College sports have seen growth and change in the past several years, none more pertinent than the evolution of the player compensation era. College athletes may only receive compensation from third-party entities for their name, image, and likeness. However, there is a case in the Third Circuit Court of Appeals that could lay a legal foundation for the development of college athletes being recognized as employees. Specifically, Johnson v. NCAA is the first case where a court can truly analyze whether college athletes fall under employee status as defined by the Fair Labor Standards Act without the precedential pressure of the now-obsolete concept of amateurism forcing their hand. This article briefly covers the evolution of the NCAA’s control over player compensation, and subsequently players’ status as employees, and then discusses a few judicial hurdles the Third Circuit will face when issuing its decision in Johnson v. NCAA.
Evolution of Player Compensation
The NCAA was founded in 1906 to regulate the rules of college sports and to protect young athletes. In 1951, the NCAA elected its first executive director, Walter Byers, as the necessity of full-time professional leadership became apparent. Mr. Byers contributed to strengthening the NCAA and its enforcement division. As college athletics gained traction, institutions began to invest more resources into their sports programs as entities embedded in their educational enterprises. The growing popularity of college sports ultimately led to the NCAA negotiating its first television contract in September of 1952. The NCAA sold its exclusive rights to broadcast a weekly game to NBC. This contract was slightly over $1,000,000.
As college sports became more and more commercialized, many began to critique the NCAA’s enforcement and handling of television rights and its distribution of monies earned. Eventually, this tension point came to a head in NCAA v. Board of Regents, where the Supreme Court applied the rule of reason analysis to the NCAA’s restriction upon colleges pursuing independent television deals. Although the Court ruled, in a 5-4 decision, that the NCAA’s restriction was a horizontal restraint of trade and therefore unreasonable as a matter of law, the Court applied a rule of reason analysis that would be the basis for the NCAA’s justifications for years to come. Specifically, the Court’s analysis included the concept of preserving amateurism, one that the NCAA would rely on for decades to justify its many restrictions against college athletes.
One of those restrictions, of course, had been the prohibition of player compensation. While the NCAA blossomed into a billion-dollar sports entity, primarily due to its various broadcasting deals, college athletes were not allowed compensation for their status as NCAA athletes in any way. However, due to technological advancement and the relatively recent introduction of social media platforms, the NCAA’s restriction against player compensation was becoming archaic and obsolete.
The NCAA’s reliance on preserving amateurism and its pro-competitive justifications for restricting player compensation demonstrated its decay initially in O’Bannon v. NCAA (Ninth Circuit 2014). There, Ed O’Bannon successfully sued the NCAA over its restriction on a student-athlete’s ability to receive compensation for his likeness, Ultimately, this led to the removal of the NCAA’s restriction upon scholarship amounts up to the full cost of attendance at institutions.
Furthermore, the NCAA’s amateurism model was exposed again in 2015. In an unsuccessful attempt to unionize, Northwestern football players publicly illustrated the growing concerns of a very lucrative sports enterprise (NCAA) mistreating its “employees”. There, the players from Northwestern illustrated the extreme work environment that included 60 hours a week of mandated football activities. Meshed into these intense workweeks were requirements that players maintain good academic standing as full-time students while at an elite academic research institution.
The NCAA’s reliance on the preservation of amateurism finally dissolved in June of 2021. In Alston v. NCAA, the Supreme Court issued a unanimous decision that prohibited the NCAA from restricting academic related compensation for college athletes. Further, in a concurring opinion, Justice Kavanaugh emphasized that the “NCAA is not above the law.” This decision ignited the new age of college sports: player compensation.[1]
In its current form, the player compensation era does not include players being directly compensated by their institutions for their participation in athletics. However, in tune with the compounding caselaw forging the path for player compensation, NCAA v. Johnson, which currently sits in the Third Circuit Court of Appeals may prove to be monumental in the issue of whether college athletes can be compensated directly by their institutions.
Background – Johnson v. NCAA
In November of 2019, a former Villanova football player and various other former college athletes sued the NCAA and roughly two dozen institutions in the United States Eastern District Court of Pennsylvania, claiming that college athletes should be recognized as employees under the Fair Labor Standards Act, and that the NCAA is a joint employer alongside the school an athlete competes for.[2] Specifically, the athletes are claiming that they are entitled to back wages and damages for unjust enrichment the institutions received at their expense.[3]
In its motion to dismiss the case while in the district court, the NCAA again relied on its decades old argument of preserving a revered tradition of amateurism as its justification to not recognize athletes as employees. Id. However, District Court Judge John Padova refused to rule in favor of the NCAA on its motion to dismiss the case. In denying the motion, the district court reasoned that NCAA v. Board of Regents, and a related Seventh Circuit case, Berger v. NCAA, were overruled by the Supreme Court’s decision in Alston. Id. Moreover, the district court exposed the illogical stance made by the NCAA and its institutions, noting that 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.”
A ruling in favor of the athletes by the Third Circuit would lead to a circuit split on the issue of whether college athletes can be considered employees under the FLSA. Currently, the Seventh and Ninth Circuits have precedent that college athletes fall short of the employee status under the FLSA. Interestingly, however, in Berger v. NCAA (7th. Cir. 2016) and Dawson v. NCAA (9th. Cir. 2019), the NCAA’s primary argument was based around its justification of preserving amateurism. In a post-Alston world, that justification no longer carries the same (if any at all) weight that it had in 2016 and in 2019.
A circuit court split on the issue of whether college athletes can be employees of their universities under the FLSA solely because of their participation in athletics would likely need to be reconciled by the Supreme Court.
Berger v. NCAA (7th. Cir. 2016)
Facts: Former University of Pennsylvania track and field athletes sued Penn, the NCAA, and over 120 NCAA Division I member institutions under the FLSA. Specifically, they alleged that they were “employees” under 29 U.S.C. § 201. Moreover, the athletes further contend that because they were employees under the FLSA the NCAA and its member institutions violated the FLSA by failing to pay them minimum wage.
Procedural History: The NCAA and the named institutions moved to dismiss the case in the district court. The district court granted the motion to dismiss and explained that the athletes lacked standing to sue under the FLSA because they were not “employees.”
7th. Cir. – On appeal, the 7th Circuit analyzed whether student athletes could be considered as “employees” under the FLSA. In determining that the athletes could not be considered as employees, the 7th Circuit examined the economic reality of the working relationship between the college athlete and the institutions to determine whether Congress intended the FLSA to apply to this specific relationship. After analyzing the relationship, the 7th Circuit could not support a finding that the college-athlete-institution relationship fell under that covered by the FLSA. Specifically, the Court explained that the long-standing tradition of amateurism defined the economic reality between the college athlete and their institution. Moreover, the long-standing tradition of amateurism was proof that college athletes, like all other amateur athletes, chose to participate in sports for reasons wholly unrelated to immediate compensation. Furthermore, the Court explained that an athlete’s participation in his/her respective sport were by choice, and not anything that could qualify as “work” under the FLSA. Accordingly, as a matter of law, the court upheld dismissal of the case and deemed college athletes not employees, finding them not entitled to minimum wage under the FLSA. See Berger v. National Collegiate Athletic Association, 843 F.3d 285 (7th Cir. 2016).[4]
Dawson v. NCAA (9th. Cir. 2019)
Facts: A former USC football player alleged that the NCAA and the PAC-12 conference acted as an employer as defined by the FLSA by prescribing the terms and conditions under which college athletes perform their services. Furthermore, the plaintiff claimed that the NCAA and PAC-12, as joint employers, failed to pay college athletes wages, including overtime pay, to the plaintiff and to class members in violation of the federal and state labor laws, including the FLSA.
Procedural History: The NCAA and the PAC-12 moved to dismiss the case for failure to state a claim for which relief can be granted. The district court granted the motion and dismissed the complaint without leave to amend. The plaintiff appealed, and the case was reviewed by the 9th Circuit Court of Appeals.
9th Circuit – The Court explained that several relevant circumstances help evaluate the economic reality of a relationship. Among these circumstances are (1) an expectation of compensation, (2) the power to hire and fire, and (3) evidence that an arrangement was conceived or carried out to evade the law. The Court analyzed the plaintiff’s theory that NCAA regulations prohibit college athletes from accepting compensation beyond scholarships which are limited to cost of attendance. This limitation, according to the 9th Circuit, did not, as a matter of law, create any expectation of compensation from the NCAA or the PAC-12. In addition, the Court found that nowhere in the record could the plaintiff demonstrate that the NCAA or the PAC-12 had the power to fire or hire him. Finally, the Court held that there was no evidence tendered by the plaintiff demonstrating that the NCAA rules were conceived or carried out to evade the law. Ultimately, the Court affirmed the lower court’s finding and dismissed the plaintiff’s FLSA claim in part because it could not find an employee-employer relationship to create standing under the Act. See Dawson v. National Collegiate Athletic Association, 923 F.3d 905 (9th Cir. 2019).
Johnson v. NCAA is Different
Johnson v. NCAA is different because it is the first district case that will evaluate whether the college athletes at issue are employees in the wake of the Supreme Court’s dismantling of the amateurism concept. For years, like the two cases stated above, college athletes routinely failed to demonstrate that they had a claim for which relief could be granted because courts relied solely on Supreme Court dicta as a precedent to dismiss cases under the concept of amateurism. With amateurism being obsolete, the Third Circuit may now be in a position to analyze, as a matter of law, whether college athletes are indeed employees under the FLSA.
SEC Amicus Brief
The Southeastern Conference filed an amicus brief this past summer in support of the NCAA’s ongoing attempt to prevent college athletes from being deemed employees of their institutions.[6] The SEC’s primary position implores the 3rd Circuit to rely on the Labor Department’s field operations handbook, which states that “students engaged in ‘intramural and intercollegiate athletics are not employees because participation in intercollegiate athletics is not ‘work’ of the kind contemplated by the FLSA and does ‘not result in an employee-employer relationship between the student and the school or institution.” Id. Moreover, in its brief, the SEC recommended that any change to this status be made by Congress. Specifically, the SEC concluded its brief by stating that “any change to the established law on this subject should be made, if at all, by Congress, which ‘write(s) the laws,’ not by courts, which ‘interpret them.’” Id. Clearly, one of the most influential conferences in the NCAA is very concerned about the potential Third Circuit ruling. It remains to be seen whether the determination of a college athlete’s status as an employee will be reviewed by the Supreme Court.
[1] https://ublawsportsforum.com/2022/04/04/the-dissolve-of-the-old-ncaa/
[2] https://theathletic.com/3497617/2022/08/12/johnson-v-ncaa-college-athletes-employees/
[3] https://ublawsportsforum.com/2022/02/08/are-student-athletes-employees-the-3rd-circuit-will-decide/
[4] https://law.justia.com/cases/federal/appellate-courts/ca7/16-1558/16-1558-2016-12-05.html
[5] https://law.justia.com/cases/federal/appellate-courts/ca9/17-15973/17-15973-2019-08-12.html#:~:text=Athletic%20Association%2C%20No.-,17%2D15973%20(9th%20Cir.,2019)&text=The%20Ninth%20Circuit%20affirmed%20the,Act%20and%20California%20labor%20law.
[6] https://theathletic.com/3490071/2022/06/13/sec-files-brief-supporting-ncaas-opposition-to-recognizing-athletes-as-employees/
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