• The Third Circuit in Johnson v. NCAA ruled that athletes at NCAA Division I schools may be considered employees under the Fair Labor Standards Act.
• The Johnson decision creates a circuit split that could lead the United States Supreme Court to resolve this issue.
• Colleges and universities could face substantial back pay claims from current and former college athletes based on Johnson.

The National Collegiate Athletic Association (NCAA) has long argued that college athletes are amateurs exempt from minimum wage and overtime under the Fair Labor Standards Act (FLSA). Until last week, courts around the United States agreed. On July 11, 2024, however, the U.S. Court of Appeals for the Third Circuit issued its long-anticipated decision in Johnson v. National Collegiate Athletic Association, signaling a potential end to the NCAA’s longstanding amateurism practice and setting up the possibility of the United States Supreme Court weighing in on the issue.

Background

In November 2019, former Villanova football player Ralph “Trey” Johnson, along with other former Division I student-athletes, filed suit in the U.S. District Court for the Eastern District of Pennsylvania challenging the NCAA’s amateurism argument. The plaintiffs alleged that college athletes who engage in Division I interscholastic athletic activity for their colleges and universities that is unrelated to academics are student employees similar to students engaged in work study programs. They sought payment for their time engaging in such athletic activity. The NCAA moved to dismiss that claim for lack of standing because the plaintiffs were not employees. The district court denied the NCAA’s motion and the NCAA sought review of that decision.

The Third Circuit affirmed the district court’s denial of the NCAA’s motion, but disagreed with its reasoning. The Johnson decision began with a question – and a clear and unequivocal answer – signaling that the NCAA’s reliance on amateurism is over. The court asked, “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.”

In a departure from the reasoning of the Eastern District, the Third Circuit asserted that the appropriate test for whether college athletes are employees under the FLSA is the common law economic realities test, not the Glatt¹ seven-factor test the district court applied. Glatt established a test for determining whether an unpaid intern is an employee under the FLSA. The Third Circuit concluded that Glatt did not apply because NCAA athletics offer benefits that one would generally acquire in a work environment, not an internship, thus, placing college athletes in a class of their own for purposes of evaluating the potential employment relationship.

Based on this understanding, the Third Circuit applied the economic realities test and held 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,’ (c) under that party’s control or right of control, and (d) in return for ‘express’ or ‘implied’ compensation or ‘in-kind benefits’.” The Third Circuit focused on “the circumstances of the whole activity” and applied a common law agency analysis instead of the district court’s approach of effectively weighing the benefits of the student athletes’ activities to the institution against their benefits to the student athlete.

Using this analysis, the Third Circuit held that college athletes may be employees under the FLSA. In reaching this decision, the Third Circuit declined to follow the Ninth² and Seventh³ Circuit courts, which had held that college athletes are not employees protected by the FLSA. The Third Circuit sent the case back to the Eastern District to apply the economic realities test. Further proceedings will likely follow.

The current landscape for college athletes

Johnson is the latest in a growing trend signaling a change in judicial understanding of the activities of college athletes and the nature of collegiate athletics overall. College athletes may attempt to treat Johnson as the standard moving forward, as more challenges to the NCAA’s longstanding amateurism argument arise.

The classification and employment status of NCAA college athletes has been a developing controversy in recent years after the NCAA v. Alston decision held that NCAA rules limiting education-related compensation violated federal anti-trust law. On September 29, 2021, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo released a memorandum (GC 21-08) taking the unequivocal position that “certain Players at Academic Institutions” are employees under Section 2(3) of the National Labor Relations Act. On February 5, 2024, the NLRB’s Regional Director for Region 1, Laura Sacks, issued a written decision finding that Dartmouth’s men’s basketball players are employees under the National Labor Relations Act, and in March 2024, the Dartmouth men’s basketball team voted to unionize.⁴ A NLRB administrative law judge is also currently considering whether a university in California, the Pac-12 Conference, and the NCAA are joint employers under the NLRA and whether their failure to use the term “employee” to refer to student-athletes in the university’s student athlete handbook and related social media policies intentionally discourages student-athletes from exercising Section 7 rights as employees under the NLRA. Such developments will likely continue as the trend of college athletes’ seeking protections not previously available to them under various laws continues.

Adding to this rapidly changing legal landscape, the United States House of Representatives Committee on Education and the Workforce held a joint subcommittee hearing titled, “Safeguarding Student-Athletes from NLRB Misclassification” in March of this year. The purpose of the hearing was to discuss the unique nature of collegiate athletics programs and how classifying college athletes as employees or allowing them to unionize might affect the future of collegiate athletics. Littler shareholder Tyler A. Sims testified at the joint hearing drawing on his experience as a former Division I athlete, retired professional hockey player and labor and employment attorney. Hearing testimony and a link to the full video recording of the hearing may be found here.

Key Takeaways

The Third Circuit sent the Johnson case back to the Eastern District, and its decision is likely not the final word on this issue. The Third Circuit’s decision will have a major impact, however, and is yet another manifestation of the ongoing challenge to amateurism in collegiate athletics. Colleges and universities with athletic programs should consider the following when determining contingency planning in light of these developments.

• Will universities face minimum wage liability for past student athletes via class action lawsuits?
• How will overtime be calculated for student athletes who spend many hours each week practicing, working out, watching film, traveling, and playing games?
• What will the impact of the Johnson decision be on student athlete unionization?
• Will Title IX require equal pay for student athletes in comparable teams of different genders?
• Would student athletes be entitled to employee benefits, and if so, what would the impact be on benefit plans?
• How will NIL payments count towards a college athlete’s compensation?
• How will the NCAA choose to recognize an employee-employer relationship with college athletes?

Littler will continue to follow these issues and report on significant developments.

Footnotes

¹ Glatt ex rel. Situated v. Fox Searchlight Pictures, Inc., 811 F.3d 528 (2d Cir. 2015).

² Dawson v. Nat'l Collegiate Athletic Ass'n, 932 F.3d 905 (9th Cir. 2019).

³ Berger v. Nat'l Collegiate Athletic Ass'n, 843 F.3d 285 (7th Cir. 2016).

⁴ Trustees of Dartmouth College, Case No. 01-RC-325633. This case is currently on appeal to the National Labor Relations Board in Washington, D.C.