On July 11, 2024, a three-judge panel of the U.S. Court of Appeals for the Third Circuit ruled in Johnson v. NCAA that certain college athletes may qualify as employees of their schools or the NCAA under the Fair Labor Standards Act (“FLSA”). Being classified as employees could entitle college athletes to minimum wages and overtime pay, among other rights under the FLSA. Finding that the longstanding “economic reality” test used to determine if someone is an employee or an independent contractor was not sufficient, the majority held that employee status for college athletes is dependent on 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.” The new test created by the majority evaluates whether college athletes (i) perform services for another party, (ii) necessarily and primarily for the other party’s benefit, (iii) under that party’s control or right of control, and (iv) in return for express or implied compensation or in-kind benefits. The Third Circuit remanded the case, instructing the lower court to apply “an economic realities analysis grounded in common-law agency principles.”
The lower court had applied the seven-factor test from Glatt v. Fox Searchlight Pictures, Inc., a Second Circuit case that assessed whether unpaid interns should be classified as employees. The majority in Johnson reasoned that Glatt did not apply because collegiate sports are not sufficiently analogous to unpaid internships. The skills that college athletes develop through athletics are more akin to the skills “one would typically acquire in a work environment.” Further, while college athletics are never part of an academic curriculum, some unpaid internships do fall under an educational program.
In issuing its decision, the Third Circuit split from the Seventh and Ninth Circuits, which held in 2016 and 2019 respectively that college athletes are not covered under the FLSA, in part relying on the “tradition of amateurism” in collegiate sports. Those decisions predated the U.S. Supreme Court’s 2021 decision in NCAA v. Alston, which paved the way for college athlete compensation by striking down NCAA restrictions on college athletes receiving in-kind educational benefits.
Following Alston, there have been several developments regarding the employment status of college athletes. Recently, the Dartmouth College men’s basketball team successfully formed the first labor union for college athletes. Dartmouth’s request for review of whether college athletes are employees under the National Labor Relations Act is pending acceptance by the National Labor Relations Board. Football and basketball players at the University of Southern California are currently seeking recognition as employees of the university, the NCAA, and the Pac-12 Conference (as joint employers) before the National Labor Relations Board. A decision in this case is pending. Congress is also weighing in, as House Republicans recently advanced a bill that would prevent college athletes from being considered employees. The NCAA, and five of its member conferences, also recently reached a proposed $2.8 billion back-pay settlement to resolve three antitrust challenges brought by college athletes regarding limitations on compensation and benefits. The proposed settlement eliminates NCAA rules prohibiting direct payment to college athletes and would allow, but not require, schools to adopt compensation models that share revenue with college athletes moving forward.
Colleges and universities should continue to monitor the latest developments and consider preparing legal, administrative, and financial strategies in response to potential sweeping changes in collegiate athletics.
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