Boom! Johnson Holding Ends the Era of “Student-Athlete” – Or Does It?

1. The Holding

This week’s historic ruling by the Third Circuit appears to presage the end of the “student-athlete” era. The Court, in considering an interlocutory appeal on whether college athletes “are precluded from ever bringing an FLSA [Fair Labor Standards Act] claim”, answered definitively: “Our answer to this question is no.” Johnson v. NCAA, Case 22-1223 (3rd Cir. 2024) Consequently, at least in the Third Circuit, collegiate athletes may bring suit under the Fair Labor Standards Act, which establishes minimum wage and overtime requirements, as well as some restrictions upon the employment of children.

2. The Case

Ralph “Trey” Johnson, a Villanova football player, and five other collegiate athletes representing different sports and institutions, brought suit against their schools and the NCAA alleging violations of the FLSA and certain state wage and hour regulations. The NCAA moved to dismiss on the grounds that the athletes, as amateurs, could not be employees, and therefore failed to state a claim. The District Court, applying a multifactor balancing test, determined that the allegations might be sufficient to establish that the athletes were employees under the FLSA. Consequently, the motion was denied. The NCAA and the schools then appealed to the Third Circuit.

a. The Athletes’ Claims

The plaintiffs argue that the NCAA and the schools make money from the athletes’ performance. Meanwhile, NCAA bylaws prevent schools from paying, and athletes from accepting, compensation. Moreover, sanctions are applied to enforce these prohibitions. In addition, the athletes assert that their rigorous athletic commitments restrict their ability to enroll in classes or even choose a preferred major. Consequently, the athletes seek unpaid wages, the same amount in liquidated damages and attorneys fees, a.as well as unjust enrichment.

b. The Defendants’ Arguments

The defendants assert that the athletes receive many benefits from participation in their sports, including “increased discipline, a stronger work ethic, improved strategic thinking, time management, leadership and goal setting skills, and a greater ability to work collaboratively”. The appeal centers around the defendants’ argument that the athletes cannot be employees as a matter of law.

3. The Opinion

a. The History of College Sports

The Third Circuit opinion traverses the lengthy history of collegiate sports, beginning with the first intercollegiate athletic competition, a crew race between Harvard and Yale in 1852. In so doing, the court recognized 1) the national appetite for collegiate sports; 2) the impact of sports success upon an institution’s prestige; 3) the “Flutie Effect”, when a school’s sporting success results in increased publicity, more applications, greater fundraising, additional revenue, “all of which can catapult regional universities into national prominence in a way that would otherwise be impossible”. Moreover, the court noted that the original intercollegiate crew race was organized by a railroad marketing executive as a way to increase tourism and associated revenue. The court drew an analogy between this initial, highly successful venture and the current vast sums received by schools from tv contracts, licensing deals, tickets and concessions. (In particular, the court cited the fact that the University of Texas 2023 revenue of $271 million dwarfed that of the most successful NHL teams, the Los Angeles Kings and the New York Rangers that year – $249 million each. See, https://www.usatoday.com/story/sports/ncaaf/big12/2024/01/17/texas-athletic-department-271-million-revenue/72255138007/ and https://www.forbes.com/sites/mikeozanian/2022/12/14/nhl-team-values-2022-new-york-rangers-on-top-at-22-billion/ ) Of course, the television contracts for March Madness and the College Football Playoff of $8.8 billion and $5.64 billion were also considered.

b. Where Does the Money Go?

Next, the court considered that the “most obvious beneficiaries of college sports” are a few administrators, the ADs and the coaches. In particular, 17 of the 37 most highly paid coaches in the country are football or basketball coaches. Moreover, many coaching salaries are substantially higher than the salaries of college administrators, including deans and presidents. In a footnote, the court recognized that in 1986, institutional presidents earned slightly more than their head football coaches. Now, however, those coaches earn almost four times as much as the presidents. Significantly, the court noted that in 40 states, a D-1 coach is the highest paid state employee.

c. What About Amateurism?

The court next turned to the NCAA’s defense of “amateurism”. It began by rejecting outright the term “student-athlete”, recognizing that the NCAA had developed this moniker in an effort to obfuscate the actual relationship between the athlete and the school. Citing the Supreme Court’s dismissal of the infamous dicta from NCAA v. Board of Regents (“[T}he NCAA plays a critical role in the maintenance of a revered tradition of amateurism in college sports” 468 US. 85, 120 (1984)) in NCAA v. Alston, 594 US 297 (2021), the Third Circuit relied in part upon Justice Kavanaugh’s famous concurrence slamming the NCAA:

“[n]owhere else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate . . . . The NCAA is not above the law.”

The court further noted the change in the National Labor Relations Board’s stance on the status of collegiate athletes. Currently, the NLRB considers collegiate (NOT student) athletes to be employees of their institutions for the purposes of the National Labor Relations Act.

d. The FLSA

The court reflected upon the intentionally broad coverage of the Fair Labor Standards Act and the expansive definitions of employer and employee used in its application. In particular, the Third Circuit focused upon the “economic realities” test, Martin v. Selker Bros. 949 F.2d 1286, 1293 (3rd. Cir. 1991), to determine whether an employment relationship exists. The court recognized that playing sports can be work, as in professional athletics. However, the Circuit Court rejected the District Court’s application of a multifactor test used by the Second Circuit to determine whether the athletes or the schools were the primary beneficiaries of the relationship, Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528 (2nd Cir. 2016). Rather, the appellate court distinguished Glatt because in that case the plaintiff interns received benefits through a formal educational program, while the athletes here allege that their sports performance actually hinders their academic success.

e. So, What Did the Court Conclude?

The court determined that collegiate athletes MAY be employees for purposes of the FLSA if they:

i) Perform services for another

ii) “Necessarily or primarily for the [institution’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”

“ULTIMATELY, THE TOUCHSTONE REMAINS 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.”

4. What Happens Now?

The case was remanded back to the district court for application of the standard described above. Meanwhile, the outcome in this case directly conflicts with the Seventh Circuit holding in Berger v. NCAA, where the court dismissed athletes’ claims against UPenn under the FLSA, on the grounds that participation in collegiate athletics is “entirely voluntary”. 843 F.3d 285, 293 (2016). Consequently, an appeal to the Supreme Court is plausible. Given the NCAA’s recent track record in front of that body, however, and especially since the Johnson opinion relies heavily upon Alston language in a unanimous SCOTUS opinion severely critical of the NCAA, the wisdom of such an appeal is dubious at best.

It remains to be seen whether the NCAA will now settle the case, or whether it will go forward. Of course, it is possible that the district court might apply the new “cumulative circumstances” test and determine that the athletes are NOT employees. That outcome would seem to fly in the face of trending treatment of the NCAA by the judiciary. Therefore, there is indeed a very strong probability that the era of the “student-athlete” has actually come to an end.