Are Student-Athletes Employees? The 3rd Circuit Will Decide

Image credit: USA Today

Finally, a court of law will decide the most important issue in the history of collegiate athletics: are students who participate in college varsity sports employees?

The term “student-athlete” was coined by the NCAA in the 1950s to ward off potential workers’ compensation claims by student-athletes. Over time, the phrase became a self-fulfilling mantra: student-athletes were just that, defined as amateurs by the NCAA and its member schools because they were not, and could not, be paid because of NCAA rules. While there have been some notable violations of that principle over the years, by and large the NCAA has been able to maintain its amateur model – albeit while generating increasingly vast amounts of revenue for its members. Since the student-athletes were prohibited from receiving any compensation, however, they could not benefit from this largesse.

As the discrepancy between increasingly sophisticated collegiate sports powerhouses and their often economically disadvantaged athletes grew, however, so did pressure for change. Beginning with Kain Colter’s push to unionize Northwestern football players in 2014, seguing into Ed O’Bannon’s challenge to the NCAA’s restrictions upon athletes’ use of their name, image and likeness, and culminating last spring in the Supreme Court’s decision in NCAA v. Alston, college sports has radically changed while the NCAA struggles to adapt to the new reality. Now, the NCAA faces the ultimate challenge to its beleagured, outdated amateurism model: the fundamental question of whether its athletes are actually employees of its member schools. That is the issue raised in Johnson v. NCAA, a case in the Third Circuit which survived a motion to dismiss in August, in which an interlocutory appeal was announced this week. (An interlocutory appeal occurs when a party or parties seek a higher court’s intervention on a specific issue prior to final judgment being rendered by the court in which the case is being heard.)

The plaintiffs, who are students in Pennsylvania, New York and Connecticut, are suing under the Fair Labor Standards Act and various state minimum wage statutes, claiming that they are entitled to back wages and damages for unjust enrichment the institutions received at their expense. The NCAA made a motion to dismiss the complaint in district court, relying in large part upon its historic argument that it has “a revered tradition of amateurism”. That position, which arose from dicta (or what Justice Kavanaugh in his Alston concurrence referred to as “stray comments”) in a Supreme Court case, NCAA v. Board of Regents, that had NOTHING to do with the amateurism model, was summarily dismissed in Alston. Nevertheless, it was the NCAA’s principal argument in the motion to dismiss in Johnson. The district court noted that the Board of Regents case and a subsequent Seventh Circuit case, Berger v. NCAA, were effectively overruled by the Supreme Court in Alston. The Johnson court noted the “circular reasoning that [the schools] should not be required to pay Plaintiffs a minimum wage under the FLSA because Plaintiffs are amateurs, and that Plaintiffs are amateurs because [the schools] and the other NCAA member schools have a long history of not paying student athletes like Plaintiffs”.

The NCAA also relied upon a Field Operations Handbook published by the US Department of Labor, which provides that student participation in extracurricular activities does not constitute an employment relationship. The district court conducted an extensive analysis to determine the weight of deference that should be accorded to the Handbook provision, noting that, unlike drama clubs, musical groups and other activities, varsity athletics often can be a barrier to a student’s academic pursuits. In particular, the court cited that many college athletes spend up to 30 hours per week on required athletic activities, and football players in bowl and championship subdivisions may be required to spend up to 40 hours per week to the detriment of their academic performance. Meanwhile, D1 schools reaped anywhere from $16 million (in institutions without football programs) to over $97 million median revenues (football bowl subdivision institutions). Consequently, the district court determined that the Plaintiffs “plausibly allege[] that NCAA D1 interscholastic athletics are not conducted primarily for the benefit of the student athlete who participate in them, but for the monetary benefit of the NCAA and the colleges and universities that those students attend.” Perhaps most importantly, however, the district court stated that the complaint also plausibly alleged “that the NCAA D1 interscholastic athletics are not part of the educational opportunities provided to the student athletes by the colleges and universities that they attend but, rather, interfere with the student athletes’ abilities to participate in and get the maximum benefit from the academic opportunities offered by their colleges and universities.” (Emphasis added.)

The district court also applied an economic reality test to determine whether complaint sufficiently alleged facts that would support an employment status under the Fair Labor Standards Act. Due to multiple factors and the broad definition of “employee” under the Act, the plaintiffs’ complaint was allowed to stand.

What does this mean? When considering a motion to dismiss, a court must assume that the facts alleged by the plaintiff are true, and “construe the complaint in the light most favorable to the plaintiff”. The district court ruling does not guaranty that the plaintiffs will be successful at trial. In essence, the NCAA lost the first round. The NCAA responded by filing a motion requesting that the Third Circuit hear an interlocutory appeal of the most critical issue. As certified by the district court, the Third Circuit will now consider on appeal: “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”.

After various skirmishes around the edges – Name, Image & Likeness, the right to unionize, etc. – finally the core principle of the NCAA model is under siege. Given past history, it is to be expected that this battle will also eventually end up in the hands of SCOTUS.

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