Appellate Court Rules that NCAA Athletes May Qualify as Employees Under the Fair Labor Standards Act

On July 11, the United States Court of Appeals for the Third Circuit (with appellate jurisdiction over federal courts in Delaware, New Jersey and Pennsylvania) issued a decision in Johnson v. National Collegiate Athletic Association, holding that it is possible for college athletes to be considered employees under the Fair Labor Standards Act (FLSA). This decision represents a departure from the standard treatment of college athletes as “amateurs,” and a change that could result in courts applying federal minimum wage and overtime protections to student-athletes.

The Background

This case originated in 2019 when several athletes at National Collegiate Athletic Association (NCAA) Division 1 schools filed a lawsuit alleging that they were entitled to federal minimum wage compensation for the time they spent representing their schools through their various athletic programs. The defendants in the case, the NCAA and thirteen of its member schools (NCAA Defendants), argued that college athletes are “amateurs,” and are therefore not employees. The NCAA has historically referred to their athletes as “student-athletes” and “amateurs,” terms that indicate that the time the students devote to their college athletics should be categorized as “play,” not as “work” entitling them to compensation. The NCAA Defendants moved to have the case dismissed, arguing that the college athletes were unable to state a valid legal claim. The federal district court denied the motion to dismiss. That court, however, allowed the NCAA Defendants to file an interlocutory appeal with the appellate court asking that court to clarify whether it is possible for college athletes to be considered employees under the FLSA despite their “amateur” status.

The Ruling    

A panel of the Third Circuit agreed with the lower court that college athletes are not precluded from bringing claims under the FLSA simply because of their “amateur” status. In fact, the court indicated disdain for the term “amateur,” and even the term “student-athlete,” explaining that the terms are “NCAA marketing inventions” designed to obscure the relationship between the college athlete and his or her affiliated college or university. However, the Third Circuit rejected the test the lower court applied to determine whether college athletes may be considered employees under the FLSA.

Instead, the Third Circuit developed its own “economic realities” test to determine whether the relationship between an athlete and the college or university constitutes employment within the meaning of the FLSA. Under this new test, college athletes may be considered employees under the FLSA when “(a) they perform services for [the college], (b) necessarily and primarily for the [the college]’s benefit, (c) under [the college]’s control or right of control, and (d) in return for express or implied compensation or in-kind benefits.” The Third Circuit specifically stated that they will not take the “frayed tradition of amateurism” into account when defining the economic reality of an athlete’s relationship with the NCAA and their affiliated school. The Third Circuit has now returned the case to the district court to apply this test.  

The Impact

The Court of Appeals’ decision that NCAA athletes are not precluded from bringing FLSA claims creates a circuit split with opinions issued by the Seventh and Ninth Circuits. Those federal appellate courts previously decided that NCAA athletes are not employees under the FLSA. Circuit court splits typically increase the likelihood that a case may be heard by the Supreme Court, so it is possible that the Supreme Court will consider the questions involved in this case in the near future. Notably, this case pulled heavily from language used by the Supreme Court in NCAA v. Alston, the decision that prohibited the NCAA from imposing rules limiting education-related compensation or in-kind benefits for college athletes. The Third Circuit cited Justice Kavanaugh’s concurring opinion claiming that the NCAA’s argument for not paying college athletes — i.e., that the defining feature of college sports is that athletes are unpaid — is circular and unconvincing. Therefore, the Third Circuit’s decision may signal a trend towards rulings favorable to college athletes.

If the Johnson case is ultimately decided in favor of college athletes, it will have wide-reaching impacts on the structure of college sports. Employee status under the FLSA would likely entitle NCAA athletes to federal minimum wage and overtime wage protections. Such a structure may lead colleges and universities to use compensation to compete for athletes in the marketplace. However, the potential that some athletes may be compensated more than others raises Title IX concerns that have not yet been addressed. Furthermore, the potential for employee status raises questions as to the eligibility of college athletes for federal student aid and the impact this employee status may have on foreign students’ immigration status. This decision could even open the door for students in other extracurricular activities to receive employee status under the FLSA. The final resolution of this case may be years away, but considering the ramifications that it may have on the structure of college sports, the NCAA and its member schools should begin to consider how its resolution will impact their programs.