Key takeaways
- On July 11, 2024, the Third Circuit in Johnson v. NCAA held that student athletes are not barred from being considered employees under the Fair Labor Standards Act (FLSA).
- The Johnson decision adds to mounting evidence that courts and regulators no longer accept the NCAA's long-successful "amateurism" defense to avoid classifying student-athletes as employees.
- Applying the economic realities test, the Third Circuit 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'."
On July 11, 2024, the Third Circuit in Johnson v. NCAA held that student athletes are not barred from being considered employees under the Fair Labor Standards Act (FLSA). The Third Circuit began its opinion by signaling in no uncertain terms that the days of the NCAA's long-successful "amateurism" argument are over. The court retorted: "Do efforts that provide tangible benefits to identifiable institutions deserve compensation? In most instances, they do."
Student athlete or employee? The Third Circuit's new test
Applying the economic realities test, the Third Circuit 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'." While the Third Circuit remanded the case for the district court to apply this test, the opinion leaves little unsaid regarding the Third Circuit's views that "commercialization [is] the norm" and the NCAA and member institutions "stand to profit substantially" from student athletics.
The players and background
The Johnson plaintiffs – several NCAA Division I athletes – sued the NCAA and member institutions in 2019 alleging that they were employees of their institutions and the NCAA and were therefore entitled to the federal minimum wage under the FLSA. In response, the NCAA asserted as it has done successfully in the past that student athletes are not employees, but "amateurs" which is an amorphous classification that effectively frames student participation in athletics as like any other extracurricular activity on campus.
The Johnson court affirmed the Eastern District of Pennsylvania's denial of the NCAA's motion to dismiss, holding that student athletes could be considered employees under the FLSA. The Third Circuit departed from the Eastern District's reasoning however, explaining that the proper test to decide if student athletes are employees under the FLSA is the common law economic realities test, not the Glatt seven-factor test the district court applied. The court reasoned that Glatt did not apply because the educational and vocational benefits NCAA purports to give are benefits that one would acquire in a work environment rather than an internship. The Third Circuit thus took a more wholistic approach than the district court. The Third Circuit focused on "the circumstances of the whole activity" and largely 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 the benefits of the same to the student athlete.
What's next?
The Johnson decision is thus the latest development trending toward student athletes obtaining new legal status in collegiate athletics. To name a few, the Johnson decision joins the Supreme Court's 2021 Alston decision striking down the NCAA's grant-in-aid cap as an unreasonable restraint on trade, the NLRB's 2021 memo finding that Division I football players were employees with the right to unionize under the NLRA, the recent successful unionization of the Dartmouth College men's basketball team, and the recent $2.8 billion settlement in two NCAA antitrust cases. The tide is certainly turning in collegiate athletics. However, all of these developments leave many questions unanswered.
Particularly regarding Johnson, there are looming questions:
- Will universities face minimum wage back-pay liability for past student athletes?
- Will universities face cross-sport or all sport class action lawsuits?
- Will higher education insurers cover claims from student athletes for back pay?
- Will student athletes be entitled to overtime? To workers' compensation? To employee benefits?
- Will the Johnson decision galvanize the so-far slow-moving student athlete unionization trend?
- Will Title IX require equal pay for student athletes in comparable teams of different genders?
- Will NIL payments be considered part of student athletes' pay?
- Will the treatment of Division I athletics be carved out or will the new legal obligations of colleges and universities in relation to student athletes transcend the divisions?
Client Alert 2024-154
This article is presented for informational purposes only and is not intended to constitute legal advice.