Key Employment Law Decision Could Shake Up NCAA – Are Student Athletes Employees?

Key Employment Law Decision Could Shake Up NCAA – Are Student Athletes Employees?

The question surrounding whether collegiate athletes are employees is a hot topic with important ramifications affecting all aspects of college sports.  NCAA rules and state laws now allow student-athletes to receive compensation for the use of their name, image, and likeness (“NIL”) to endorse products and services. The landmark changes to college sports that may arise from the seminal case Johnson v. NCAA may change the landscape and structure of both college sports and the NCAA.

Recently, student-athletes had argued that, given the degree of control that colleges and universities exercise over student-athletes and the revenue generated from college sports, that college athletes should be compensated as employees. While such argument has not been persuasive, the U.S. Supreme Court’s 2021 decision in NCAA v. Alston has thrusted this issue into the national spotlight. 

The Johnson Case Will Determine Whether Student-Athletes Are Employee Under the FLSA

In 2019, Ralph “Trey” Johnson, a former defensive back for Villanova University and other student-athletes initiated a class-action lawsuit against the NCAA, Villanova, Fordham University, Sacred Heart University, Cornell University and Lafayette College in Pennsylvania federal court. The student-athletes argued that they should be classified as  university “employees” and compensated accordingly under the Fair Labor Standards Act (FLSA).   

In support, the student-athletes argued that student-athletes at NCAA Division 1 (“D1”) schools were, among other things, required to schedule their classes around their athletic schedule and participate in Countable Athletically Related Activities (“CARA”).  Other aspects of the life of a college athlete, including, for example, travel, physical rehabilitation, and consultations with coaches resulted in some student-athletes spending more than 30 hours per week on sports-related activities. The student-athletes also argued that NCAA D1 member schools exercised significant control over their student athletes, including governing their performance both on and off the field.

In response, the universities argued that student-athletes had consistently been treated as amateurs, which is a defining feature and aspect of college athletics. The universities also cited to the Department of Labor’s (“DOL”) Field Operations Handbook as support for the proposition that “interscholastic athletics … conducted primarily for the benefit of the participants as a part of the educational opportunities provided to the students by the school or institution, are not work of the kind contemplated by [the FLSA].” The universities also argued that student-athletes do not satisfy the test for student employment set forth in  Glatt v. Fox Searchlight Pictures, Inc. 811 F.3d 528 (2d Cir. 2016). 

The District Court ultimately refused to dismiss the suit and criticized the university’s “circular reasoning that they should not be required to pay Plaintiffs a minimum wage under the FLSA because Plaintiffs are amateurs, and that Plaintiffs are amateurs because the ASD and the other NCAA member schools have a long history of not paying student athletes like Plaintiffs.” Following the District Court’s denial of the motion to dismiss, the universities appealed to the Third Circuit. The appeals court will hear the appeal and will consider the following question: “Whether NCAA Division I student 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.” The Third Circuit recently held oral arguments in the closely watched case and a decision is expected in the coming months.

Multi-Factor Glatt Test

The federal courts and the DOL have adopted anon-exhaustive multi-factor factor test, called the Glatt test, to evaluate whether an unpaid student-intern should be treated as a paid employee.  Application of the  Glatt test requires that courts examine and consider the “economic reality” of the intern-employer relationship in efforts to determine which party is the “primary beneficiary” of the relationship. Courts have identified the following seven factors:

• The extent to which the intern and the employer clearly understand that there is no expectation of compensation (i.e., any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa).

• The extent to which the internship provides training that would be similar to that provided in an educational environment, including  clinical and other hands-on training provided by educational institutions.

• The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
• The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.

• The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

• 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.

• 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.

In Johnson v. NCAA, the District Court found that several factors weighed in favor of the student-athletes being classified as employees.  The court held that factors two and five were  neutral, factors one and seven suggested the plaintiffs were not  employees, and factors three, four, and six weighed in favor of the student-athletes being classified as employees. In light of the slight edge in favor of the student-athletes’ claims that they were employees, the court held that the student-athletes could maintain their claims.

The Seventh and Ninth Circuits Have Held Student-Athletes Are Not Employees

Nonetheless, two federal courts of appeal who have addressed the issue of the employment status of student-athletes have both sided with the NCAA.  Notably, however, both cases were decided before the Supreme Court’s decision in NCAA v. Alston. 

In Berger v. NCAA, 843 F.3d 285 (7th Cir. 2016), the Seventh Circuit rejected arguments that student-athletes are employees entitled to compensation under the FLSA, holding that student participation in collegiate athletics “is entirely voluntary” and done without the expectation of compensation. The Court held “Simply put, student-athletic ‘play’ is not ‘work,’ at least as the term is used in the FLSA.”  The Court continued, stating that “Appellants in this case have not, and quite frankly cannot, allege that the activities they pursued as student-athletes qualify as ‘work’ sufficient to trigger the minimum wage requirements of the FLSA.”

Similarly, in Dawson v. NCAA, 932 F.3d 905 (9th Cir. 2019), the Ninth Circuit affirmed the dismissal of a similar lawsuit alleging that the NCAA and the PAC-12 Conference had wrongly denied student-athletes both minimum wage and overtime. Accordingly, the Court held that, in order to be successful, student-athletes were required to show that they had an expectation of compensation from their schools or from NCAA, that the schools had the power to hire or fire student-athletes, and that the lack of a pay scheme was set up to circumvent the provisions of the FLSA. 

Supreme Court’s Decision in NCAA v. Alston

In  NCAA v. Alston, 594 U.S. ____ (2021),  a group of Division 1 athletes alleged that NCAA rules limiting student-athletes could receive in exchange for their athletic services violated §1 of the Sherman Act, which prohibits “contract[s], combination[s], or conspirac[ies] in restraint of trade or commerce.” Ultimately, the Supreme Court upheld a district court decision striking down the NCAA rules limiting the education-related benefits that schools were permitted to offer student-athletes including, among others, rules prohibiting schools from providing free laptops or offering graduate school scholarships.

In its holding, the Court rejected the NCAA’s argument  that its decision in National Collegiate Athletic Association, 468 U.S. 85 (1984) expressly approved the NCAA’s limits on student-athlete compensation. The Supreme Court noted that National Collegiate case involved an antitrust challenge to the NCAA’s restraints on televising broadcasting and did not address the lawfulness of the NCAA’s restrictions on student-athlete compensation.

The Court also rejected the NCAA’s argument that the District Court’s ruling would lead to “micromanagement” of the NCAA’s  business, noting  that the District Court had enjoined only certain restraints and only after finding  that (1) relaxing these restrictions would not blur the distinction between college and professional sports and thus impair demand and (2) that this approach represented a significantly less restrictive means of achieving the same pro-competitive benefits as the NCAA’s current rules.

While the majority opinion was arguably narrow in that it only addressed the education-related benefits, Justice Kavanaugh’s concurring opinion interestingly questioned whether the NCAA’s remaining compensation rules would survive subsequent challenges, stating “The NCAA’s business model would be flatly illegal in almost any other industry in America.”  Justice Kavanaugh also addressed the compensation aspect of the issue, noting “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.”

State-Level NIL Laws

As noted earlier, the legal landscape has also evolved with the enactment of state-level laws allowing student-athletes to obtain compensation for use of their name, image and likeness. California paved the way by prohibiting or  preventing “a student of a postsecondary educational institution participating in intercollegiate athletics from earning compensation as a result of the use of the student’s name, image, likeness, or athletic reputation.”  

In 2020, New Jersey enacted its own NIL law, which grants collegiate student-athletes the ability to earn compensation for the use of their NIL. However, the New Jersey Fair Play Act does not take effect until the fifth academic year following the date of enactment. In 2022, New York also adopted its own NIL law.  The New York Collegiate Athletic Participation Compensation Act allows student-athletes to receive compensation for the use of a student’s name, image, or likeness. The law also allows players to use an attorney or agent in connection with the negotiation of sports related deals and transactions. 

Aware of the changing landscape, the NCAA has amended its own rules and guidelines to allow for NIL activities. Under the NCAA’s policy, student-athletes are permitted to  engage in NIL activities in a manner consistent with the laws of the state where their school is located. Student-athletes attending schools in states without NIL laws in place are still permitted to engage in NIL activities without violating NCAA rules. 

More recently, California introduced legislation that provides student-athletes with additional rights.   Under the College Athlete Protection Act (Assembly Bill 252), college football programs, as well as men’s and women’s basketball programs would be required  to share revenue with their players, subject to certain criteria being met.  Notably, AB 252 expressly provides that athletes would not be considered employees.

What’s Next for the NCAA and Student-Athletes?

Student-athletes have been gaining momentum in their efforts to share in the enormous and significant profits colleges and universities generate from college sports.  However, it is unclear whether student-athletes will ultimately secure employee status.  

As the law continues to evolve, we encourage athletes, universities, and related parties to remained informed and aware of the changing landscape.  The attorneys in Scarinci Hollenbeck’s Entertainment, Media, and Sports Law Group have extensive experience in this area of law and are ready to assist.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Albert J. Soler, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.