When, if ever, are college athletes “employees” who are entitled to compensation rather than simply students playing games? The United States Court of Appeals for the Third Circuit recently shed a little more light on the issue, opening a path by which at least some college athletes may be classified as “employees” and gain the legal protection that comes with that designation, a change that would have a significant impact on college sports in the US.

Johnson v. NCAA

In 2019, athletes at several National Collegiate Athletic Association (NCAA) Division I (D-I) member schools filed a complaint against the NCAA and their schools asserting violations of the Fair Labor Standards Act (FLSA) claiming that they were entitled to federal minimum wage compensation for the time they spent representing their individual schools. Led by former Villanova football player Ralph “Trey” Johnson, the athletes argued that they met the legal criteria for employment under the FLSA because their athletic duties were separate from their academic responsibilities and heavily controlled by their respective schools. The NCAA and member schools moved to dismiss the lawsuit asserting that the athletes—as “amateurs”—were not, and historically have never been, considered employees of their schools or the NCAA. US District Judge John Padova denied the NCAA’s motion to dismiss finding that the athletes had sufficiently pleaded facts that, under a “primary beneficiaries” multifactor balancing test, might allow them to be classified as employees under the FLSA. The NCAA and member schools appealed the ruling.

The issue for the Third Circuit Court of Appeals was whether college athletes, by nature of their “amateur” status, are precluded from ever bringing an FLSA claim. The Third Circuit held 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. Specifically, while the Third Circuit affirmed the lower court’s decision denying the NCAA’s motion to dismiss, it also held that the trial judge used the wrong legal standard in deciding the issue. Judge Padova had applied the multifactor test set out in Glatt v. Fox Searchlight Pictures, Inc., a Second Circuit FLSA case concerning unpaid student interns that focused on the economic relationship between employer and intern/worker. In finding the Glatt test had “limited relevance to athletes,” the Third Circuit held that an internship is part of an educational program, whereas “interscholastic athletics are not part of any academic curriculum,” and that the sports played by these athletes may have been “detrimental to their academic performance” given that sports can preclude athletes from taking certain courses or pursuing difficult majors.

Instead, the Third Circuit directed the District Court to apply four factors to its analysis, holding 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 the control or right of control … and

(d) in return for ‘express’ or ‘implied’ compensation or ‘in-kind’ benefits.’”

The Third Circuit noted a likely distinction under this “economic realities” test between “athletes who ‘play’ their sports for predominantly recreational or non-commercial reasons” and those “whose play crosses the legal line into work protected by the FLSA,” noting that there may be a different result for students who receive scholarships to participate in revenue sports like D-I men’s basketball or FBS Football.

The Broader Implications

Johnson v. NCAA may have a significant impact on the employment status of NCAA athletes and even wider implications on college sports in the US. While the Third Circuit’s ruling does not make the athletes employees of their colleges, it is a substantial step in that direction. Given Judge Padova’s findings in earlier rulings and his expansive definition of the term “employer” under the law, it seems extremely likely that he will conclude that many NCAA athletes are employees under the FLSA. If deemed employees under the FLSA, those athletes would be entitled to at least minimum wage and overtime pay, potentially leading to substantial financial obligations for the NCAA and its member colleges. Colleges, universities, athletic departments, and university administrators will therefore need guidance in many areas, including:

1.   interpreting applicable portions of the FLSA;
2.  navigating the NCAA’s internal bylaws and amateurism rules (which ultimately will need to be amended to acknowledge an employer-employee relationship);
3. notifying current and former students who played sports they are potential members of a proposed class action pursuant to the Family Education Rights and Privacy Act (a federal law that protects the privacy of student education records);
4. sorting out which of the hundreds of thousands of current and former D-1 athletes fall on the “employee” side of the line;
5. determining or estimating the number of hours each such “employee-student-athletes” worked in order to
6. properly calculate and pay wages to those current and former employee-student-athletes; and
7. assessesing the tax implications on athletes and their schools.

Additionally, given that FLSA discovery can be public-facing, the NCAA and member schools may be incentivized to enter settlement negotiations, as it did in House v. NCAA, rather than pursue trial. That is, while many key pieces of evidence have been redacted in antitrust litigation against the NCAA (such as information pertaining to TV and licensing contracts), FLSA cases are more about ordinary aspects of work, and are generally not confidential. Thus, FLSA discovery means college officials, coaches, and staff will need to store and share numerous materials—such as time sheets, practice schedules, and on-field activities notes—related to athlete work and answer questions under oath about those topics.

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