’ compensation purposes; his name was not reported to the defendant corporation for tax withholding purposes; Schneiderman testified explicitly that Shane was not an employee.
The majority relies upon Michaux v. Bottling Co.. The status of plaintiff as an employee was not at issue in Michaux. The Industrial Commission made no finding with respect to whether plaintiff was an employee of defendant’s, nor did this Court in its opinion. The issue decided in Michaux was whether the accident arose out of and in the course of employment, not whether plaintiff was an employee.
I submit that the more analogous case is Lucas v. Stores, 289 N.C. 212 (1976). Lucas had been discharged as an employee of defendant’s. His wife also worked for defendant on a double shift from 7:00 a.m. to 11:00 p.m. After Lucas was discharged, he would go with Mrs. Lucas to work and assist her in managing the convenience store. Defendant’s district manager knew that Lucas was at the store and told Mrs. Lucas to let Lucas run the cash register “as long as the ABC law didn’t catch him.” He also worked on the books and made bank deposits. Mrs. Lucas paid Lucas $2.00 an hour for his work out of her own paycheck. During the course of a robbery of the store, Lucas was shot and killed, and his widow brought a claim for compensation under the Act. The Industrial Commission found that he was an employee at the time in question. The Court of Appeals reversed the Commission, and this Court affirmed. The Court stated that the acts of Lucas in going with his wife to the store and helping out in the work were entirely consistent with the desire of an unemployed husband to be with his wife at her work and to assist her in the performance of her duties, especially where the work location was likely to attract armed robbers at night. This Court found no contract of employment existed.
Likewise, here defendant desired to employ Sylvia Tucker, plaintiff child’s mother, to work in the convenience store. She could not do so unless defendant agreed to let her eight-year-old son come to the store after school and remain until she completed her work. Defendant agreed to this plan. While on the premises the child from time to time performed menial tasks for Schneiderman, who sometimes would give the boy payments ranging from twenty-five cents to a dollar for his work. This is entirely consistent with the problem of a working mother who needs employment but must also supervise her young child. Shane was on the premises not as an employee of the corporate defendant, but because it was necessary in order for his mother to work. Such are the demands of our modern society. As in Lucas, plaintiff child was not an employee of defendant’s.
Assuming arguendo that defendant may rely upon its plea in bar and that there is sufficient evidence to support a finding that Shane was an employee of defendant’s, the trial court erred in sustaining defendant’s plea in bar. If it is true, as defendant insists, that there was a contract of employment between Shane and the defendant, it was a contract with an infant and voidable at the option of the infant, Shane. Upon disaffirmance of a contract by an infant, the contract is void ab initio. The status of the parties is as if there had never been a contract between them.
By bringing this common law action against defendant, the infant plaintiff has disavowed the former contract between the parties and relinquished any rights he may have had under the Workers’ Compensation Act by virtue of the contract. By disavowing the contract, he has elected to pursue his common law remedy. That Shane avoided the contract by instituting the action is of no moment; it is just as effective as writing a letter of disaffirmance to defendant prior to commencing the action. The lawsuit and the evidence and contentions by plaintiff Shane clearly notified defendant that the contract was avoided. Upon plaintiff infant’s disaffirmance of the contract, it was void ab initio and defendant could not rely upon a nonexisting contract to defeat plaintiff infant’s action.
For the above reasons I vote to allow the infant plaintiff to pursue his common law action against defendant.
3.2 Distinguishing Employees from Contractors, Interns, & Students
Razak v. Uber Technologies, Inc., 951 F.3d 137 (3d Cir. 2020)
This case is an appeal from a grant of summary judgment on the question of whether drivers for UberBLACK are employees or independent contractors within the meaning of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201-219, and similar Pennsylvania state laws. For the following reasons, we will vacate the District Court’s grant of summary judgment and remand for further proceedings.
I. Facts
Plaintiffs Ali Razak, Kenan Sabani, and Khaldoun Cherdoud are Pennsylvania drivers who utilize Defendant Uber Technologies’ ride-sharing mobile phone application (“Driver App”). Plaintiffs bring this action on behalf of a putative class of all persons who provide limousine services, now known as UberBLACK, through Defendant’s Driver App in Philadelphia, Pennsylvania.Plaintiffs bring individual and representative claims against Uber Technologies, Inc. and its wholly-owned subsidiary, Gegen, LLC, (“Gegen,” and collectively, “Uber”) for violations of the federal minimum wage and overtime requirements under the FLSA, the Pennsylvania Minimum Wage Act (“PMWA”), and the Pennsylvania Wage Payment and Collection Law (“WPCL”).
Plaintiffs Razak, Sabani, and Cherdoud each own and operate independent transportation companies (“ITCs”) Luxe Limousine Services, Inc. (“Luxe”), Freemo Limo, LLC (“Freemo”), and Milano Limo, Inc. (“Milano”), respectively. In order for drivers to contract to drive for Uber-BLACK, they must form ITCs. Each ITC, in turn, enters into a Technology Services Agreement with Uber. The Technology Services Agreement includes a Software License and Online Services Agreement that allows UberBLACK drivers to utilize the technology service Uber provides to generate leads, as well as outlines the relationship between ITCs and Uber riders, ITCs and Uber, and ITCs and their drivers. Additionally, it describes driver requirements, vehicle requirements, financial terms, and contains an arbitration clause for dispute resolution between ITCs and Uber.
Uber also requires that drivers sign a Driver Addendum, which is a legal agreement between the ITC and the for-hire driver, before a driver can utilize the Driver App. The Driver Addendum allows a driver to receive “lead generation and related services” through Uber’s Driver App. App. 409. The Addendum also outlines driver requirements (such as maintaining a valid driver’s license), insurance requirements, dispute resolution, and the “Driver’s Relationship with Uber,” in which Uber uses clear language to attempt to establish the parameters of the Driver’s working relationship with Uber.3 For UberBLACK, Uber holds a certificate of public convenience from, and is licensed by, the Philadelphia Parking Authority (“PPA”) to operate a limousine company. Transportation companies and individual transportation providers who provide Black car services in Philadelphia are required to hold a PPA certificate of public convenience or associate with an entity that holds such a certificate. Some Uber-BLACK transportation providers operate under the PPA certificate held by Uber. Luxe, an ITC owned by Razak, operates under its own PPA certificate. Additionally, approximately 75% of UberBLACK drivers use Uber’s automobile insurance.
3 (n.6 in opinion) Boilerplate language in the Driver Addendum to the Technology Services Agreement sets forth, among other things, that ITCs “acknowledge and agree that Uber is a technology services provider” that “does not provide transportation services, function as a transportation carrier, nor operates as a broker for transportation of passengers.” App. 13. “ITCs shall provide all necessary equipment; Uber does not direct or control ITCs or their drivers generally or in their performance.” “ITCs and their drivers retain the sole right to determine when, where, and for how long each of them will utilize the Driver App or the Uber Service, and ITCs agree to pay Uber a service fee on a per transportation services transaction basis.” ITCs must also “maintain during the term of this Agreement workers’ compensation insurance for itself and any of its subcontractors.” The Driver Addendum also sets forth and requires that the relationship between the ITCs and their drivers is “contractual or an employment arrangement.”
Plaintiffs claim that they are employees, and sue Uber for violations of minimum wage and overtime requirements under federal and state laws. Under the FLSA, employers must pay employees the applicable minimum wage for each hour worked, and, if an employee works more than forty hours in a given week, the employer must pay one and a half (1½) times the regular rate for each hour subsequently worked. Plaintiffs contend that time spent online on the Uber Driver App qualifies as compensable time under the FLSA. Principal among Plaintiffs’ arguments is that Uber controls the access and use of the Driver App.
To access Uber services, drivers open the Driver App on a mobile device, log in, and tap a button to be online. Once online, a driver can choose to accept a trip, but if the driver does not accept the trip within fifteen seconds of the trip request, it is deemed rejected by the driver. The Driver App will automatically route the trip request to the next closest driver, and if no other driver accepts the trip, the trip request goes unfulfilled, as Uber cannot require any driver to accept a trip. Uber-BLACK drivers are free to reject trips for any reason, aside from unlawful discrimination. However, if a driver ignores three trip requests in a row, the Uber Driver App will automatically move the driver from online to offline, such that he cannot accept additional trip requests.
Uber sets the financial terms of all UberBLACK fares, and riders pay by having their credit cards linked to the App. After a ride is completed, Uber charges the rider’s credit card for the fare. Uber then deposits the money into the transportation company’s Uber account with a commission taken out by Uber. The transportation company then distributes the payment to the driver who provided the ride.
Uber also has regulations under which it logs off drivers for a period of six hours if the driver reaches Uber’s twelve-hour driving limit. Trip requests are generally sent to the driver closest in proximity to the requesting rider, and drivers have no way of knowing from the Uber Driver App what the demand for drivers is at any given time (and thus, how much their earnings will be based on that demand). Drivers also do not know where a rider’s final destination is prior to accepting the ride.
There is one exception affecting a driver’s ability to accept trip requests from anywhere in Philadelphia. If a driver is at one of Philadelphia’s major transportation hubs: 30th Street Train Station or Philadelphia International Airport, he must utilize a “queue” system that routes trips to the next driver in the queue, and the driver can only enter, or advance in, the queue while physically located inside a designated zone.
On appeal, Uber reasserts that Plaintiffs are not employees as a matter of law, and therefore, their putative class action should be subject to summary judgment. To support this contention, Uber portrays UberBLACK drivers as entrepreneurs who utilize Uber as a software platform to acquire trip requests. Uber asserts that Plaintiffs are not restricted from working for other companies, pay their own expenses, and on some occasions, engage workers for their own ITCs. They can use UberBLACK as little or as much as they want or choose not to work for Uber-BLACK and instead work for competitors such as Blacklane and Lyft.
Uber asserts that it places no restrictions on drivers’ ability to engage in personal activities while online. Plaintiffs in this matter engaged in a range of personal activities, including accepting rides from private clients, accepting rides from other rideshare programs, sleeping, running personal errands, smoking cigarettes, taking personal phone calls, rejecting Uber-BLACK trips because they were tired, and conducting personal business.
Alternatively, Plaintiffs claim that they are “employees” under the FLSA because they are controlled by Uber when they are online and perform an integral role for Uber’s business. The District Court agreed with Uber’s position, and granted Uber’s Motion for Summary Judgment on the question of whether Plaintiffs qualify as “employees” of Uber under the FLSA and PMWA. Plaintiffs now appeal from the summary judgment order.
III. Applicable Law: Donovan v. DialAmerica Marketing, Inc.
The minimum wage and overtime wage provisions at issue all require that Plaintiffs prove that they are “employees.” Although Plaintiffs’ case includes claims under the PMWA, Pennsylvania state courts have looked to federal law regarding the FLSA for guidance in applying the PMWA. The FLSA defines “employer” as “including any person acting directly or indirectly in the interest of an employer in relation to an employee,” and “employee” as “any individual employed by an employer.” 29 U.S.C. §§ 203(d), (e)(1). Given the circularity of the definitions, federal courts, with guidance from the Department of Labor, have established standards to determine how to define employee and employer.
The Third Circuit utilizes the test out-lined in Donovan v. DialAmerica Marketing, Inc., 757 F.2d 1376 (3d Cir. 1985), to determine employee status under the FLSA. This seminal case acknowledges that when Congress promulgated the FLSA, it intended it to have the “broadest definition of ‘employee.’” In DialAmerica, we used six factors—and indeed adopted the Ninth Circuit’s test—to determine whether a worker is an employee under the FLSA:
1) the degree of the alleged employer’s right to control the manner in which the work is to be performed; 2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill; 3) the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers; 4) whether the service rendered required a special skill; 5) the degree of permanence of the working relationship; and 6) whether the service rendered is an integral part of the alleged employer’s business.
Our decision in DialAmerica is consistent with the Supreme Court’s general guidance in Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947). In Rutherford, the Supreme Court first determined “employee” status under the FLSA. And in DialAmerica, we agreed with Sureway Cleaners that “neither the presence nor absence of any particular factor is dispositive.” Therefore, “courts should examine the circumstances of the whole activity,” determining whether, “as a matter of economic reality, the individuals are dependent upon the business to which they render service.” The burden lies with Plaintiffs to prove that they are employees.
IV. The District Court Opinion
The District Court granted summary judgment to Uber ruling that drivers for UberBLACK are independent contractors within the meaning of the FLSA and similar Pennsylvania laws. The District Court, in applying the six factors, relied heavily on the analysis in DialAmerica and other cases that had examined the use of internet or app-based programs for acquiring work.
The District Court applied all six factors in DialAmerica, and on balance, found that Plaintiffs were independent contractors. There were four factors the Court applied that were interpreted in favor of independent contractor status. The District Court analyzed the employer’s right to control the manner in which the work is to be performed and noted that the written agreements entered into by the Plaintiffs and their transportation companies, in addition to the ability of Plaintiffs to hire sub-contractors and work for competing companies, point to a lack of control by Uber. Next, the District Court analyzed the alleged employees’ opportunity for profit or loss and found that this also supports independent contractor status. The District Court found that Plaintiffs can work as much or as little as they would like and choose not to accept trip requests where the opportunity for profit was greater to work for themselves or competitors. Because the “profit-loss” factor does not require that Plaintiffs be solely in control of their profits or losses, Plaintiffs were unsuccessful in convincing the District Court that they were employees despite the fact that Uber retains the right to determine how much to charge passengers and which driver receives which trip request. UberBLACK drivers must purchase or lease their own expensive vehicle to drive for UberBLACK, demonstrating independent status as well. And the “relationship permanence” can be as long or non-existent as the driver desires, again illustrating the impermanent working relationships often found with independent contractors.
The District Court determined that only two factors militated in Plaintiffs’ favor. As limousine drivers, the service they render does not really require a special skill. Second, the limousine driving service rendered to Uber by UberBLACK drivers is an essential part of Uber’s business as a transportation company. The District Court held that the movant demonstrated that there was no genuine dispute as to any material fact, and that a majority of the DialAmerica factors leaned against employment status. The District Court granted Uber’s motion for summary judgment and determined that Plaintiffs were independent contractors.
VI. Analysis
A. Genuine Disputes of Material Fact Exist
For summary judgment to have been appropriate, there must have been no genuine disputes as to any material facts on the record, entitling Uber to judgment as a matter of law. As such, if there is a genuine dispute of material fact, the question of which DialAmerica factors favor employee status is a question of fact that should go to a fact-finder. Here, the ultimate question of law is whether Plaintiffs are employees or independent contractors, which is for a judge to decide. But, if a court finds that there are any issues of material fact that remain in genuine dispute, it must resolve those disputes prior to granting summary judgment. In DialAmerica, the parties stipulated to some facts and reserved the right to present testimony on any remaining disputed issues. Then, the district court held an evidentiary hearing on the remaining disputed issues of fact:
(1) the extent to which home researchers and distributors were dependent on DialAmerica;
(2) the extent to which they had an opportunity for profit or loss;
(3) the extent to which they exercised initiative, business judgment, or foresight in their activities;
(4) the extent of any financial investment in conjunction with their work for DialAmerica; and
(5) the extent to which the services provided by the home researchers and distributors were an integral part of DialAmerica’s business.
These factual issues refer directly to the factors which determine whether someone is an employee or independent contractor. The district court resolved these disputes and granted DialAmerica’s motion for summary judgment. We reviewed the district court’s decision in DialAmerica and determined that summary judgment was a mischaracterization, but the proper outcome, as all the factual disputes were resolved prior to adjudication on the merits.
DialAmerica teaches that where there are genuine questions of material fact that need resolution, these questions must go to a fact-finder. This case presents such genuine disputes of material facts. Uber submitted a Statement of Undisputed Material Facts to which Plaintiffs responded with almost a hundred pages of disputes. For example, disputed facts include whether Plaintiffs are operating within Uber’s system and under Uber’s rules, and whether Plaintiffs or their corporations contracted directly with Uber. Although the District Court states that its decision derived from undisputed facts, the disputes presented by the parties go to the core of the DialAmerica factors and present a genuine dispute of material facts. Accordingly, we will remand to the District Court as summary judgment was inappropriate.
B. The “Right to Control” Factor
To illustrate that there are genuine disputes remaining, we look to the first DialAmerica factor: “the degree of the alleged employer’s right to control the manner in which the work is to be performed.” While not dispositive, this factor is highly relevant to the FLSA analysis. The District Court in this case held that the first factor supported a finding of independent contractor status. Actual control of the manner of work is not essential; rather, it is the right to control which is determinative.
The parties contest whether Uber exercises control over drivers. While Uber categorizes drivers as using the Uber App to “connect with riders using the Uber-BLACK product,” which may imply that drivers independently contract with riders through the platform, Plaintiffs contend that this is not so. Uber also contends that drivers can drive for other services while driving for Uber, however Plaintiffs contend that while “online” for Uber, they cannot also accept rides through other platforms. Plaintiffs reference Uber’s Driver Deactivation Policy that establishes that “soliciting payment of fares outside the Uber system leads to deactivation” and “activities conducted outside of Uber’s system—like anonymous pickups—are prohibited.”
Uber also asserts that it does not control the “schedule start or stop times” for drivers or “require them to work for a set number of hours.” Again, Plaintiffs dispute this, stating that the Uber Owner/Operator Agreement states, “the frequency with which Uber offers Requests to the driver under this Agreement shall be in the sole discretion of the Company” and “the number of trip requests available to Plaintiffs is largely driven by Uber.”
The above factual disputes all go to whether Uber retains the right to control the Plaintiffs’ work. The District Court in its analysis acknowledged what the Plaintiffs asserted, but assigned little value to their assertions in light of Uber’s contractual agreement with Plaintiffs, Uber’s assertion that Plaintiffs are permitted to hire sub-contractors, and that “plaintiffs and their helpers are permitted to work for competing companies.” However, whether Plaintiffs are considered to “work” for a competing company while being “online” on the Uber Driver App is also a disputed factual issue. This illustrates why summary judgment was inappropriate at this stage.
Further, these and other disputed facts regarding control demonstrate why this case was not ripe for summary judgment. For example, Plaintiffs assert that “Uber does punish drivers for cancelling trips,” and “Uber coerces UberBLACK drivers to go online and accept trips by making automatic weekly deductions against their account.” Plaintiffs additionally assert that they derived all of their income for their respective businesses from Uber in certain years, which Uber disputes.
Although both parties argue that there are no genuine disputes regarding control, the facts adduced show otherwise. While Uber determines what drivers are paid and directs drivers where to drop off passengers, it lacks the right to control when drivers must drive. UberBLACK drivers exercise a high level of control, as they can drive as little or as much as they desire, without losing their ability to drive for UberBLACK. However, Uber deactivates drivers who fall short of the 4.7-star Uber-BLACK driver rating and limits the number of consecutive hours that a driver may work.
C. Opportunity for Profit or Loss Depending on Managerial Skill
As with the right to control, the District Court held that there was no genuine dispute as to another factor—the opportunity for profit or loss depending on managerial skill. Again, we disagree with the District Court’s conclusion. The District Court, in this case, ruled that this factor strongly favored independent contractor status because drivers could be strategic in determining when, where, and how to utilize the Driver App to obtain more lucrative trip requests and to generate more profits. Plaintiffs could also work for competitors and transport private clients.4
4 (n.9 in opinion) Indeed, the District Court stressed Plaintiffs’ ability “to make money elsewhere.” Yet, based on our precedent, it is unclear whether this factor looks only toward opportunity for profit or loss within the alleged employment relationship or whether it also contemplates one’s ability to make money elsewhere—as such, external factors, such as the ability to earn outside revenue without terminating the Uber-driver relationship, may be irrelevant to the analysis. As this argument was not able to be developed by the parties, this, along with other material factual disputes, is ripe to be developed at trial.
5 (n.10 in opinion) The District Court also considered “Plaintiffs investments in their own companies” as “relevant to the ‘profit and loss’ factor,” as weighing “heavily in favor of ‘independent contractor’ status.” But, as stated earlier, parties frame this issue differently and assert different facts—again showing that summary judgment was inappropriate. For example, Uber asserts that Plaintiff Razak’s ITC Luxe Limousine Services, Inc. invested in up to sixteen vehicles and had as many as fourteen to seventeen drivers. And while Plaintiffs do not deny that they invested in their personal vehicles, which they use to provide UberBLACK rides, as discussed already, there is an inherent dispute regarding whether drivers are allowed to exercise judgment and select the farthest rides for the largest payment, as Uber determines which driver is given which rider.
6 (n.11 in opinion) We also note that the District Court did not interpret whether Plaintiffs could in actuality exercise any managerial skill while being “online” to increase their profits, only that they could potentially choose to perform other jobs to make a greater profit.
However, other material facts reveal that there was and still is a genuine dispute. For example, Uber decides (1) the fare; (2) which driver receives a trip request; (3) whether to refund or cancel a passenger’s fare; and (4) a driver’s territory, which is subject to change without notice. Moreover, Plaintiffs can drive for competitors, but Uber may attempt to frustrate those who try, and most of the factors that determine an UberBLACK driver’s Uber-profit, like advertising and price setting, are also controlled by Uber.5 Under the circumstances, we believe that a reasonable fact-finder could rule in favor of Plaintiffs.6 Thus, summary judgment was inappropriate.
D. Remaining DialAmerica Factor Analysis
Of the remaining factors, some do not require further factfinding, while others still do. The fifth factor, degree of permanence of the working relationship, has genuine disputes of material fact. On one hand, Uber can take drivers offline, and on the other hand, Plaintiffs can drive whenever they choose to turn on the Driver App, with no minimum amount of driving time required.
Alternatively, the fourth factor, whether the service rendered requires a special skill, is clearer. It is generally accepted that “driving” is not itself a “special skill.” Although there may be a distinction between “driving” and “replicating the limousine experience,” as noted by the District Court, it is not enough to overcome the presumption that driving is not a special skill. This fourth factor certainly weighs in favor of finding that Plaintiffs are employees.
VII. Conclusion
In reviewing the District Court decision de novo, we determine summary judgment was inappropriate because genuine disputes of material facts remained. For the foregoing reasons, we will remand the matter for further proceedings.
Note on Razak
Following remand by the Court of Appeals, the Razak case proceeded to trial, ending in two hung juries. Concluding that “A third jury trial would do nothing more than waste precious judicial resources while—in all likelihood—leaving the Parties precisely where we began so many years ago”, the trial court dismissed the suit “pursuant to its inherent authority to manage its docket.” Razak v. Uber Technologies, Inc., No. 16-573 (E.D. Pa. July 30, 2024). An appeal of that decision is pending.
U.S. Department of Labor, Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 89 FR 1638 (Final Rule Jan. 10, 2024)
29 CFR Part 795.
Introductory statement.
This part contains the Department of Labor’s (the Department) general interpretations for determining whether workers are employees or independent contractors under the Fair Labor Standards Act (FLSA or Act). These interpretations are intended to serve as a “practical guide to employers and employees” as to how the Department will seek to apply the Act. Skidmore v. Swift & Co., 323 U.S. 134, 138 (1944). The Administrator of the Department’s Wage and Hour Division will use these interpretations to guide the performance of their duties under the Act, unless and until the Administrator is otherwise directed by authoritative decisions of the courts or the Administrator concludes upon reexamination of an interpretation that it is incorrect. To the extent that prior administrative rulings, interpretations, practices, or enforcement policies relating to determining who is an employee or independent contractor under the Act are inconsistent or in conflict with the interpretations stated in this part, they are hereby rescinded. [ … ]
Determining employee or independent contractor classification under the FLSA.
(a) Relevance of independent contractor or employee status under the Act. The Act’s minimum wage, overtime pay, and recordkeeping obligations apply only to workers who are covered employees. Workers who are independent contractors are not covered by these protections. Labeling employees as “independent contractors” does not make these protections inapplicable. A determination of whether a worker is an employee or independent contractor under the Act focuses on the economic realities of the worker’s relationship with the worker’s potential employer and whether the worker is either economically dependent on the potential employer for work or in business for themself.
(b) Economic dependence as the ultimate inquiry. An “employee” under the Act is an individual whom an employer suffers, permits, or otherwise employs to work. 29 U.S.C. § 203(e)(1)(g). “Employer” is defined to “include[ ] any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. § 203(d). The Act’s definitions are meant to encompass as employees all workers who, as a matter of economic reality, are economically dependent on an employer for work. A worker is an independent contractor, as distinguished from an “employee” under the Act, if the worker is, as a matter of economic reality, in business for themself. Economic dependence does not focus on the amount of income the worker earns, or whether the worker has other sources of income.
Economic reality test to determine economic dependence.
(a) Economic reality test.
(1) In order to determine economic dependence, multiple factors assessing the economic realities of the working relationship are used. These factors are tools or guides to conduct a totality-of-the-circumstances analysis. This means that the outcome of the analysis does not depend on isolated factors but rather upon the circumstances of the whole activity to answer the question of whether the worker is economically dependent on the potential employer for work or is in business for themself.
(2) The six factors described in paragraphs (b)(1) through (6) of this section should guide an assessment of the economic realities of the working relationship and the question of economic dependence. Consistent with a totality-of-the-circumstances analysis, no one factor or subset of factors is necessarily dispositive, and the weight to give each factor may depend on the facts and circumstances of the particular relationship. Moreover, these six factors are not exhaustive. As explained in paragraph (b)(7) of this section, additional factors may be considered.
(b) Economic reality factors
(1) Opportunity for profit or loss depending on managerial skill. This factor considers whether the worker has opportunities for profit or loss based on managerial skill (including initiative or business acumen or judgment) that affect the worker’s economic success or failure in performing the work. The following facts, among others, can be relevant: whether the worker determines or can meaningfully negotiate the charge or pay for the work provided; whether the worker accepts or declines jobs or chooses the order and/or time in which the jobs are performed; whether the worker engages in marketing, advertising, or other efforts to expand their business or secure more work; and whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space. If a worker has no opportunity for a profit or loss, then this factor suggests that the worker is an employee. Some decisions by a worker that can affect the amount of pay that a worker receives, such as the decision to work more hours or take more jobs when paid a fixed rate per hour or per job, generally do not reflect the exercise of managerial skill indicating independent contractor status under this factor.
(2) Investments by the worker and the potential employer. This factor considers whether any investments by a worker are capital or entrepreneurial in nature. Costs to a worker of tools and equipment to perform a specific job, costs of workers’ labor, and costs that the potential employer imposes unilaterally on the worker, for example, are not evidence of capital or entrepreneurial investment and indicate employee status. Investments that are capital or entrepreneurial in nature and thus indicate independent contractor status generally support an independent business and serve a business-like function, such as increasing the worker’s ability to do different types of or more work, reducing costs, or extending market reach. Additionally, the worker’s investments should be considered on a relative basis with the potential employer’s investments in its overall business. The worker’s investments need not be equal to the potential employer’s investments and should not be compared only in terms of the dollar values of investments or the sizes of the worker and the potential employer. Instead, the focus should be on comparing the investments to determine whether the worker is making similar types of investments as the potential employer (even if on a smaller scale) to suggest that the worker is operating independently, which would indicate independent contractor status.
(3) Degree of permanence of the work relationship. This factor weighs in favor of the worker being an employee when the work relationship is indefinite in duration, continuous, or exclusive of work for other employers. This factor weighs in favor of the worker being an independent contractor when the work relationship is definite in duration, non-exclusive, project-based, or sporadic based on the worker being in business for themself and marketing their services or labor to multiple entities. This may include regularly occurring fixed periods of work, although the seasonal or temporary nature of work by itself would not necessarily indicate independent contractor classification. Where a lack of permanence is due to operational characteristics that are unique or intrinsic to particular businesses or industries and the workers they employ, this factor is not necessarily indicative of independent contractor status unless the worker is exercising their own independent business initiative.
(4) Nature and degree of control. This factor considers the potential employer’s control, including reserved control, over the performance of the work and the economic aspects of the working relationship. Facts relevant to the potential employer’s control over the worker include whether the potential employer sets the worker’s schedule, supervises the performance of the work, or explicitly limits the worker’s ability to work for others. Additionally, facts relevant to the potential employer’s control over the worker include whether the potential employer uses technological means to supervise the performance of the work (such as by means of a device or electronically), reserves the right to supervise or discipline workers, or places demands or restrictions on workers that do not allow them to work for others or work when they choose. Whether the potential employer controls economic aspects of the working relationship should also be considered, including control over prices or rates for services and the marketing of the services or products provided by the worker. Actions taken by the potential employer for the sole purpose of complying with a specific, applicable Federal, State, Tribal, or local law or regulation are not indicative of control. Actions taken by the potential employer that go beyond compliance with a specific, applicable Federal, State, Tribal, or local law or regulation and instead serve the potential employer’s own compliance methods, safety, quality control, or contractual or customer service standards may be indicative of control. More indicia of control by the potential employer favors employee status; more indicia of control by the worker favors independent contractor status.
(5) Extent to which the work performed is an integral part of the potential employer’s business. This factor considers whether the work performed is an integral part of the potential employer’s business. This factor does not depend on whether any individual worker in particular is an integral part of the business, but rather whether the function they perform is an integral part of the business. This factor weighs in favor of the worker being an employee when the work they perform is critical, necessary, or central to the potential employer’s principal business. This factor weighs in favor of the worker being an independent contractor when the work they perform is not critical, necessary, or central to the potential employer’s principal business.
(6) Skill and initiative. This factor considers whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initiative. This factor indicates employee status where the worker does not use specialized skills in performing the work or where the worker is dependent on training from the potential employer to perform the work. Where the worker brings specialized skills to the work relationship, this fact is not itself indicative of independent contractor status because both employees and independent contractors may be skilled workers. It is the worker’s use of those specialized skills in connection with business-like initiative that indicates that the worker is an independent contractor.
(7) Additional factors. Additional factors may be relevant in determining whether the worker is an employee or independent contractor for purposes of the FLSA, if the factors in some way indicate whether the worker is in business for themself, as opposed to being economically dependent on the potential employer for work.
Wang v. Hearst Corp., 877 F.3d 69 (2d Cir. 2017)
Five participants in internship programs offered by defendant Hearst Corporation (“Hearst”) sue for minimum wage under the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”). At issue is whether the unpaid interns were “employees” of Hearst for the purposes of the FLSA under Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528 (2d Cir. 2016). We affirm the judgment of the United States District Court for the Southern District of New York, for the reasons stated in Judge Oetken’s thorough opinion.
I
The question is whether Hearst furnishes bona fide for-credit internships or whether it exploits student-interns to avoid hiring and compensating entry-level employees. The factual record is voluminous and advances multiple narratives, some of them contradictory; but the following essentials are undisputed.
Hearst maintained dozens of internship programs with its various print magazines. Each of five named appellants worked at one time as interns in one of these programs. These internships were unpaid, carried no expectation of eventual full-time employment, and required intern candidates to receive prior approval for college credit to participate. No intern alleges that Hearst promised compensation or a future job.
The interns’ individual experiences varied, but there are groupings. Four of the appellants-Alexandra Rappaport, Erin Spencer, Matthew Wagster, and Sarah Wheels-were enrolled in college during their internships. Rappaport, Spencer, and Wheels completed their internships during the summer between academic years, and Wagster interned (with Esquire) during his fall semester. Lead plaintiff Xuedan Wang interned for one semester between her graduation from college and the start of her graduate program in the Fashion Marketing program at Parsons School of Design. Each intern received prior approval for college credit, although not all of them ultimately received credit from their degree-awarding institution: Wang had received permission for continuing education credit but ultimately did not pursue it, Wagster was denied credit from his institution because his internship was not applicable to his major, and Wheels received credit from a local community college.
Each student had an academic or aspiring professional connection to fashion. Wang and Spencer studied fashion in college, and Spencer’s internship satisfied a graduation requirement (the Fieldwork course) for his major; Rappaport and Wagster were majoring in the social sciences, but hoped to break into the fashion industry; Wheels was an English major who interned in the editorial department of Cosmopolitan to advance her writing career. All of them testified or declared that they performed a range of tasks related to their professional pursuits in the Hearst internship programs, and gained valuable knowledge and skills.
At the same time, the interns share common complaints. They describe many tasks in Hearst’s fashion closets as menial and repetitive. Several claim that they did not receive close supervision or guidance and that the internships offered little formal training—in contrast to their academic experiences in school. One common grievance was that the interns mastered most of their tasks within a couple weeks, but did the same work for the duration of the internship.
In February 2012, lead plaintiff Xuedan Wang filed suit alleging that she and a putative class of interns across Hearst’s magazine departments were deprived of wages in violation of the FLSA and NYLL. Seven other interns opted in after the district court granted the case collective certification. The district court’s denial of plaintiffs’ motion for partial summary judgment was vacated in this Court for reconsideration in light of Glatt v. Fox Searchlight Pictures, Inc., which was heard in tandem with Wang.
Hearst moved for summary judgment against the six remaining plaintiffs under the Glatt test. The district court granted the motion, and five plaintiffs filed a timely appeal.
II
The FLSA defines “employee” by tautology: an “individual employed by an employer.” 29 U.S.C. § 203(e)(1). The standard for “employee” is broad, but the Supreme Court has long recognized that not every individual who performs a service for an employer qualifies as an “employee” under the FLSA. “Employee” status depends upon the “economic reality” of the relationship between the putative employer and employee.
Last year in Glatt, we recognized the “primary beneficiary” test as the way to distinguish employees from bona fide interns. To guide our “flexible” analysis, we provided seven non-exhaustive considerations specific to the context of unpaid internships:
1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa;
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions;
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit;
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning;
6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern;
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
The court applies these considerations by weighing and balancing the totality of the circumstances. “No one factor is dispositive and every factor need not point in the same direction for the court to conclude that the intern is not an employee.”
The totality of the circumstances should be considered in view of the “purpose of a bona fide internship to integrate classroom learning with practical skill development in a real-world setting.” In a break from previous tests, courts applying Glatt have acknowledged that the internship may provide a direct benefit to the employer so long as the intern receives identifiable educational or vocational benefits in return.
Judge Oetken analyzed each Glatt factor and determined that all of them except the sixth (displacement of paid employees) either favored Hearst to some degree or were neutral. In assessing the totality of the circumstances, the court concluded that the “Plaintiffs were interns rather than employees as a matter of law.”
III
A. Factors One and Seven
The appellants concede that factors one and seven (expectation of payment and entitlement to a job, respectively) favor Hearst. They argue, however, that these factors bear little weight because FLSA rights cannot be waived. The interns’ reading of these factors defies the clear mandate of Glatt, which explained that “any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.”. These factors are crucial to understanding the “economic reality” of the internship relationship; where, as here, the programs were described specifically as unpaid internships for students—and students applied to the internships with that unambiguous understanding—the relationship is far less likely to take on an abusive quality.
B. Factors Two and Five
The second factor (training) is at the heart of the dispute on appeal. The interns argue forcefully that Judge Oetken misconstrued this factor by broadening the ambit of “training” to include “practical skills.” Wagster contends that the experience of having “sat in on marketing meetings” should have been discounted by his assignment to “take meeting minutes.” Similarly, appellants argue that we should disregard Spencer’s experience “learning about photo shoots” because she already knew how to use a camera. The interns would thus limit the discussion of beneficial training under the second factor to education that resembles university pedagogy to the exclusion of tasks that apply specific skills to the professional environment.
Appellants’ interpretation ignores our instruction in Glatt that a key element of the intern relationship is “the expectation of receiving educational or vocational benefits.” Glatt clearly contemplates that training opportunities offered to the intern include “products of experiences on the job.” The appellants’ tacit assumption is that professions, trades, and arts are or should be just like school; but many useful internships are designed to correct that impression.
The interns argue that the district court “ignored” evidence that Hearst’s internships were a poor substitute for classroom learning. In fact, the court accepted the complaints as true, and for that reason, concluded that the factor weighed only “slightly” in favor of Hearst. At the same time, it recognized that those complaints do not wholly offset the undisputed fact that the internships did provide beneficial training. For this reason, the appellants also misread the closely related fifth Glatt factor (valuable duration) in arguing that the interns were not receiving “beneficial learning” when they performed repetitive or similar tasks they had already “learned.” As exemplified by the meeting minutes and photoshoots, practical skill may entail practice, and an intern gains familiarity with an industry by day to day professional experience.
C. Factors Three and Four
The third and fourth Glatt factors relate to the integration of the internship to the student-intern’s academic program and academic calendar, respectively. Both parties and the district court acknowledge that the interns’ experiences diverge with respect to these factors. In general, however, the internships were arranged to fit the academic calendar and required academic credit as a prerequisite.
Factor three (academic integration) clearly favors Hearst for all interns except Wagster. For some interns, the connection is straightforward. Spencer’s internship was a graduation requirement for his major. Wheels’ internship with the editorial department of a magazine meshed with her academic major in English and professional interest in writing. And while Rappaport’s internship did not “integrate” with “coursework” from her international relations major, she discussed the internship with her college faculty, wrote a paper about it, and received class credit for it: her college thus treated the internship as a course.
It is argued that “there was no connection between a formal education program and Wang’s internship” in the fashion industry. Appellants’ Br. at 37. But Wang interned between the completion of her undergraduate degree in fashion and the start of her graduate degree, also in fashion. She intentionally deferred her start date for graduate school and took a full time internship at a Hearst magazine to gain professional experience. A jury is not necessary to infer from these undisputed facts that Wang’s internship “is tied to her formal education.” That Wang did not receive credit does not undermine the connection between her formal education program and her internship; she did not receive credit because she did not pursue it. As a matter of law, the (undisputed) fact that the program required a student to earn approval from an accredited university for the “receipt of academic credit” generally is more telling than whether credit was actually awarded in that individual’s case.
For the majority of the interns here, the undisputed evidence also favors Hearst with respect to the fourth factor (academic calendar). Rappaport, Spencer, and Wheels interned during their college summer breaks in accordance with the school calendar. Wang had deferred her studies to intern between school years, and Wagster was not an active student during his internship. Hearst did not fail to accommodate their academic schedules when they had no schedules to accommodate.
D. Factor Six
The sixth factor (displacement) considers the extent to which an intern’s work complements the work of paid employees or displaces it. An intern’s work is complementary if it requires some level of oversight or involvement by an employee, who may still bear primary responsibility. The district court considered that the sixth factor favored the interns because the interns completed some work regularly performed by paid employees.
This factor alone is not dispositive. An intern may perform complementary tasks and in doing so confer tangible benefits on supervisors. The Glatt factors intentionally omitted a criteria that had been advanced by the Department of Labor that the alleged employer derive no immediate advantage from the activities of the intern. It is no longer a problem that an intern was useful or productive.
IV
The facts of this case permit inferences that support Hearst with respect to certain Glatt factors, and inferences that support particular interns with respect to other factors. The interns and amici urge that such mixed inferences foreclose a ruling on summary judgment. We disagree, for the reasons explained by the district court, which weighed all factors under the totality of the circumstances, and concluded that the interns are not “employees” for the purposes of the FLSA.
As the interns observe, these cases do involve a “fact specific” and case-by-case analysis. But “the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Status as an “employee” for the purposes of the FLSA is a matter of law, and under our summary judgment standard, a district court can strike a balance on the totality of the circumstances to rule for one side or the other.
There are contested issues that bear on the quality of each intern’s experience. The crucial point is that a district court may rule on summary judgment if it can weigh the Glatt factors on the basis of facts that are not in dispute. As the district court recognized, the internships “involved varying amounts of rote work and could have been more ideally structured to maximize their educational potential,” but concluded that these critiques did not give rise to a material factual dispute.
Johnson v. NCAA, 108 F.4th 163 (3d Cir. 2024)
Restrepo, Circuit Judge.
Do efforts that provide tangible benefits to identifiable institutions deserve compensation? In most instances, they do. And yet athletes at our most competitive colleges and universities are told that their “amateur” status renders them ineligible for payment. The issue raised by this interlocutory appeal is not whether the athletes before us are actually owed the protections of the Fair Labor Standards Act (FLSA), but rather, whether college athletes, by nature of their so-called amateur status, are precluded from ever bringing an FLSA claim. Our answer to this question is no.
This case originated in 2019 when athletes at several National Collegiate Athletic Association (NCAA) Division I (D-I) member schools filed a complaint asserting violations of the FLSA and various state wage laws. The plaintiffs argued that they were entitled to federal minimum wage compensation for the time they spent representing their schools. The NCAA and member schools moved to dismiss pursuant to Federal Rule of Civil Procedure Rule 12(b)(6), asserting that the athletes— as “amateurs”—are not, and historically have never been, considered employees of their respective schools or the NCAA. The District Court determined that the athletes had sufficiently pleaded facts that, under a multifactor balancing test, might allow them to be classified as employees under the FLSA and denied the motion to dismiss. The NCAA and member schools appealed.
For the reasons stated below, we will affirm in part the District Court’s decision denying Appellants’ motion to dismiss. But because the District Court erred by applying the test from Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528 (2d Cir. 2016), to determine whether college athletes can be employees under the FLSA, we will vacate and remand for application of an economic realities analysis grounded in common-law agency principles.
I. Background
Appellees contend that they are entitled to minimum wage under the FLSA for time spent on their sport-related activities. Appellants are thirteen colleges and universities that are members of the NCAA. The NCAA regulates intercollegiate sports and has jurisdiction over approximately 1,100 schools and some 500,000 athletes. The NCAA has multi-year, multi-billion-dollar contracts with ESPN, CBS, and Turner Sports to broadcast athletic competitions between D-I schools, and it distributes shares of those broadcasting fees to its member institutions. In addition to shares of broadcasting fees, D-I. schools receive fees from multi-year, multi-million-dollar agreements with television and radio networks that they have entered, either individually or as part of an NCAA conference, to broadcast their athletic competitions. To understand how collegiate sport generates these revenues, a brief historical survey is instructive.
A. College Athletics in Historical Context
American intercollegiate athletics began when a group of Yale students formed a boat club in 1843; undergraduates at Harvard followed suit the next year. In 1852, the two clubs staged our nation’s first intercollegiate athletic competition (The Race) on a lake in New Hampshire. From that first contest, the spectacle of college sports has grown steadily to become a multi-billion-dollar industry.
Put simply, athletic victories have provided many colleges with the institutional visibility needed to facilitate tremendous growth. Indeed, although tension continues to exist between the demands of traditional education and athletics, even early college presidents came to see athletes as effective avatars for their institutions. By 1875, intercollegiate regattas had become feature items in nationally distributed magazines and front-page material for leading newspapers. Both “students and the public began to regard victory as a measure of an institution’s prestige.” One student of the era explained that the contests were “sacredly connected with the glory of Alma Mater herself.”
Such glory was especially valuable to lesser-known institutions. Take the 1871 regatta between Harvard, Brown, and the “Farmer Boys” of the Massachusetts Agricultural College of Amherst for example. An unexpected victory over widely-favored Harvard made the little-known, eight-year-old land grant college now known as UMass Amherst a nationally recognized institution overnight. More importantly, it inspired hope among other lesser-known colleges that they too might do the same.
This phenomenon would later become known as the “Flutie Effect” following a 1984 football game between Boston College and the University of Miami. With six seconds on the clock and Miami up by four, Boston College’s quarterback, Doug Flutie, completed an astounding forty-eight-yard Hail Mary touchdown pass to win the game. Over the next two years, applications to Boston College jumped thirty percent. Successful football and basketball programs have more recently driven notoriety and applications to, among other institutions, Georgetown, Northwestern, Boise State, Texas Christian University, Butler, Gonzaga, Virginia Commonwealth University, Texas A&M, Florida Gulf Coast, Lehigh, and Wichita State.
Indeed, Professor Doug J. Chung describes athletic programs as higher education’s primary form of mass media advertising. In one study, Professor Chung found that raising a football team from mediocrity to national status caused, on average, a 17.7 percent increase in the number of applications to the team’s institution. Increased applications then contribute to a positive feedback loop producing more revenue, greater selectivity in admissions, improved alumni engagement, greater fundraising, and better faculty recruiting, all of which can catapult regional universities into national prominence in a way that would otherwise be impossible.
Profit, after all, has always played a role in college athletics. The Race—the very first intercollegiate competition—was neither proposed nor organized by the students of Yale or Harvard, but by James Elkins, the superintendent of the Boston, Concord, and Montreal Railroad. Mr. Elkins had hoped that staging a regatta on Lake Winnipesaukee would increase ridership on his rail line, raise the value of his nearby real estate holdings, and bring tourists to the quiet, lakeside resort. Unsurprisingly, the teams were treated to a lavish vacation, and the winners received “a handsome pair of black, silver-tipped, walnut oars.” Such commercialization was the norm in early athletic competitions.
The same is true today. First and foremost, the colleges themselves stand to profit substantially from television contracts, licensing fees, and ticket, concessions, and merchandise sales that their athletic programs generate. Some estimate that college athletes generate roughly $3 billion in annual revenue for their schools, conferences, and the NCAA. And at least 38 NCAA member colleges currently gross more than $100 million annually in sports revenue. The athletic department of the University of Texas, for example, reported $271 million in revenue for 2023, more than the highest-earning National Hockey League team. In 2020, 63 other NCAA member colleges earned more than $25 million from their football programs.
The colleges are not alone in profiting. One study reported that 45 million Americans planned to wager a combined $3.1 billion on the 2022 NCAA March Madness basketball tournament. And the NCAA itself, first founded to help regulate dangerous playing conditions, has grown into a financial behemoth with revenues often exceeding $1 billion annually. ESPN, for example, recently announced that it will pay the NCAA $115 million each year for exclusive broadcast rights to 40 leagues’ championship games. March Madness and the College Football Playoff each have their own television deals valued at $8.8 billion and $5.64 billion, respectively.
By far the most obvious beneficiaries of college sports are a select few administrators, athletic directors, and coaches. The recently retired Alabama football coach, Nick Saban, earned over $11.4 million in his last year leading the Crimson Tide, making him the highest-paid coach in college sports and the eighth-highest-paid football coach in America. In fact, seven-teen of the 37 highest-paid coaches in any sport in the United States make their living in college football or basketball. By contrast, university professors and administrators make far less. The University of Virginia, for example, pays $900,000 each year to its president and $600,000 to its law school dean while its basketball coach receives $5.2 million. This is not abnormal; in forty states, the highest-paid public employee is a D-I coach. Ohio State president E. Gordon Gee summarized this upside-down world when, asked whether he would consider firing his embattled football coach, he quipped, “I’m just hoping the coach doesn’t dismiss me.”
B. Amateurism and the “Student-Athlete” in College Athletics
We have opted against using a term both parties employ liberally in briefing: “student-athlete.” Like “band-aid” or “laundromat,” “student-athlete” is essentially a brand name that has become synonymous with its product. As scholars have noted, the term is an NCAA marketing invention designed to “conjure the nobility of amateurism,” assert “the precedence of scholarship over athletics,” and “obfuscate the nature of the legal relationship at the heart of a growing commercial enterprise.” Context makes this vividly apparent.
The NCAA arose from the public outcry over the dangers of early college football. In 1904 alone, at least twenty players died, not on battlefields, but on football fields. The next year, urged on by President Theodore Roosevelt, a group of colleges chartered the non-profit organization that would become the NCAA to establish common safety guidelines in college athletics. In doing so, the NCAA also promoted an ethos of strict amateurism that forbade all forms of payment, including athletic scholarships. Yet for the first fifty years of its existence, this ethos was openly defied: most member schools admitted to offering under-the-table compensation to star players. By the 1950s, even the ban on athletic scholarships—a central tenant of the original, British-inspired amateur ideal— lacked so much as a pretense of enforcement. In reality, such payments were already quite commonplace. Conceding defeat to this fact, the NCAA elected in 1956 to bring some forms of compensation (including athletic scholarships) aboveground in the hope that it could better regulate the market. But the NCAA also foresaw the explosion of college athletics and hoped to both facilitate and capitalize on that growth. Athletics scholarships proved to be an ideal mechanism for promoting order and retaining economic control.
In response, courts began to question the economic realities of college athletics. Two state appellate court cases in particular took direct aim at the professed amateur status of athletes at D-I schools. Those courts saw that college sports had become a big business, and that athletes thus operated in the dual capacity of both student and employee. These cases stoked fears in NCAA leaders that college athletes might someday receive statutory employment protections. The NCAA’s answer was the term “student-athlete,” which it imposed as the exclusive label for its players. As the historian Taylor Branch notes:
The term student-athlete was deliberately ambiguous. College players were not students at play (which might understate their athletic obligations), nor were they just athletes in college (which might imply they were professionals). That they were high-performance athletes meant they could be forgiven for not meeting the academic standards of their peers; that they were students meant they did not have to be compensated, ever, for anything more than the cost of their studies. Student-athlete became the NCAA’s signature term, repeated constantly in and out of courtrooms.
The NCAA’s strategy has worked for some time, supported in part through dicta from the Supreme Court’s decision in NCAA v. Board of Regents of the University of Oklahoma, stating that “the NCAA plays a critical role in the maintenance of a revered tradition of amateurism in college sports.” With Board of Regents in hand, the NCAA and its member colleges have largely succeeded in persuading courts to grant the concept of amateurism the force of law. As one federal district judge wrote, “even in the increasingly commercial modern world, there is still validity to the Athenian concept of a complete education derived from fostering full growth of both mind and body.” The Court of Appeals for the Seventh Circuit similarly found the idea that college athletes are “selling their services” and that universities are “purchasers of labor” to be a “surprisingly cynical view of college athletics.” College football players, the Court reasoned, are not market participants because they are “student-athletes.”
Until recently, NCAA rules barred athlete compensation beyond “tuition and fees, room and board, books and other expenses related to attendance.” But the Supreme Court’s unanimous decision in NCAA v. Alston disrupted the status quo by holding that that Board of Regents did not create a binding precedent “reflexively” supporting the organization’s compensation rules. The NCAA responded by changing its rules to allow athletes to profit from their name, image, and likeness (NIL) with direct endorsement deals. Historically, the NCAA and the colleges had been the only entities permitted to do so.
Justice Kavanaugh, in an oft-cited concurrence, noted that the NCAA’s remaining rules restricting non-education-related compensation raised serious antitrust questions as well. Rebuking the NCAA’s argument that maintaining compensation restrictions is necessary to distinguish college athletics from professional athletics, Justice Kavanaugh wrote that “businesses like the NCAA cannot avoid the consequences of price-fixing labor by incorporating price-fixed labor into the definition of its product.” Although Justice Kavanaugh did suggest that the NCAA could protect itself from future judicial scrutiny by permitting collective bargaining, he also flatly concluded that “nowhere else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate…. The NCAA is not above the law.”
Appellants raise similarly circular arguments. But as the Supreme Court recently suggested, such rationales no longer hold the weight they once did. The National Labor Relations Board (NLRB), likely in response to Alston, is for the first time taking the position that college athletes are employees for purposes of the National Labor Relations Act (NLRA). In the midst of these changes, our Court is the first to consider whether college athletes may also be employees under the ambit of the related FLSA.
C. The Athletes at Bar
The plaintiffs allege that although the NCAA and its member schools profit from their efforts, the NCAA’s bylaws prohibit member schools from offering wages and forbid students from accepting them. To enforce these rules, the bylaws prescribe sanctions for violating schools and students, including suspension or termination of athletes, suspension of coaching staff, and disqualification of teams from competitions. The NCAA and defendant schools argue that, although athletes do not earn wages, the benefits of participation include payment in other forms, such as increased discipline, a stronger work ethic, improved strategic thinking, time management, leadership, and goal setting skills, and a greater ability to work collaboratively.
The athletes allege that the soft skills the Appellants point to are inadequate compensation for their services and that they were subject to extensive training and performance requirements that regularly interfered with their learning. As just one example, the plaintiffs allege that they were forced to schedule classes around their athletic commitments, limiting their range of learning options. During the football season at Villanova University, for example, Mr. Johnson was allegedly required to spend weekdays from 5:45 AM to 11:30 AM practicing or engaging in other activities related to athletics. This commitment locked him out of hundreds of available classes, including prerequisites for certain academic degrees. In addition to Mr. Johnson’s personal experiences, the athletes cite to studies showing that NCAA requirements frequently prevent athletes from pursuing their preferred majors.
In their First Amended Complaint, the athletes asserted claims under the FLSA for the NCAA’s and member colleges’ failure to pay them a minimum wage and sought relief in the form of unpaid wages, an equal amount in liquidated damages, and attorneys’ fees. Some athletes also asserted state-specific failure-to-pay claims. Finally, the athletes asserted unjust enrichment claims. The defendant schools moved to dismiss the First Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that athletes cannot be employees as a matter of law and therefore had failed to state a claim.
On August 25, 2021, the District Court rejected this argument. In the absence of controlling authority providing a specific multifactor test to evaluate whether athletes can be considered “employees” under the FLSA, the District Court applied the Court of Appeals for the Second Circuit’s multifactor test from Glatt, where the Court considered whether unpaid interns must be deemed employees under the FLSA and therefore compensated for their work. The District Court determined that Glatt required it to assess the “economic reality” of the relationship by identifying whether the athletes or the NCAA and schools were the primary beneficiary of the relationship. After balancing and considering the seven Glatt factors, the District Court concluded that the athletes had plausibly pleaded that they may be employees and denied the motion to dismiss. Subsequently, the District Court granted the Appellants’ motion to certify an interlocutory appeal from the denial of their motion to dismiss. The question certified for appeal was: “Whether NCAA Division I athletes can be employees of the colleges and universities they attend for purposes of the Fair Labor Standards Act solely by virtue of their participation in interscholastic athletics.”
II. Discussion
The FLSA protects “the rights of those who toil, of those who sacrifice a full measure of their freedom and talents to the use and profit of others.” Accordingly, it gives specific, non-waivable minimum protections to individuals to ensure that each covered employee receives “a fair day’s pay for a fair day’s work,” and is protected from “the evil of ‘overwork’ as well as ’underpay,
Consistent with the FLSA’s “remedial and humanitarian” purpose, Congress adopted definitions of “employee” and “employer” that brought a broad swath of workers under the statute’s coverage, including even “those who would decline its protections.” Accordingly, “the term ‘employee’ means any individual employed by an employer,” a definition that has been described as “the broadest… that has ever been included in any one act.” Similarly open-ended, an “employer” is “any person acting directly or indirectly in the interest of an employer in relation to an employee,” and to “employ” is “to suffer or permit to work.” These “statutory definitions regarding employment status are necessarily broad to effectuate the remedial purposes of the Act.”
The “striking breadth” of these definitions brings within the FLSA’s ambit workers “who might not qualify as employees under a strict application of traditional agency law principles” or under other federal statutes, and these definitions have long been held to apply notwithstanding any “prior custom or contract… not to compensate employees for certain portions of their work.” Accordingly, to determine employment under the Act, the Supreme Court has instructed that we “look to the economic realities of the relationship.”
Under this framework, the employer-employee “relationship does not depend on … isolated factors but rather upon the circumstances of the whole activity.” Limitations articulated by the Supreme Court include that independent contractors are not employees under the FLSA, and “an individual who, ‘without promise or expectation of compensation, but solely for his personal purpose or pleasure, worked in activities carried on by other persons either for their pleasure or profit,’ is outside the sweep of the Act,”
Importantly, in determining that the Alamo “volunteers” were actually employees because they expected “in-kind” compensation for services performed, the Court distinguished their situation from that of a group of trainees in Walling. In Walling, the trainees participated in a week-long course, during which they performed some work under close supervision without receiving or expecting remuneration beyond the possibility of future employment. But the Court held that the trainees did not qualify as “employees” under the FLSA, as their work did not confer an “immediate advantage” to the purported employer. Instead, as the Court in Alamo explained, the trainees in Walling were akin to “students in a school,” whose activities are driven by the educational benefits. By contrast, the Alamo “volunteers” engaged in work over extended periods, sometimes years, and received “in-kind benefits” like food, clothing, shelter, and other benefits as compensation. These benefits were “wages in another form.” Even though the Alamo “volunteers” claimed they expected no compensation, the Court explained that a compensation agreement can be either “express” or “implied,” and “if an exception to the Act were carved out for employees willing to testify that they performed work”voluntarily,” employers might be able to use superior bargaining power to coerce employees to make such assertions, or to waive their protections under the Act.”
Since McComb, we and other courts of appeal have adopted multifactor tests to analyze, based on the circumstances of the whole relationship between the parties, whether individuals are employees or independent contractors, whether entities are joint employers, and whether individuals are employees or interns. Here, we confront circumstances unlike those previously addressed, but core principles that traditionally define an employee-employer relationship are no less applicable.
A. Determining the Employment Status of College Athletes
In looking to “the economic realities of the relationship” between college athletes and their schools or the NCAA, we begin by noting that athletes in the collegiate context are sui generis. After all, merely playing sports, even at the college level, cannot always be considered commercial work integral to the employer’s business in the same way that the activities performed by independent contractors or interns are assumed to be in previously mentioned multifactor tests. The Supreme Court has acknowledged this possibility, explaining that the FLSA does not cover a person who, “without promise or expectation of compensation, but solely for his personal purpose or pleasure” performs “activities carried on by other persons either for their pleasure or profit.” The Department of Labor (DOL) makes the same distinction. But just as intuitively, with professional athletes as the clearest indicators, playing sports can certainly constitute compensable work. Any test to determine college athlete employee status under the FLSA must therefore be able to identify athletes whose play is also work.
For its part, the FLSA does not define “work.” The Supreme Court “broadly” interprets it in the FLSA context and initially defined it as “physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the employer’s benefit.” The Court has since clarified that “exertion” is “not in fact necessary for an activity to constitute ‘work’” because “an employer … may hire someone to do nothing.” Accordingly, for an activity to constitute “work” it need only be controlled by an employer and pursued necessarily and primarily for that employer’s benefit. A putative employee, meanwhile, is expected to receive either express or implied “in-kind” compensation for services rendered.
Read together, these cases largely mirror common-law agency principles others have used to help decide cases involving similar purported employer-employee relationships. Chief among them is the NLRB’s decision in Trustees of Columbia University in the City of New York, (2016), where the Board applied a common-law agency test (also known as the “right-of-control” test) to answer the threshold question of whether graduate students who perform services at a university in connection with their studies are statutory employees within the meaning of Section 2(3) of the NLRA. That test asks whether the individual, in return for payment, performs services under the control of another person, or under a person with the right to control such services. By reverting to common-law agency principles, the Board notably rejected a Glatt-like primary beneficiary analysis. Instead, the Board held that student teaching and research assistants are employees under the NLRA if they meet the Act’s broad definition of “employee,” which encompasses individuals who meet the common law test for employment.
We recognize that the NLRA and FLSA have distinct policy goals, but their shared history often inspires courts to draw interchangeably from each statute’s caselaw to answer fundamental questions related to the equitable regulation of the American workplace.
Significantly, the NLRA and FLSA both use broad definitions of “employee” and “employer” to delineate statutory coverage. The “striking breadth” of the FLSA’s definitions, after all, brings within the Act’s purview workers “who might not qualify as employees under a strict application of traditional agency law principles.” It necessarily follows that determining an employer-employee relationship under the FLSA includes, but is not limited to, a strict application of traditional agency law principles. The NLRA, meanwhile, does not explicitly define the terms. But it is well established that “when Congress uses the term ‘employee’ in a statute that does not define the term, courts interpreting the statute ‘must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning’” of the term, with reference to “common-law agency doctrine.” Put otherwise, common-law agency doctrine, a doctrine largely symmetrical to governing FLSA caselaw, is also a helpful analytical tool in evaluating college athletes’ purported employer-employee relationships in either the NLRA or the FLSA context.
We do not reproach the District Court for being drawn to Glatt. But while we agree with our sister circuit that “an employment relationship is not created when the tangible and intangible benefits provided to a worker are greater than a worker’s contribution to the employer’s operation,” Glatt’s overall utility with respect to college athletes is undercut by its accurate presumption that unpaid interns all perform work for their employers.
Indeed, the facts that animate Glatt are not sufficiently analogous to the case at bar because the work performed during properly designed unpaid internships “can greatly benefit interns,” as “the intern enters into the relationship with the expectation of receiving educational or vocational benefits that are not necessarily expected with all forms of employment.” Meanwhile, the educational and vocational benefits of college athletics cited by Appellants as alternative forms of remuneration (increased discipline, a stronger work ethic, improved strategic thinking, time management, leadership, and goal setting skills, and a greater ability to work collaboratively) are all exactly the kinds of skills one would typically acquire in a work environment. Additionally, the Glatt test has limited relevance to athletes because it compares the benefits that an intern might receive at an internship with the training received at the intern’s formal education program. In comparison, interscholastic athletics are not part of any academic curriculum. Here, the plaintiffs go as far as alleging that the sports played are actually detrimental to their academic performance because athletic performance provides no academic benefits, they are frequently precluded from enrolling in hundreds of courses that conflict with their athletic obligations, and they are unable to declare their preferred majors.
We therefore hold that college athletes may be employees under the FLSA when they (a) perform services for another party, (b) “necessarily and primarily for the other party’s benefit,” and (d) in return for “express” or “implied” compensation or “in-kind benefits,” If so, the athlete in question may plainly fall within the meaning of “employee” as defined in 29 U.S.C. § 203(e)(1). Ultimately, the touchstone remains whether the cumulative circumstances of the relationship between the athlete and college or NCAA reveal an economic reality that is that of an employee-employer.
B. The “Frayed Tradition” of Amateurism is No Shield to FLSA Claims
Appellants argue that the history and tradition of amateurism is sufficient not only to remove college athletes from the general population of people whose FLSA employment status is routinely determined through the application of multifactor tests, but also compels dismissal of this suit. We disagree. Although the Supreme Court remarked in Board of Regents dicta that “the NCAA plays a critical role in the maintenance of a revered tradition of amateurism in college sports,” it has since unanimously clarified that Board of Regents did not expressly approve of every NCAA limit on athlete compensation or foreclose “any meaningful review of those limits today.” The NCAA’s athlete compensation rules, after all, were not even at issue in Board of Regents. That case instead concerned the NCAA’s attempt to exercise monopoly control over television broadcast agreements.
Responding to an argument like the one that the Appellants make here, the Supreme Court in Alston noted that the NCAA had “not adopted any consistent definition” of amateurism and acknowledged that the organization’s “rules and restrictions on compensation have shifted markedly over time,” which further undermined the NCAA’s reliance on the concept. The Court’s disapproval of amateurism as a legal defense was only strengthened by a point made by Justice Kavanaugh in concurrence that we now adopt: the argument “that colleges may decline to pay student athletes because the defining feature of college sports … is that the student athletes are not paid,” is circular, unpersuasive, and increasingly untrue.
Nevertheless, this is the argument Appellants most heavily rely upon to characterize the economic realities of the college athlete’s alleged employment relationship. They argue that the District Court should have adopted the Court of Appeals for the Seventh Circuit’s reasoning in Berger, where the Court declined to apply the Glatt test to determine whether a group of track and field athletes from the University of Pennsylvania were employees under the FLSA. In the eyes of both the Berger Court and the Appellants, no multifactor test is appropriate. Rather, a general economic realities analysis that centers on amateurism and college athletes’ historical lack of bargaining power should be used. In other words, Appellants ask us to elevate amateurism to a quasi-legal status in a way the Supreme Court has already rebuffed.
The Seventh Circuit Court of Appeals did indeed decline to apply a multifactor test because doing so “‘failed to capture the true nature of the relationship’ between the athletes and their schools and was not a ‘helpful guide.’” Instead, it concluded that the “longstanding tradition of amateurism defines the economic reality of the relationship between athletes and their schools,” and held that existing multifactor tests could not adequately account for this tradition. A “more flexible standard” was needed. Ultimately, the Court held that college athletes were not employees entitled to minimum wage under the FLSA because their “amateur” status made it such that their “‘play’ is not ‘work.’”
To reach its conclusion, the Berger Court relied on its own precedent in Vanskike, which considered whether incarcerated people had any rights under the FLSA. In Vanskike, the Court similarly declined to use a multifactor test because any test would fail to account for what it called a “free labor situation” in the prison context. This “situation” exists in prisons because the Thirteenth Amendment permits involuntary servitude, meaning that the work incarcerated people perform is not based on voluntary employment relationships. The Vanskike Court also pointed out that some factors typically found in FLSA multifactor tests could not logically be applied in the prison context. For example, one common factor among FLSA tests is a consideration of the amount of control the employer has over the worker. Given that prisons have almost complete control over prisoners’ lives, the Vanskike Court reasoned that such control was incidental to the workers’ custodial status.
We disagree with our sister circuit court’s comparison of college athletes to prisoners and refuse to equate a prisoner’s involuntary servitude, as authorized by the Thirteenth Amendment, to “the longstanding tradition” of amateurism in college athletics. Nor are we the only ones. See, e.g., Dawson v. NCAA, 932 F.3d 905, 908 n.2 (9th Cir. 2019)_ (“We do not adopt Berger’s analytical premises nor its rationales.”). But, in a limited sense, we agree that existing multifactor tests are inadequate when applied to the college athlete. As noted above, we believe that such tests either improperly assume that the alleged employee engages in compensable work or account for factors not relevant to college athletics.
In sum, for the purposes of the FLSA, we will not use a “frayed tradition” of amateurism with such dubious history to define the economic reality of athletes’ relationships to their schools. Instead, we believe that the amateurism that Judge Hamilton calls into question in his “note of caution” highlights the need for an economic realities framework that distinguishes college athletes who “play” their sports for predominantly recreational or noncommercial reasons from those whose play crosses the legal line into work protected by the FLSA. Accordingly, we also hold that college athletes cannot be barred as a matter of law from asserting FLSA claims simply by virtue of a “revered tradition of amateurism” in D-I athletics.
III. Conclusion
In light of the foregoing, we will vacate the District Court’s order, remand for further proceedings in compliance with this opinion, and direct the District Court to grant leave to amend.
Porter, Circuit Judge, concurring in the judgment.
I write separately to explain why I concur only in the judgment.
III. Traditional multifactor tests and the amateurism principle are unhelpful guides.
I agree with the majority’s rejection of the tests in cases distinguishing employee workers from independent-contractor workers or interns. In those cases, the analysis began with the undisputed premise that individuals performed “work” that was necessary and integral to their employer’s business. Here, the critical antecedent question is whether student-athletes are “workers” providing “services” to an employer.
I do not question the existence or virtue of amateurism in college athletics. But a combination of market forces, decades-spanning behavior of the NCAA and some Division I teams and athletes, and the Supreme Court’s relevant antitrust decisions have enervated that concept, at least for some student-athletes. Whatever legal force amateurism once had in the Division I context, it is now insufficient to decide cases like this one. Instead, we must look to the language and rules provided by statute and Supreme Court decisions.
IV. Play is not work.
The FLSA applies only to “employees” who perform “work” for an “employer.” So an obvious starting point is to ask whether a student-athlete may play her chosen sport because she wants to play, not to work primarily for her university’s benefit. Play is arguably a basic human good that many pursue for its own sake. It is not work, even though it may involve sustained, regulated, physical, or intellectual exertion and combine with other goals such as competition, teamwork, fitness, or personal glory.
If a student-athlete participating in an NCAA-sponsored sport—fencing, water polo, rifle, track and field, golf, beach volleyball, or skiing, for example—is engaged in play rather than work, then none of the commonly used tests will be useful because the FLSA simply does not apply.
The FLSA does not define “work.” The Supreme Court interprets it as denoting “physical or mental exertion (whether burdensome or not) controlled or required by the employer and performed necessarily and primarily for the benefit of the employer and his business.” But the dictionary from which the Supreme Court derived that definition specifically distinguishes work “from something undertaken primarily for pleasure, sport, or immediate gratification, or as merely incidental to other activities.” So even the Court’s broad definition of work does not encompass play or sport.
Division I student-athletes perform at the top of their highly competitive sports, and some are world-class. They certainly exert themselves physically and mentally. In colloquial terms, they “work out,” just as lesser athletes and fitness buffs do. But not all exertion is “work” for purposes of the FLSA.
In Walling, the Court explained that the FLSA does not cover a person who, “without promise or expectation of compensation, but solely for his personal purpose or pleasure, works in activities carried on by other persons either for their pleasure or profit.” The Department of Labor makes the same distinction. See United States Dep’t of Labor Wage and Hour Division, Field Operations Handbook § 10b03(e) (activity of college students participating in interscholastic athletics primarily for their own benefit as part of the educational opportunities provided to the students by the school is not “work”).
Plaintiffs alleged that their college athletic experiences constitute work. But that allegation has not been proven, and unlike in the independent-contractor and intern cases, it is not a given here. Even at the Rule 12(b)(6) stage, we “are not bound to accept as true a legal conclusion couched as a factual allegation.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).
The majority opinion helpfully acknowledges this nettlesome issue. But in my view, its definitional test does not adequately probe the distinction between play and work, nor explain how district courts should do so. In the following sections, I will explain my other scruples about the majority’s proposed test and offer some affirmative thoughts.
V. The economic-reality test continues to apply in FLSA cases.
Congress and the Supreme Court have created a patchwork of tests for determining employee status under federal labor and employment laws. Initially, the Court used an “economic realities” test in cases applying the National Labor Relations Act (NLRA), FLSA, and Social Security Act (SSA). Almost immediately, Congress passed a joint resolution (the “Gearhart Resolution”) rejecting the economic-realities test for the NLRA and SSA, and reiterating its intention that employee status under those statutes should be determined by traditional agency law principles. But Congress did not similarly amend the FLSA.
Since then, the Supreme Court has applied the common-law definition of “employee” to federal statutes that do not define “employee” or define it circularly.
But the Court has continued to apply the economic-reality test in FLSA cases.
So do other courts of appeals.
Other courts wrestling with the FLSA-employee question in the specific context of student-athletes have also applied an economic-reality test. See Dawson v. Nat’l Collegiate Athletic Ass’n, 932 F.3d 905, 909 (9th Cir. 2019)_’; Berger v. Nat’l Collegiate Athletic Ass’n, 843 F.3d 285, 290 (7th Cir. 2016).
So while I appreciate the majority’s attempt to fashion a test using common-law agency principles from NLRA cases, I respectfully decline to join that analysis without clearer direction from the Supreme Court. Instead, I think that the proper test for this case is to determine the economic reality of the parties’ relationships considering the circumstances of the whole activity.
VI. The majority’s test raises but does not answer some important questions.
In addition to my doubts about relying on common-law agency principles in the FLSA context, I find the majority’s four-part test wanting in some respects.
a
The test begins by asking whether the student-athlete performs “services” for his college or university. The majority does not define “services,” but its test largely tracks the Restatement (Third) of Agency’s definition of servant. That definition has not materially changed since the first Restatement of Agency (1933):
A servant is a person employed to perform services for another in his affairs and who with respect to the physical conduct in the performance of the services is subject to the other’s control or right to control.
Restatement (Third) of Agency § 220 (2006).
Webster’s New International Dictionary 2288 (2d ed. 1950) defines “service” as the “performance of labor for the benefit of another or at another’s command.” See also Black’s Law Dictionary (11th ed. 2019) (“labor performed in the interest or under the direction of others”); Webster’s New International Dictionary (3d ed. 1993) (“the performance of work commanded or paid for by another”).
So the first part of the majority’s test immediately raises—but does not clarify— the critical distinction between “service,” “labor,” or “work,” as distinguished from play or sport. In a general sense, student-athletes serve the teams for which they play. But that is true of anyone who has ever played on a team: each player contributes her measure of skill and effort— her services, as it were—for the good of the entire team. That’s the whole point of team sports. But one’s contribution in the service of teamwork does not necessarily create an employment relationship.
b
The second part of the majority’s test asks whether the student-athlete’s team participation is necessarily and primarily for the university’s benefit. Again, there is a sense in which student-athletes obviously play for the benefit of their university’s team. The NCAA Transfer Portal offers student-athletes the flexibility each year to choose where they wish to play. Once the student-athlete chooses, he enrolls in his chosen college or university and becomes a member of its team. But that has little or nothing to do with employment status; it’s a basic correlate of matriculation and team membership. Naturally, the student’s athletic prowess benefits his chosen team and university because that is how team sports operate. Division I student-athletes play or provide athletic “services” for the benefit of their team just as Division II, Division III, and high school athletes play or provide athletic “services” for the benefit of their respective teams. But something more is required to convert the majority’s university-as-beneficiary factor into a useful indicia of employment.
For example, in Alamo Foundation, the religious foundation doubled as a commercial enterprise through its operation of profit-seeking “businesses serving the general public in competition with ordinary commercial enterprises.” The enterprise included “service stations, retail clothing and grocery outlets, hog farms, roofing and electrical construction companies, a recordkeeping company, a motel, and companies engaged in the production and distribution of candy.” The putative volunteers’ work for those “ordinary commercial businesses” produced economic benefits for the foundation, so it was appropriate to characterize them as employees. Here, the factfinder should consider whether a university’s sports team is (a) economically comparable to one of the Alamo Foundation’s profit-seeking businesses, or (b) essentially an extra-curricular activity creating at best indirect and attenuated economic benefit for the university.
c
The third factor of the majority’s test asks whether the student-athlete plays under the university’s control or right of control. This principle of agency law is not particularly helpful in the context of intercollegiate sports. High school students do not set their own rules for recruitment and college students do not set their own rules for eligibility and participation. Such autonomy would invite chaos, undermine teamwork, and destroy competition. Because team sports are collective actions, all teams have coaches and administrators that evaluate players, assemble rosters, allocate playing time, make personnel changes, determine strategy, call plays, set practice and game schedules, arrange transportation, and so forth. The players do not act independently of each other and the coaches because, again, team sports are collective actions requiring significant direction and coordination. The control or right-of-control factor does not go very far to distinguish Division I athletes from Division II athletes, Division III athletes, or other organized team-sport participants.
d
The fourth factor of the majority’s test asks whether the student-athlete provides services “in return for ‘express’ or ‘implied’ compensation of ‘in-kind benefits.’” I agree that this factor is relevant to the work/play and employee/non-employee distinctions. The Supreme Court declared so in Walling, and Alamo Found.
In Alamo Foundation, the Court held that self-proclaimed volunteers who were “entirely dependent upon the Foundation for long periods” were actually employees because they accepted “in-kind benefits… in exchange for their services.” The benefits, according to the Court, amounted to “wages in another form.” So even atypical modes of compensation can create employment relationships under the FLSA. What matters is the existence of some express or implied compensation arrangement and economic dependence. Theoretically, this approach might allow the would-be employer to avoid FLSA coverage simply by refusing to pay would-be employees as a matter of policy. But if the Supreme Court’s compensation rule is enforced, such avoidance tactics will be futile. If universities offer in-kind benefits—such as, perhaps, scholarships that can be cancelled mid-year if an athlete quits her team—they must navigate the rule of Alamo Foundation.
What if an alleged employment relationship is voluntary and truly implicates no compensation arrangement or wage-like benefits for work in a commercial setting? In that case, the purported employee might be a “person who, without promise or expectation of compensation, but solely for his personal purpose or pleasure, works in activities carried on by other persons either for their pleasure or profit.” The FLSA was “obviously not intended” to classify all such persons as employees, “otherwise, all students would be employees of the school or college they attended.”
In Alamo Foundation, the disguised wages were paid for work performed in the foundation’s various commercial businesses. How those businesses compare to any given sports team at any given college is another knotty factual question. And although we may not consider facts that are not alleged in the FAC, the economic reality surrounding the compensation-bargain factor is in flux and will dramatically change even as the ink on this opinion is drying.
According to the majority, “profit” has always influenced “college athletics.” The majority emphasizes the enormous revenue that “college athletes” generate annually. But revenue is not profit. And the majority’s historical discussion diminishes the role of so-called nonrevenue generating sports at colleges and universities. In this pre-discovery posture, however, my general understanding is that for most student-athletes, the economic reality is that their athletic service, and their team’s existence, is revenue-negative. Football Bowl Subdivision (“FBS”) football and March Madness-level men’s basketball are spectacular exceptions because they attract lucrative television deals.
Compared to FBS schools, the revenue vs. nonrevenue issue is presumably even more pronounced in the smaller Division I Football Championship Subdivision (“FCS”) athletic programs. But the majority offers no guidance about how courts or factfinders applying an economic-reality test should consider student-athlete participation in nonrevenue sports. Are they part of the “business” of a college or university? For that matter, are athletics— though obviously important for various reasons—incidental to the university’s business or essential to it? Does a college benefit from revenue-negative athletic programs? If so, how does that benefit differ from the cash produced by football, men’s basketball, or the profit-seeking businesses in Alamo Foundation? And how is the “economic reality” of a nonrevenue student-athlete’s relationship with his university different from that of a musician whose performing arts scholarship is conditioned on her time-consuming participation in a band or orchestra? Or from a member of the school’s competitive esports team who may also receive a scholarship? We cannot begin to answer such questions in this interlocutory appeal. Nor can they be answered in gross. The answers will likely differ among individuals, teams, sports, and schools.
I tend to agree with Judge Hamilton’s intuition that the economic-reality question probably shakes out differently for FBS football players and March Madness-level men’s basketball players than it does for other student-athletes. See Berger v. NCAA, 843 F.3d 285, 294 (7th Cir. 2016) (Hamilton, J., concurring). See also NCAA v. Alston, 594 U.S. 69, 141 S. Ct. 2141, 2166-69, 210 L.Ed.2d 814 (2021) (Kavanaugh, J., concurring) (focusing on the “enormous sums of money” generated in college athletics and noting distinction between revenue and “nonrevenue-raising sports”); Agnew v. NCAA, 683 F.3d 328, 340-41 (7th Cir. 2012) (positing a relevant labor market, for purposes of the Sherman Act, consisting of “big-time college football programs”). That is a factual matter that the parties can develop in discovery. But any test that purports to gauge “economic reality” must be sensitive to the glaring difference between revenue generating and nonrevenue intercollegiate sports.
VII. The FLSA-employee test should account for longstanding precedent and existing law.
For over 65 years, courts across the country have determined that student-athletes do not qualify as employees of their universities.
As the Supreme Court emphasized in the antitrust context, changing market realities can throw such precedent into doubt. But in that event, our test for employee status under the FLSA should isolate the changed facts and market realities that distinguish the venerable line of precedent. Again, that exercise may highlight the growth of a unique and robust labor market for FBS football and Division I basketball players.
This case also presents difficult collateral legal issues that should give us pause. For example, the related-statutes canon requires harmonious interpretation of statutes. Employee-employer relationships are governed by Title VII, among other things, but Title VII’s prohibition against employment discrimination because of sex sits uneasily with Title IX regulations and policy interpretations mandating equal “participation opportunities” (read, “participants”) between the two sexes. FLSA employee status for student-athletes would also roil the percolating debate under Title IX over transgender athletes’ participation on opposite-sex teams because Title VII, which would apply to collegiate athletics if student-athletes have employee status under FLSA, prohibits employment discrimination on the basis of gender identity. The notion that sports are integral to a university’s educational purpose, rather than employment programs themselves, is the basis for several tax-advantageous rules benefitting universities and student-athletes, such as unrelated business income tax, and the taxation of athletic scholarships. And our disposition of this interlocutory appeal could impact student-athletes’ eligibility for federal student aid, state worker’s compensation regimes, student-athletes’ immigration status, and the employment status of students participating in other college-supervised extracurricular activities. These potentially disruptive collateral effects implicate many other statutory schemes, revealing the legislative rather than adjudicative nature of plaintiffs’ claims and providing another reason to slow down and proceed warily.
VIII. Conclusion
To the extent that the majority holds simply that it is factually possible for a Division I student-athlete to be an employee under the FLSA, I concur in that judgment.
3.3 Identifying Employers
Ries v. McDonald’s USA, LLC, No. 1:20-cv-2 (W.D. Mich. Dec. 6, 2021)
Plaintiffs bring this action against Defendants for sexual harassment in violation of Title VII of the Civil Rights Act of 1964, and Michigan’s Elliot-Larsen Civil Rights Act (ELCRA). Plaintiffs sue McDonald’s, LLC and McDonald’s Corporation (collectively, “McDonald’s”) as well as two entities operating a McDonald’s franchise in Michigan: MLMLM Corporation and M.A.A.K.S., Inc. (collectively, “Franchisee”). Plaintiffs are former employees of a McDonald’s restaurant in Mason, Michigan, operated by Franchisee. They allege that a manager at that location repeatedly harassed them, both physically and verbally. Before the Court is a motion for summary judgment by McDonald’s Because no reasonable juror could find that McDonald’s acted as an employer or agent subject to liability under Title VII or the ELCRA, the Court will grant the motion.
II. ANALYSIS
A. Title VII
Title VII prohibits an “employer” from engaging in certain “unlawful employment practices.” The term “employer” means “a person engaged in an industry affecting commerce who has fifteen or more employees and any agent of such a person.”
McDonald’s argues that it is not liable because it did not employ Plaintiffs or control employment matters at the restaurant where Plaintiffs worked. McDonald’s argues that it is simply a franchisor; Franchisee controlled the conditions of Plaintiffs’ employment, not McDonald’s. Plaintiffs respond that McDonald’s is liable for two reasons: (1) it retained sufficient control over their employment conditions to qualify as a “joint employer”; and (2) McDonald’s caused Plaintiffs to believe that Franchisee was an agent of McDonald’s.
1. Joint Employer
“Under the ‘joint-employer’ theory, ‘an entity that is not the plaintiff’s formal employer may be treated under these doctrines as if it were the employer for purposes of employment laws such as Title VII.’” “Entities are joint employers if they ‘share or co-determine those matters governing essential terms and conditions of employment.’”
In determining whether an entity is the plaintiff’s joint employer, “the major factors include the ‘entity’s ability to hire, fire or discipline employees, affect their compensation and benefits, and direct and supervise their performance.’” Put simply, McDonald’s can be liable as a joint employer if it has “retained for itself sufficient control of the terms and conditions of employment of the employees who are employed by Franchisee.”
Here, a franchise agreement between McDonald’s and Michael Dickerson (the owner of MLMLM and M.A.A.K.S.) governed the relationship between McDonald’s and Franchisee. The agreement, which had a 20-year term, expressly states that “Franchisee shall have no authority, express or implied to act as an agent of McDonald’s” and that “Franchisee and McDonald’s are not and do not intend to be partners, associates, or joint employers in any way.”
More importantly, the agreement did not give McDonald’s the ability to hire, fire, discipline, or affect the compensation or benefits of Franchisee’s employees. Dickerson testified that he and Nanette Bitner, his operations manager and the senior supervisor of the Mason restaurant, had authority to hire and fire employees. No one from McDonald’s played a role in hiring, firing, promoting, disciplining, or setting wages for employees at his restaurants. Nor did they play a role in assigning individual employees to their positions or in supervising their day-to-day activities. Plaintiffs offer no evidence to the contrary.
To be sure, the Franchise Agreement requires Franchisee to abide by a particular method of operating and maintaining a restaurant, called the “McDonald’s System.” This system details
the retailing of a limited menu of uniform and quality food products, emphasizing prompt and courteous service in a clean, wholesome atmosphere which is intended to be attractive to children and families and includes proprietary rights in certain valuable trade names, service marks, and trademarks, including the trade names “McDonald’s” and “McDonald’s Hamburgers,” designs and color schemes for restaurant buildings, signs, equipment layouts, formulas and specifications for certain food products, methods of inventory and operation control, bookkeeping and accounting, and manuals covering business practices and policies.
But that system does not set the terms of the relationships between Franchisee and its employees. It is instead a set of prescriptions for branding, operations, and quality control that is common for franchise relationships.
Plaintiffs point to the requirement that Franchisee operate the restaurant in a “good, clean, wholesome manner”, but Plaintiffs do not point to any evidence that any party to the Franchise Agreement construed this requirement to mean an absence of sexual discrimination and harassment among Franchisee’s employees. And even if that is what this requirement means, there is no evidence that it gave McDonald’s the ability to do anything other than find Franchisee in breach of the Franchisee Agreement and terminate that agreement. Although such a termination would have impeded Franchisee’s ability to continue operating, control over Franchisee’s ability to continue business does not amount to control over Franchisee’s relationship with its individual employees.
Plaintiffs also rely on the fact that McDonald’s periodically assessed Franchisee according to its “National Franchising Standards” (“NFS”). McDonald’s used these assessments to “identify those franchisees with whom McDonald’s desires to grow and/or enter into new franchise relationships.” Before the term of a franchise agreement expires, McDonald’s will review the assessments to determine whether to award a new term to the franchisee. But these standards were not part of the Franchise Agreement; indeed, the standards themselves expressly state that they “do not create or modify any contract rights or obligations” and “do not necessarily address whether” the franchisee is complying with its franchise agreement. McDonald’s plays a “consulting role” with respect to its franchisee’s compliance with the standards; it cannot require the franchisee to comply with them.
Plaintiffs argue that the NFS gave McDonald’s substantial control because McDonald’s frequently assessed Franchisee’s compliance with the NFS and then used those assessments to determine whether to renew a franchise at the end of its term. But gathering data every few weeks or months from each restaurant for the purpose of deciding whether to continue a business relationship with Franchisee at the end of a multi-year term is a far cry from exercising day-to-day supervision and control over Franchisee’s employees. Plaintiffs do not point to any instance in which McDonald’s used its assessments to dictate the discipline, promotion, or any other change in the terms or conditions of employment for any particular employee of Franchisee. Although several Franchisee employees testified that scores on these assessments were considered by Franchisee during employee performance reviews, or were used by Franchisee as the basis for awarding employee perks or bonuses, there is no evidence that McDonald’s required Franchisee to use the assessments in this manner. The fact that Franchisee took these assessments into account when exercising its own control does not mean that McDonald’s codetermined the essential conditions of Plaintiffs’ employment. Thus, Plaintiffs have not shown that the NFS standards gave McDonald’s any significant control over Franchisee’s employees.
McDonald’s also provided an operations and training manual to its franchisees. Among other things, that manual contains a list of duties and procedures for opening the restaurant and starting a shift. The Franchise Agreement provides that Franchisee must “promptly adopt and use exclusively the formulas, methods, and policies contained in the business manuals.” However, the manual itself states that franchisees can “choose to apply or implement any portion” of it, and that franchisees are “exclusively responsible for complying with all statutes, laws, and regulations applicable to their restaurants.” A more recent version of the manual does not contain these disclaimers, but it repeatedly instructs employees to “contact your Owner/Operator for advice” about “practices at your restaurant.” Thus, the manual makes clear that practices will vary according to choices made by the franchisee. Importantly, nothing in the manual excerpts provided by the parties gave McDonald’s the ability to control the Franchisee’s relationship with its employees.
Plaintiffs also point to a variety of templates and resources that McDonald’s provided to Franchisee, including: an “Employee Resources” poster describing employee rights and a sexual harassment policy; a personality test for screening candidates; a website for job postings; job interview guidelines and application templates; software to track employee time and generate disciplinary reports; guidelines for the number and type of employees necessary to run a restaurant; and training programs for certain employees. However, there is no evidence that any of these resources or programs gave McDonald’s control over the essential terms of employment for Franchisee’s employees. To the contrary, the evidence shows that Franchisee alone possessed and exercised that control.
Plaintiffs put stock in the fact that McDonald’s purportedly required Franchisee to display the Employee Resources poster. Plaintiffs apparently argue that McDonald’s effectively required Franchisee to adopt the McDonald’s policy described on the poster for reporting sexual harassment. However, displaying a policy is one thing. Implementing it is another. There is no evidence that McDonald’s played any role in implementing or enforcing such a policy. Indeed, the poster states that any harassment is to be reported to employees of Franchisee (e.g., the “Restaurant/General Manager” or the “Owner Operator”). The poster also contains a blank space for contact information for the manager or owner of the restaurant. The poster provides no information or guidance about reporting misconduct to McDonald’s. Thus, the poster does not create a genuine issue of fact about whether McDonald’s retained sufficient control over Franchisee’s employees to qualify as a joint employer.
Finally, Plaintiffs rely on an April 14, 2021, press release by McDonald’s announcing that, “beginning in January 2022,” it would be applying “new Global Brand Standards” to all of its restaurants; these new standards will apparently “prioritize actions” in “harassment, discrimination and retaliation prevention.” According to the press release, McDonald’s intends to assess its restaurants and “hold them accountable in accordance with applicable McDonald’s market’s business evaluation processes.”
McDonald’s rightly notes that the press release has limited relevance to this case because it is forward-looking. It does not apply to the time period at issue in the complaint. Plaintiffs respond that the press release is evidence that McDonald’s has always had the right to impose personnel policies on its franchisees. But neither the details of the new policy, nor its mechanism of enforcement are laid out in the press release. Nothing in the press release itself indicates that McDonald’s has had, or will have, control over the conduct of an individual employee of a franchisee. Indeed, the references to McDonald’s “brand standards” and “business evaluation processes” suggest that McDonald’s will implement its new policies in the same manner that it implements the NFS. As discussed above, periodic assessments and the power to terminate the franchise relationship are not equivalent to day-to-day supervision and control over the working conditions of a franchisee’s employees.
In short, construing the evidence in a light most favorable to Plaintiffs, there is no genuine dispute that McDonald’s did not meaningfully participate in employment decisions or possess sufficient control over the terms of Plaintiffs’ employment to qualify as a joint employer. The control that McDonald’s did have in its relationship with Franchisee was “control over conformity to standard operational details inherent in many franchise settings” and “the power to terminate the franchises.” As other courts have concluded, that level of involvement in a franchisee’s business does not suffice to give rise to employer liability under Title VII.
Plaintiffs rely on cases in which courts denied a franchisor’s attempt to dismiss similar claims against it because the franchisor was involved in creating personnel policies or provided training to the franchisee’s employees. Those cases are distinguishable. There, courts concluded that the plaintiffs had alleged sufficient facts in their complaints to state a plausible claim against the franchisor and proceed to discovery. The question facing this Court is a different one. The Court is not assessing the allegations in Plaintiffs’ complaint. At this stage, Plaintiffs must support their allegations with evidence sufficient to demonstrate that they can proceed to trial against McDonald’s. They have not done so. They have not shown that there is a genuine dispute of fact about whether McDonald’s was a joint employer with Franchisee.
Johnson v. NCAA (II), 561 F.Supp.3d 490 (E.D. Pa. Sept. 21, 2021)
Plaintiffs, student athletes at five of the Defendant colleges and universities, contend that student athletes who engage in NCAA Division 1 (“D1”) interscholastic athletic activity for their colleges and universities are employees who should be paid for the time they spend related to those athletic activities. Plaintiffs, Ralph “Trey” Johnson, Stephanie Kerkeles, Nicholas Labella, Claudia Ruiz, Jacob Willebeek-Lemair, and Alexa Cooke, assert claims on behalf of themselves, a Fair Labor Standards Act (“FLSA”) collective, and three state classes against the colleges and universities they attend (or attended) (the “Attended Schools Defendants” or “ASD”), the National Collegiate Athletic Association (“NCAA”), twenty additional named D1 universities (the “Non Attended School Defendants” or “NASD”), and a putative Defendant class made up of 125 NCAA D1 colleges and universities. The First Amended Complaint (“Complaint”) asserts claims for violations of the FLSA; the Pennsylvania Minimum Wage Act (the “PMWA”); the New York Labor Law (“NYLL”); and the Connecticut Minimum Wage Act (“CMWA”). The Complaint also asserts three common law unjust enrichment claims. The NCAA and NASD (together the “Moving Defendants”) have moved to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) on the ground that Plaintiffs lack standing to sue them under Article III because they are not joint employers of Plaintiffs. For the reasons that follow, the Motion is granted in part and denied in part.
I. Factual Background
The Complaint alleges the following facts. The NCAA is an association that regulates intercollegiate sports and has jurisdiction over approximately 1,100 schools and nearly 500,000 student athletes. The NCAA has entered into multi-year, multi-billion-dollar contracts with broadcasters ESPN, CBS, and Turner Sports to show athletic competitions between NCAA D1 member schools, and it distributes shares of those broadcasting fees to its member schools. In addition to shares of those broadcasting fees, NCAA D1 member schools also receive fees from multi-year, multi-million-dollar agreements with television and radio networks that they have entered into, either individually or as part of an NCAA conference, to broadcast athletic competitions between NCAA D1 member schools.
The named Plaintiffs in this case are or were student athletes at Villanova University, Fordham University, Sacred Heart University, Cornell University, and Lafayette College. The NASD are: Bucknell University, Drexel University, Duquesne University, Fairleigh Dickinson University, La Salle University, Lehigh University, Monmouth University, Princeton University, Rider University, Robert Morris University, Seton Hall University, Saint Francis University, Saint Joseph’s University, Saint Peter’s University, the University of Delaware, Pennsylvania State University, the University of Pennsylvania, the University of Pittsburgh, Rutgers State University of New Jersey, and Temple University. According to the Complaint, all of the Defendants jointly employed Plaintiffs and similarly situated persons.
Student athletes do not have the option to play NCAA sports for wages at any NCAA D1 school. All member schools in the NCAA have agreed not to pay students to participate in intercollegiate varsity sports. The NCAA’s Bylaws prohibit schools from offering wages and prohibit student athletes from accepting wages. A student athlete who participates in NCAA sports can only receive payment based on athletic performance in limited circumstances connected with competing in the Olympics.
NCAA D1 member schools require student athletes to participate in Countable Athletically Related Activities (“CARA”), which are recorded on timesheets under an NCAA D1 Bylaw. NCAA Bylaws also require student athletes to participate in Required Athletically Related Activities like recruiting, fundraising and community service. A student athlete who fails to attend meetings, participate in practices, or participate in scheduled competitions can be disciplined, including suspension or dismissal from the team. Student athletes have reported spending more than 30 hours per week on athletically related activities, both CARA and non-CARA, and football players who attend schools in the NCAA football bowl and championship subdivisions report spending more than 40 hours per week on these activities.
The NCAA D1 member schools exercise significant control over their student athletes. The NCAA Bylaws apply to all student athletes who participate in NCAA sports and they address “recruitment, eligibility, hours of participation, duration of eligibility and discipline.” Student athletes who participate in NCAA sports are supervised by coaching and training staff. NCAA D1 member schools are required to have adult supervisors maintain timesheets for participants. NCAA D1 member schools impose discipline on student athletes, including suspension and dismissal from a team, in instances of specified misconduct. They also have handbooks that contain standards for controlling student athletes’ performance and conduct both on and off the field. These handbooks contain rules regarding agents, prohibiting certain categories of legal gambling, and restricting social media use, including restrictions on making derogatory comments about other teams. NCAA D1 member schools also have NCAA team policies that restrict the legal consumption of alcohol and legal use of nicotine products by student athletes.
Based upon these factual allegations, the Complaint asserts that Plaintiffs are the employees of Defendants, including the NCAA and NASD, and it asserts eight claims for relief, seeking payment of wages for the time Plaintiffs spent engaged in activities connected to NCAA sports. Count I asserts claims pursuant to the FLSA on behalf of Plaintiffs and the proposed FLSA collective against all Defendants and the proposed Defendant class for failure to pay them minimum wages as employees. Plaintiffs and the members of the proposed FLSA Collective seek unpaid minimum wages, an equal amount as liquidated damages, attorneys’ fees, and costs in connection with Count I.
The Attended Schools Defendants brought a Motion to Dismiss the Complaint as against them on the ground that it did not plausibly allege that they employed Plaintiffs, a requirement for liability under the FLSA. We denied that Motion on August 25, 2021, concluding that the Complaint plausibly alleges that Plaintiffs are employees of the ASD for purposes of the FLSA. The NCAA and the Non-Attended Schools Defendants have moved to dismiss all claims against them for lack of Article III standing on the ground that the Complaint does not plausibly allege that they are also employers of Plaintiffs, specifically that the Complaint does not plausibly allege that they are joint employers of Plaintiffs with the ASD.
III. Discussion
In Count I of the Complaint, Plaintiffs seek the payment of minimum wages from Defendants, including the NCAA and the NASD, for the hours they spent in connection with NCAA D1 intercollegiate athletics pursuant to Section 206 of the FLSA. “The minimum wage provision at issue requires that Plaintiffs prove that they are ‘employees.’” The Moving Defendants argue in their Motion to Dismiss that Plaintiffs have failed to meet their burden of establishing “‘the irreducible constitutional minimum’ of Article III standing” because they are not employees of the Moving Defendants. To establish standing under Article 3, the Plaintiffs must establish the following three elements:
First, the plaintiff must have suffered an injury in fact—an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical. Second, there must be a causal connection between the injury and the conduct complained of—the injury has to be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court. Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.
The Moving Defendants argue that any injury suffered by Plaintiffs is not “fairly traceable” to them because they are not Plaintiffs’ employers.
The FLSA defines the term “employee” as “any individual employed by an employer.” 29 U.S.C. § 203(e)(1). The Third Circuit has noted that “this statutory definition is ‘necessarily broad to effectuate the remedial purposes of the Act.’” Two different entities can be joint employers of the same individual if they both have significant control over that employee:
where two or more employers exert significant control over the same employees— whether from the evidence it can be shown that they share or co-determine those matters governing essential terms and conditions of employment— they constitute “joint employers” under the FLSA. This is consistent with the FLSA regulations regarding joint employment, which state that a joint employment relationship will generally be considered to exist where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with another employer. Ultimate control is not necessarily required to find an employer-employee relationship under the FLSA, and even “indirect” control may be sufficient. In other words, the alleged employer must exercise “significant control.”
Thus, we can grant the Moving Defendants’ Motion to Dismiss for lack of subject matter jurisdiction only if the Complaint does not plausibly allege that the Moving Defendants are Plaintiffs’ joint employers.
A. The NCAA as a Regulatory Body
The Moving Defendants argue that the NCAA cannot be a joint employer of Plaintiffs because it merely regulates Plaintiffs’ participation in intercollegiate athletics. The Moving Defendants rely on Dawson v. National Collegiate Athletic Association, 932 F.3d 905 (9th Cir. 2019), in which the United States Court of Appeals for the Ninth Circuit affirmed a lower court decision holding that college student athletes who play football for schools in the NCAA D1 Football Bowl Subdivision are not employees of the NCAA and the PAC-12 Conference for purposes of the FLSA and California labor law. In Dawson, the Ninth Circuit considered three factors: (1) whether the plaintiff expected to be paid by the NCAA or the PAC-12 Conference, (2) whether the NCAA and the PAC-12 Conference had the power to hire or fire the plaintiff; and (3) whether there was “evidence that an arrangement was conceived or carried out to evade the law.” The Dawson court found that the plaintiff had no expectation of a scholarship or other compensation from the NCAA or the PAC-12 Conference and that “there was no evidence that the NCAA rules were ‘conceived or carried out’ to evade the law.” The Dawson court also determined that the complaint in that case alleged that the NCAA functioned solely as a regulator and not as an employer because, while the complaint alleged that “the NCAA Bylaws pervasively regulate college athletics,” it did not allege that the NCAA hired or fired “or exercised any other analogous control, over student-athletes,” or that the NCAA “chose the players on any Division I football team,” or “engaged in the actual supervision of the players’ performance.” Rather, the complaint merely alleged that “the NCAA functions as a regulator, and that the NCAA member schools, for whom the student-athletes allegedly render services, enforce regulations.” While the Moving Defendants urge us to simply adopt and apply Dawson’s analysis and conclusion in the instant case, the complaint in Dawson is not identical to the Complaint in this case and, accordingly, we must engage in our own independent analysis of the instant Complaint.
The Moving Defendants also rely on Callahan v. City of Chicago, 813 F.3d 658 (7th Cir. 2016). The plaintiff in Callahan was a taxi driver who brought FLSA claims against the City of Chicago, under the theory “that the City’s regulations are so extensive that Chicago must be treated as her employer.” Noting that the FLSA “says that ‘employ’ includes ‘suffer or permit to work,’” the plaintiff argued that because “the City of Chicago permitted her to drive a cab, it thus became her employer.” The Seventh Circuit rejected this argument as follows:
The contention that the government permits to work, and thus employs, everyone it does not forbid to work has nothing to recommend it. The theory would produce multiple employers for every worker—for the United States, the State of Illinois, Cook County, and other governmental bodies permit taxi drivers to work in the same sense as Chicago does. The Occupational Safety and Health Administration and the National Highway Traffic Safety Administration have not adopted safety rules so onerous that the taxi business must shut down. Yet the goal of the Fair Labor Standards Act is to regulate employers, not the many governmental bodies that permit employers to operate.
However, as the Moving Defendants recognize, the NCAA, unlike the City of Chicago, is not a governmental entity. Moreover, Callahan, as a Seventh Circuit case, is not controlling authority in this district and, in any event, concerns a different set of factual allegations than are at issue in the instant case. Accordingly, instead of relying on either Dawson or Callahan, we will analyze the Complaint using the factors developed by the Third Circuit to determine whether an entity is a joint employer.
B. The Joint Employer Test
The Moving Defendants argue that the Complaint fails to plausibly allege that the NCAA and the NASD are joint employers of Plaintiffs under the four-factor test originally developed by the Ninth Circuit in Bonnette v. California Health and Welfare Agency, 704 F.2d 1465 (9th Cir. 1983), and subsequently adopted in part by the Third Circuit in In re Enterprise Rent-A-Car, 683 F.3d 462 (3d Cir. 2012). The Third Circuit announced in Enterprise Rent-A-Car that courts should use the following four factors, referred to as the Enterprise test, when determining whether two entities are joint employers of the same individual or individuals:
1) the alleged employer’s authority to hire and fire the relevant employees; 2) the alleged employer’s authority to promulgate work rules and assignments and to set the employees’ conditions of employment: compensation, benefits, and work schedules, including the rate and method of payment; 3) the alleged employer’s involvement in day-to-day employee supervision, including employee discipline; and 4) the alleged employer’s actual control of employee records, such as payroll, insurance, or taxes.
We thus review the factual allegations in the Complaint to determine whether they satisfy these factors with respect to both the NCAA and the NASD.
1. The NCAA’s and NASD’s authority to hire and fire Plaintiffs
The Complaint alleges the following facts with respect to the NCAA’s ability to “hire and fire” Plaintiffs. The NCAA’s Bylaws restrict the means by which NCAA D1 member schools may recruit prospective athletes, including limiting face to face encounters with student athletes and their family members; limiting off-campus activities intended to assess the academic and athletic qualifications of a prospective student-athlete; limiting the number of telephone calls that can be made to a prospective student athlete during a defined period of time; and limiting contacts with student athletes to specified periods of time. NCAA Bylaws also prohibit D1 member schools from offering certain inducements to recruit student athletes. NCAA Bylaws limit the total number and value of the athletic scholarships that D1 member schools can offer to student athletes. NCAA Bylaws also make D1 member schools responsible for certifying the eligibility of student athletes before they can allow the student athletes to represent the school in intercollegiate competitions. Failure to comply with these Bylaws constitutes a Level III violation, for which NCAA Enforcement Staff could seek the following penalties: precluding recruitment of the student athlete and prohibiting the student-athlete from competing for the school until his or her eligibility is restored. Multiple violations could result in stronger penalties. In addition, the NCAA Bylaws require member schools to suspend or fire student athletes who are determined to be ineligible to play by NCAA Enforcement Staff. The Complaint thus alleges that the NCAA does more than just impose rules regarding the recruitment of intercollegiate athletes; it also investigates violations of those rules and imposes penalties, including the firing of student athletes, for those violations. We thus conclude that the Complaint plausibly alleges that the NCAA exercises significant control over the hiring and firing of student athletes, including Plaintiffs, such that the Complaint satisfies the first factor of the Enterprise test with respect to the NCAA.
The Complaint alleges the following facts with respect to the NASD’s ability to “hire and fire” Plaintiffs. NCAA D1 member schools have representatives on committees that decide what rules to adopt; the “NCAA rules apply to all Student Athletes in NCAA sports on an equal basis; and these bylaws address, among other subjects, Student Athlete recruitment, eligibility, hours of participation, duration of eligibility and discipline.” We conclude that these allegations are not sufficient to plausibly allege that the NASD exercise significant control over the hiring and firing of student athletes, including Plaintiffs. We therefore conclude that the factual allegations of the Complaint fail to satisfy the first factor of the Enterprise test with respect to the NASD.
2. The NCAA’s and NASD’s authority to promulgate work rules and set Plaintiffs’ compensation, benefits, and work schedules
The Complaint alleges the following facts with respect to the NCAA’s “authority to promulgate work rules and assignments and to set Plaintiffs’ conditions of employment: compensation, benefits, and work schedules, including the rate and method of payment.” The NCAA Bylaws govern amateurism, eligibility, awards, benefits, expenses, and each sport’s playing and practice seasons. NCAA D1 Bylaw 12 prohibits D1 member schools from paying student athletes. NCAA D1 Bylaw 16 governs permissible benefits and non-permissible benefits for student athletes, as well as mandatory benefits for the athletes. NCAA D1 Bylaw 17 lists “Required Athletically Related Activities” that student athletes must participate in, limits the number hours that student athletes may be required to participate in CARA, and requires that CARA hours be recorded by school staff. NCAA D1 Bylaw 12 limits the number of seasons a student athlete may compete for a school in a specific sport and limits the time frame in which those seasons may occur. A school’s failure to comply with these rules can constitute a Level II or III violation. The NCAA D1 Bylaws make payment to a student athlete by a coach or other school representative a Severe Breach of Conduct and a Level I violation. The Complaint thus alleges that the NCAA, through its Bylaws, issues work rules that apply to Plaintiffs and imposes conditions not only on the payment of compensation and other benefits to Plaintiffs but also on how much time Plaintiffs may spend in connection with NCAA intercollegiate athletic activities. We thus conclude that the Complaint plausibly alleges that the NCAA has the “authority to promulgate work rules and assignments and to set Plaintiffs’ conditions of employment,” such that the Complaint satisfies the second factor of the Enterprise test with respect to the NCAA.
The Complaint alleges the following facts with respect to the NASD’s “authority to promulgate work rules and assignments and to set Plaintiffs’ conditions of employment: compensation, benefits, and work schedules, including the rate and method of payment.” The Complaint alleges that the NCAA D1 council has 40 members, including one from each conference, and the Board of Directors has 24 members, made up of one member from each Football Bowl Subdivision conference and 10 seats that rotate among the remaining conferences. Each active D1 member has voting privileges in the NCAA. The Complaint also alleges that “All schools in the NCAA have mutually agreed not to offer wages for participation in intercollegiate Varsity sports, and they have adopted bylaws prohibiting schools from offering wages and Student Athletes from accepting wages.” All schools in the NCAA have also adopted bylaws with sanctions for infractions of the rules prohibiting schools from paying student athletes. The NCAA Enforcement Staff investigates potential NCAA violations and brings charges. The NCAA D1 Committee on Infractions decides cases brought by the Enforcement Staff. The NCAA D1 Committee on Infractions is composed of as many as 24 representatives from members schools, conferences, and the public. The D1 Infractions Appeal Committee is composed of five representatives from member schools, conferences, and the public. NCAA member schools have “‘Shared Responsibility’” to report possible violations regarding student athletes and to cooperate in the investigation of student athletes. Failure to cooperate in an NCAA enforcement investigation is a “Severe Breach of Conduct” that can result in post-season bans, financial penalties, scholarship reductions, recruiting restrictions, and head coach restrictions. While the Complaint alleges that some colleges and universities have representatives on NCAA committees that create rules with respect to student athletes, and impose discipline on student athletes, the Complaint does not allege that any of the NASD have representatives that sit on any of these committees. We conclude that these allegations, which pertain solely to the agreement of the NCAA member schools not to pay wages to student athletes, those schools’ obligations with respect to the enforcement of that agreement, and the possibility that a school could be involved in investigating and imposing discipline with respect to the violation of that agreement and other infractions of the D1 Bylaws, are not sufficient to plausibly allege that the NASD themselves promulgate work rules and assignments and/or set the conditions of participation for student athletes in NCAA intercollegiate athletics. We therefore conclude that the Complaint fails to satisfy the second factor of the Enterprise test with respect to the NASD.
3. The NCAA’s and NASD’s involvement in the day-to-day supervision of Plaintiffs
The Complaint alleges the following facts regarding the NCAA’s involvement in the day-to-day supervision, including discipline, of student athletes who participate in NCAA sports. The NCAA Bylaws control the ability of the D1 member schools to discipline their student athletes as follows:
(i) by restricting the grounds for a school to reduce or cancel an athletic scholarship during the period of its award to only disciplinary reasons;
(ii) by requiring suspension or firing of a Student Athlete if s/he has violated any bylaw related to eligibility; and
(iii) by subjecting a school’s “home team” Student Athletes to discipline meted out by NCAA Enforcement Staff and/or panels of the peer-review NCAA D1 Committees on Infractions and Infractions Appeals composed of representatives from competing schools.
The NCAA, through its Bylaws, also prohibits NCAA D1 member schools from “reducing or canceling an athletic scholarship during the period of its award on the basis of the Student Athlete’s athletic ability, performance or contribution to a team’s success.” If NCAA Enforcement Staff find that a student athlete is ineligible, the attended school is required to suspend or terminate that athlete. Viewing the allegations of the Complaint in the light most favorable to Plaintiffs, the Complaint alleges that the NCAA promulgates rules used in disciplining student athletes, has some involvement in the discipline of student athletes, can instigate investigations that result in discipline, and has some control over what discipline is issued to student athletes. We conclude, accordingly, that the Complaint plausibly alleges that the NCAA is involved in the day-to-day supervision, including discipline, of student athletes who participate in NCAA sports, including Plaintiffs. We further conclude that the factual allegations of the Complaint satisfy the third factor of the Enterprise test with respect to the NCAA.
The Complaint alleges the following facts with respect to the NASD’s involvement in the day-to-day supervision, including discipline, of student athletes who participate in NCAA sports. The NCAA D1 Committee on Infractions, which can impose discipline on student athletes, is made up of as many as 24 representatives from member schools, conferences, and the public. The D1 Infractions Appeal Committee is composed of five representatives from member schools, conferences, and the public. All of the D1 member schools have a “‘Shared Responsibility’ to report all potential violations regarding any Student Athlete.” Failure to cooperate in an NCAA enforcement investigation is a Level I Violation which could result in postseason bans, financial penalties, scholarship reductions, head coach restrictions, and recruiting restrictions. However, the Complaint does not allege that representatives of any of the NASD are members of the Committee on Infractions or of the Infractions Appeal Committee. We conclude that these allegations, which pertain to the participation of some NCAA D1 member schools in the NCAA D1 Committee on Infractions and the D1 Infractions Appeal Committee, and the obligation of D1 member schools to cooperate in NCAA enforcement investigations, are not sufficient to plausibly allege that the NASD are involved in the day-to-day supervision, including discipline, of student athletes, including Plaintiffs, who participate in NCAA sports. We thus conclude that the factual allegations of the Complaint fail to satisfy the third factor of the Enterprise test with respect to the NASD.
4. The NCAA’s and NASD’s control of Plaintiffs’ records
The Complaint alleges the following facts regarding the NCAA’s control of the records of student athletes who participate in NCAA sports. “The NCAA Eligibility Center maintains all records related to the initial determination of Student Athlete eligibility,” and D1 member schools are required to provide the Eligibility Center with additional information if they “have cause to believe that a prospective student-athlete’s amateur status has been jeopardized” and to report any discrepancies to the Eligibility Center. The NCAA also receives and maintains records regarding student athletes’ injuries, illnesses and medical treatment in connection with their training for and participation in NCAA sports. D1 member schools are also required to make each student athlete’s statement, drug testing consent form, and squad list available to the NCAA. D1 member schools are also required to produce student athletes’ records to the NCAA upon request in connection with investigations conducted by the NCAA Enforcement Staff or the NCAA Committee on Infractions. We conclude, accordingly, that the Complaint plausibly alleges that the NCAA controls records of student athletes involved in NCAA sports, including Plaintiffs, such that the factual allegations of the Complaint satisfy the fourth factor of the Enterprise test with respect to the NCAA.
The Amended Complaint does not allege that the NASD individually maintain any records of student athletes that do not attend their schools. Moreover, Plaintiffs do not argue that the Complaint satisfies the fourth factor of the Enterprise test with respect to the NASD. We conclude, accordingly, that the Complaint fails to satisfy the fourth factor of the Enterprise test with respect to the NASD.
As we have concluded that the facts alleged in the Complaint satisfy all four factors of the Enterprise test as to the NCAA, we further conclude that the Complaint plausibly alleges that the NCAA is a joint employer of Plaintiffs for purposes of the FLSA and, accordingly, that Plaintiffs have standing to sue the NCAA. Therefore, we deny the Motion to Dismiss as to the NCAA.
In contrast, we have concluded that the facts alleged in the Complaint do not satisfy any of the four factors of the Enterprise test as to the NASD. Accordingly, application of that test does not support a conclusion that the NASD are joint employers of Plaintiffs. Plaintiffs also argue, however, that the Complaint plausibly alleges that the NASD are joint employers of Plaintiffs under a “Sports League Joint Employment” theory that was developed and applied by the United States Court of Appeals for the Fifth Circuit in North American Soccer League v. NLRB, 613 F.2d 1379 (5th Cir. 1980). We will therefore consider whether the NASD can be considered joint employers under this alternative theory.
C. The Sports League Joint Employment Theory
In North American Soccer League, the Fifth Circuit examined whether the North American Soccer League (the “League”) and all of its member clubs were joint employers of all of the soccer players who played for clubs in the League in order to determine the “correct collective bargaining unit for the players in the League.” The National Labor Relations Board (“NLRB”) had concluded that the League and its member clubs were joint employers of the players and the Fifth Circuit determined that the record contained sufficient evidence to support that conclusion. The Fifth Circuit began its analysis with the proposition that “the existence of a joint employer relationship depends on the control which one employer exercises, or potentially exercises, over the labor relations policy of the other.” The Fifth Circuit based its determination that the NLRB had properly deemed the League and the clubs to be joint employers on the following facts: (1) the League exercised “a significant degree of control over essential aspects of the clubs’ labor relations, including but not limited to the selection, retention, and termination of the players, the terms of individual player contracts, dispute resolution and player discipline;” (2) “each club granted the League authority over not only its own labor relations but also, on its behalf, authority over the labor relations of the other member clubs;” (3) the clubs’ activities were governed by the League’s constitution and regulations, the commissioner was selected and compensated by the clubs, and the League’s board of directors was made up of one representative of each club; (4) the League’s regulations governed interclub trades and allowed the commissioner “to void trades not deemed to be in the best interest of the League;” (5) the League’s regulations governed the termination of player contracts; (6) all player contracts were submitted to the League and the commissioner could “disapprove a contract deemed not in the best interest of the League;” (7) “disputes between a club and a player were required to be submitted to the commissioner for final and binding arbitration;” and (8) “control over player discipline was divided between the League and the clubs.”
Plaintiffs argue that the Complaint alleges that the NCAA and its member schools operate sufficiently similarly to the League and its member clubs that it plausibly alleges that the NASD are joint employers of Plaintiffs. They argue that the Complaint alleges that NCAA D1 member schools grant enforcement authority to the NCAA over a wide range of subjects that directly impact student athletes’ working conditions and that active D1 member schools have voting privileges to make the NCAA’s rules. Plaintiffs also assert that the NCAA’s Bylaws address “recruitment, eligibility, hours of participation, duration of eligibility and discipline.” Plaintiffs also rely on the allegations that as many as 24 NCAA D1 member schools may have representatives on the D1 Committee on Infractions and that five D1 member schools may have representatives on the D1 Infractions Appeal Committee (along with members of the public and representatives from conferences).
The district court rejected a similar argument in Livers v. National Collegiate Athletic Association, (E.D. Pa. May 17, 2018). The plaintiff in Livers contended that the NCAA, Villanova University (for which he played football), “and dozens of other NCAA member schools, violated his right to be paid as an employee of the Defendants, acting jointly, for his participation on the Villanova football team as a Scholarship Athlete.” The Livers court granted a motion to dismiss brought by the NCAA member schools that were not attended by the Plaintiff. While the complaint in Livers, like the Complaint in the instant proceeding, alleged that the NCAA member schools had agreed to impose restrictions on student athlete recruitment, eligibility, compensation, and the number of hours that student athletes could spend in connection with NCAA intercollegiate athletics, and to subject student athletes to discipline by the NCAA Committee on Infractions, the Livers court concluded that the complaint in that case did not plausibly allege that the NCAA member schools that Livers did not attend were his joint employers under either the Enterprise test or North American Soccer League. After first noting that the Fifth’s Circuit’s decision in North American Soccer League is not controlling in the Eastern District of Pennsylvania, the Livers court rejected the plaintiff’s argument that North American Soccer League demanded a conclusion that the NCAA member schools that he did not attend were his joint employers, observing that North American Soccer League was not an FLSA case, did not involve student athletes, and, most importantly, involved facts that “demonstrated a more significant management role for each individual soccer team in the management of the League as a whole, by virtue of their membership in the League, than Plaintiff alleges with respect to NCAA member schools.”
We conclude that the same is true in the case before us. In North American Soccer League, the commissioner was selected and compensated by the clubs, and the League’s board of directors was made up of one representative of each club. In contrast, the Complaint in this case does not allege that the president of the NCAA is selected by and paid by the member schools, that any of the NASD are members of the NCAA D1 Committee on Infractions or the D1 Infractions Appeal Committee, or that any of the NASD are involved in day-to-day decision making in the NCAA D1. We conclude, accordingly, that the Complaint does not plausibly allege that the NASD are joint employers of Plaintiffs under the “Sports League Joint Employment Theory” described in North American Soccer League. Based on this conclusion and our prior analysis under the Enterprise test, we further conclude that the Complaint does not plausibly allege that the NASD are joint employers of Plaintiffs and, accordingly, that Plaintiffs lack standing to sue the NASD for violations of the FLSA. We thus grant the instant Motion to Dismiss as to Plaintiffs’ FLSA claim in Count I of the Complaint as against the NASD.
NLRB, Standard for Determining Joint-Employer Status, 88 FR 73946 (Final Rule Oct. 27, 2023)
The Final Rule
The joint-employer doctrine plays an important role in the administration of the Act. The doctrine determines when an entity that exercises control over particular employees’ essential terms and conditions of employment has a duty to bargain with those employees’ representative. It also determines such an entity’s potential liability for unfair labor practices. The joint-employer analysis set forth in this final rule is based on common-law agency principles as applied in the particular context of the Act. In our considered view, the joint-employer standard that we adopt today removes artificial control-based restrictions with no foundation in the common law that the Board has previously imposed in cases beginning in the mid-1980s discussed above, and in the 2020 rule. By incorporating common-law agency principles, as the Act requires, the final rule appropriately aligns employers’ responsibilities with respect to their employees with their authority to control those employees’ essential terms and conditions of employment and so promotes the policy of the United States, as articulated in Section 1 of the Act, to encourage the practice and procedure of collective bargaining and to protect the exercise by workers of full freedom of association, self-organization, and designation of representatives of their own choosing, for the purpose of negotiating the terms and conditions of their employment or other mutual aid or protection.
A. Definition of an Employer of Particular Employees
Section 103.40(a) of the final rule provides that an employer, as defined by Section 2(2) of the Act, is an employer of particular employees, as defined by Section 2(3) of the Act, if the employer has an employment relationship with those employees under common-law agency principles. This provision expressly recognizes the Supreme Court’s conclusion that Congress’s use of the terms “employer” and “employee” in the NLRA was intended to describe the conventional employer-employee relationship under the common law.
Because “Congress has tasked the courts, and not the Board, with defining the common-law scope of ‘employer,’” the Board—in evaluating whether a common-law employment relationship exists—looks for guidance from the judiciary, including primary articulations of relevant principles by judges applying the common law, as well as secondary compendiums, reports, and restatements of these common law decisions, focusing “first and foremost [on] the ‘established’ common-law definitions at the time Congress enacted the National Labor Relations Act in 1935 and the Taft-Hartley Amendments in 1947.”
By explicitly grounding the Board’s joint-employer analysis in common-law agency principles, this provision recognizes that the existence of a common-law employment relationship is a necessary prerequisite to a finding that an entity is a joint employer of particular employees.
B. Definition of Joint Employers
Section 103.40(b) provides that, for all purposes under the Act, two or more employers of the same particular employees are joint employers of those employees if the employers share or codetermine those matters governing employees’ essential terms and conditions of employment. The provision thus first recognizes, as did the 2020 rule, that joint-employer issues may arise (and the same test will apply) in various contexts under the Act, including both representation and unfair labor practice case contexts.
The provision goes on to codify the longstanding core of the joint-employer test, consistent with the formulation of the standard that several Courts of Appeals (notably, the Third Circuit and the District of Columbia Circuit) have endorsed.
By providing that a common-law employer of particular employees must also share or codetermine those matters governing the employees’ essential terms and conditions of employment in order to be considered a joint employer, the provision recognizes and incorporates the principle from BFI that “the existence of a common-law employment relationship is necessary, but not sufficient, to find joint-employer status.”
D. Definition of “essential terms and conditions of employment”
Section 103.40(d) defines “essential terms and conditions of employment” as (1) wages, benefits, and other compensation; (2) hours of work and scheduling; (3) the assignment of duties to be performed; (4) the supervision of the performance of duties; (5) work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; (6) the tenure of employment, including hiring and discharge; and (7) working conditions related to the safety and health of employees. The Board has decided, after careful consideration of comments as reflected above, to modify the proposed rule’s definition of “essential terms and conditions of employment” by setting forth an exclusive, closed list of terms and conditions of employment that may serve as the objects of control necessary to establish joint-employer status.
Terms and conditions of employment falling in these seven categories are not simply common across employment relationships, they represent the core subjects of collective bargaining contemplated by the Act, as illuminated by the Board’s administrative experience. Thus, Section 8(d) of the Act expressly provides that the collective-bargaining obligation encompasses a duty to confer with respect to wages and hours, subjects falling within categories (1) and (2). Categories (3), (4), and (5) similarly include terms involving the assignment, supervision, and detailed control of employees’ performance of work duties—and the grounds for discipline of employees who fail to perform as required—all common across employment relationships and subjects of central concern to employees seeking to improve their terms and conditions of employment through collective bargaining. Terms and conditions in Category (6), addressing the conditions for the formation and dissolution of the employment relationship itself, are clearly essential conditions of employment. Finally, as many commenters have observed, terms setting working conditions related to the safety and health of employees—encompassed in category (7)—are basic to the employment relationship and lie at or near the core of issues about which employees would reasonably seek to bargain. By providing that a common-law employer of particular employees will be considered a joint employer of those employees only if it possesses the authority to control or exercises the power to control one or more terms and conditions of employment falling into one of these seven categories, this provision ensures that such an employer will be in a position to engage in meaningful bargaining over an issue of core concern to the employees involved. This provision thus effectively incorporates the second step of the Board’s joint-employer test set forth in BFI, above, as described by the District of Columbia Circuit in BFI v. NLRB, and addresses that court’s concern that the Board had failed, in BFI, adequately to delineate what terms and conditions are “essential” to make collective bargaining “meaningful.”
E. Control Sufficient To Establish Joint-Employer Status
Section 103.40(e) provides, consistent with § 103.40(a) and (c), that whether an employer possesses the authority to control or exercises the power to control one or more of the employees’ essential terms and conditions of employment is determined under common law-agency principles. Thus, this provision explains that, subject to the terms of the preceding provisions, (1) possessing the authority to control one or more essential terms and conditions of employment is sufficient to establish status as a joint employer regardless of whether the control is exercised; and (2) exercising the power to control indirectly (including through an intermediary) one or more essential terms and conditions of employment is sufficient to establish status as a joint employer, regardless of whether the control is exercised directly.
As discussed above, the Board has modified this provision from the version set forth in the NPRM by clarifying that, in every case, the object of a common-law employer’s control that is relevant to the question of whether it is also a joint employer under the Act must be an essential term and condition of employment as defined in § 103.40(d). In combination with the Board’s limitation of “essential” terms and conditions of employment to matters that lie near the core of the collective-bargaining process, this change is intended to address the concerns of commenters (discussed above) that the standard should not require the Board to find a joint-employer relationship based on an entity’s attenuated, insubstantial, or unexercised control over matters that—while they may be mandatory subjects of bargaining—are actually peripheral to the employment relationship or to employees’ terms and conditions of employment. The version of § 103.40(e) that appears in the final rule is reformatted to include two subsections and has been streamlined to avoid surplusage.
F. Control Immaterial to Joint-Employer Status
Section 103.40(f) provides that evidence of an entity’s control over matters that are immaterial to the existence of an employment relationship under common-law agency principles and that do not bear on the employees essential terms and conditions of employment is not relevant to the determination of whether the employer is a joint employer.
As discussed above, many commenters have expressed a concern that the proposed rule could result in the Board finding joint-employer relationships based on kinds of control that are not indicative of a common-law employment relationship or that do not form a proper foundation for collective bargaining or unfair-labor practice liability. Similarly, the District of Columbia Circuit in BFI v. NLRB criticized the Board’s BFI decision for failing, in its articulation and application of the indirect-control element of the standard, to distinguish between indirect control that the common law of agency considers intrinsic to ordinary third-party contracting relationships and indirect control over essential terms and conditions of employment.
This provision addresses these concerns by expressly recognizing that some kinds of control, including some of those commonly embodied in a contract for the provision of goods or services by a true independent contractor, are not relevant to the determination of whether the entity possessing such control is a common-law employer of the workers producing or delivering the goods or services, and that an entity’s control over matters that do not bear on workers’ essential terms and conditions of employment are not relevant to the determination of whether that entity is a joint employer.
G. Burden of Proof
Section 103.40(g) provides that a party asserting that an employer is a joint employer of particular employees has the burden of establishing, by a preponderance of the evidence, that the entity meets the requirements set forth above. This allocation of the burden of proof is consistent with the 2020 Rule, BFI, and pre-BFI precedent.
H. Bargaining Obligations of a Joint Employer
Section 103.40(h) provides that a joint employer of particular employees must bargain collectively with the representative of those employees with respect to any term and condition of employment that it possesses the authority to control or exercises the power to control, regardless of whether that term and condition is deemed to be an essential term and condition of employment under the definition above, but is not required to bargain with respect to any term and condition of employment that it does not possess the authority to control or exercise the power to control.
As discussed above, some commenters have requested that the Board provide a concise statement of joint employers’ bargaining obligations in order to clarify both that a joint employer—like any other employer—must bargain over any mandatory subject of bargaining that is subject to its control, and that a joint employer—again, like any other employer—is not required to bargain about workplace conditions that are not subject to its control. Particularly in light of the Board’s determination, discussed above, to adopt a closed list of “essential terms and conditions of employment,” as objects of control relevant to the joint-employer determination, the Board has concluded, after careful consideration of the comments, that it is desirable to expressly provide that a joint employer’s bargaining obligations are not limited to those “essential terms and conditions” of employment that it controls, but extend to any ordinary mandatory subject of bargaining that is also subject to its control. Clarifying a joint employer’s bargaining obligation in this way further ensures that collective bargaining involving the joint employer will be meaningful, because such bargaining will be able to address not only the core workplace issues the control of which establishes the employer’s status as a joint employer but also any other matters subject to the joint employer’s control that sufficiently affect the terms and conditions of employees’ employment to permit or require collective bargaining under section 8(d) of the Act.
On the other hand, the Board has also concluded that it serves a useful clarifying purpose to expressly provide, consistent with extant Board precedent not affected by the final rule, that where two or more entities each control terms and conditions of employment of particular employees, an employer is not required to bargain over any such terms and conditions which are in no way subject to its own control.
29 CFR § 103.40. Joint Employers
(a) An employer, as defined by section 2(2) of the National Labor Relations Act (the Act), is an employer of particular employees, as defined by section 2(3) of the Act, if the employer has an employment relationship with those employees under common-law agency principles.
(b) For all purposes under the Act, two or more employers of the same particular employees are joint employers of those employees if the employers share or codetermine those matters governing employees’ essential terms and conditions of employment.
(c) To “share or codetermine those matters governing employees’ essential terms and conditions of employment” means for an employer to possess the authority to control (whether directly, indirectly, or both), or to exercise the power to control (whether directly, indirectly, or both), one or more of the employees’ essential terms and conditions of employment.
(d) “Essential terms and conditions of employment” are
(1) Wages, benefits, and other compensation;
(2) Hours of work and scheduling;
(3) The assignment of duties to be performed;
(4) The supervision of the performance of duties;
(5) Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
(6) The tenure of employment, including hiring and discharge; and
(7) Working conditions related to the safety and health of employees.
(e) Whether an employer possesses the authority to control or exercises the power to control one or more of the employees’ essential terms and conditions of employment is determined under common-law agency principles. For the purposes of this section:
(1) Possessing the authority to control one or more essential terms and conditions of employment is sufficient to establish status as a joint employer, regardless of whether control is exercised.
(2) Exercising the power to control indirectly (including through an intermediary) one or more essential terms and conditions of employment is sufficient to establish status as a joint employer, regardless of whether the power is exercised directly.
(f) Evidence of an entity’s control over matters that are immaterial to the existence of an employment relationship under common-law agency principles and that do not bear on the employees’ essential terms and conditions of employment is not relevant to the determination of whether the entity is a joint employer.
(g) A party asserting that an employer is a joint employer of particular employees has the burden of establishing, by a preponderance of the evidence, that the entity meets the requirements set forth in paragraphs (a) through (f) of this section.
(h) A joint employer of particular employees
(1) Must bargain collectively with the representative of those employees with respect to any term and condition of employment that it possesses the authority to control or exercises the power to control, regardless of whether that term or condition is deemed to be an essential term and condition of employment under this section for the purposes of establishing joint-employer status; but
(2) Is not required to bargain with respect to any term and condition of employment that it does not possess the authority to control or exercise the power to control.
(i) The provisions of this section are intended to be severable. If any paragraph of this section is held to be unlawful, the remaining paragraphs of this section not deemed unlawful are intended to remain in effect to the fullest extent permitted by law.