Is the NCAA Above the Law?

by Caroline Hardig, Associate Member, University of Cincinnati Law Review Vol. 91

I. Introduction

In 2022, Ohio State University athletics, one of the largest athletic programs in the country, brought in over $251 million in total revenue, yet their student athletes were not compensated for their work.¹ In addition, over 500,000 student athletes are associated with the National Collegiate Athletic Association (“NCAA”)—an organization that regulates student athletics.² Schools that are affiliated with the NCAA “agree to administer their athletics programs in accordance with the constitution, bylaws, and other legislation of the [NCAA].”³ The NCAA’s constitution and bylaws control and put limits on the schools and athletes including their academic eligibility, scholarships, scheduling and conditions of practice and games, and financial compensation.⁴

In the past few years, student athletes from schools across the country have brought lawsuits alleging they are employees of the NCAA, and their employment status entitles them to compensation for their work.⁵ While two circuits have held that student athletes are not employees, in a new case, Johnson v. NCAA, the Third Circuit could decide otherwise, which would create a circuit split.⁶ In Part II, this article explains the background on the Seventh, Ninth, and now Third Circuit cases. Then, Part III discusses how the Alston decision may impact the Third Circuit’s opinion and describes impacts of an employee status for athletes.

II. Background

Plaintiffs from the Seventh, Ninth and Third Circuit cases—Berger v. NCAA, Dawson v. NCAA, and Johnson v. NCAA—are current or former athletes who contend that the NCAA has violated the Fair Labor Standards Act by not compensating them with at least minimum wage for their athletic activities.⁷ The Fair Labor Standards Act (“FLSA”) “establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees” in the private and public sectors.⁸ The FLSA defines “employee” as “any individual employed by an employer.”⁹ Further, “employ” is defined as “to suffer or permit to work.”¹⁰ These vague definitions open the door for courts to make interpretations on who may be considered an employee, which can lead to inconsistencies among circuits.

A. Seventh Circuit

In the 2016 decision, Berger v. NCAA,¹¹ the Seventh Circuit held that “student athletes aren’t employees entitled to compensation under the Fair Labor Standards Act.”¹² In that case, the plaintiffs, former student athletes at University of Pennsylvania, argued that they should be considered employees and because they are employees, the NCAA “violated the FLSA by not paying their athletes a minimum wage.”¹³

The court began its analysis by discussing how different courts have applied various tests to determine if a worker is an employee under the FLSA.¹⁴ The athletes urged the court to apply a test set out by the Second Circuit in Glatt v. Fox Searchlight Pictures, Inc., where the court compared student athletes to interns.¹⁵ However, the Seventh Circuit decided to follow the district court, which declined to apply a multifactor test because the standard of defining an employee under the FLSA is “a flexible one.”¹⁶ The court backed up its decision to not apply a multifactor test by saying, “we have declined to apply multifactor tests in the employment setting when they ‘fail to capture the true nature of the relationship’ between the alleged employee and the alleged employer.”¹⁷

In its analysis, the court emphasized the aspect of amateurism in college sports and explained that the tradition of amateurism is maintained by the NCAA’s eligibility rules.¹⁸ These rules, the court reasoned, “define what it means to be an amateur or student-athlete and, are therefore essential to the very existence of collegiate athletics.”¹⁹ Also in support of its argument, the court cited the Department of Labor’s Field Operations Handbook, which does not label student athletes as employees.²⁰ Based on the “long tradition of amateurism,” the court concluded that “student athletes are not employees and are not entitled to a minimum wage under the FLSA.”²¹

B. The Ninth Circuit

Similarly, in 2019, the Ninth Circuit concluded that the NCAA is not required to pay athletes minimum wage and overtime pay.²² In Dawson v. NCAA, the plaintiff was a Division I football player at the University of Southern California.²³ The court began its analysis, like the Seventh Circuit, by discussing what courts use to decide employment status under the FLSA.²⁴ The court stated that “the test of employment under the [FLSA] is one of economic reality.”²⁵ In determining economic reality, the Supreme Court has evaluated the following circumstances: “expectation of compensation, the power to hire and fire, and evidence that an arrangement was ‘conceived or carried out’ to evade the law.”²⁶

In applying these factors, the court first held that neither the “NCAA nor PAC-12 provided Plaintiff with a scholarship or any expectation of a scholarship.”²⁷ The court explained that the schools themselves “award and distribute financial aid” to the athletes, which is stated in the NCAA bylaws.²⁸ Based on the second factor, the power to hire and fire, the court held that the NCAA and PAC-12 did not have the power to hire or fire because the record does not show that they chose the players on the football team nor supervised the player’s performance.²⁹ Finally, the court explained that “even though the ‘economic reality’ in college sports is much different today,” referring to the lucrative nature of college sports, there is no evidence that the rules were “conceived or carried out” to evade the law.³⁰

In addition, the court explained how revenue does not change the “existence of an employment relationship under the FLSA, because that proposition is not supported by case law.”³¹ It also discussed another multifactor test, which led the court to the same conclusion that student athletes are not employees.³² This test, from Bonnette v. California Health and Welfare Agency, applies the following factors: “whether the alleged employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.”³³ Based on this analysis, the court held that the plaintiff was not an employee of the NCAA or PAC-12.³⁴

C. Johnson v. NCAA

On February 15, 2023, the Third Circuit heard oral arguments for the newest case concerning the issue of whether student athletes should be considered employees, Johnson v. NCAA.³⁵ Back in August of 2021, Judge Padova from the Eastern District of Pennsylvania denied the NCAA’s motion to dismiss the plaintiff student athletes’ claims, holding “that the complaint plausibly alleges the Plaintiffs are employees.”³⁶ Judge Padova discussed the three arguments the defendants raised on why the athletes should not be considered employees: amateurism, the Department of Labor’s determination, and the multifactor tests used to label an individual as an employee.³⁷

Judge Padova rejected the defendants’ arguments based on amateurism, explaining that just because there is a long-standing tradition of amateurism in the NCAA, that tradition should not take away an individuals’ right to minimum wage payment.³⁸ He also rejected the argument that since the Department of Labor’s Field Operation’s Handbook determines an athlete to not be an employee, that handbook should be evidence that an employer-employee relationship does not exist.³⁹ He stated “that the Complaint plausibly alleges that NCAA D1 interscholastic athletics are not the type of activities listed” in the Field Handbook which define an employer-employee relationship.⁴⁰ He explained that athletics are not the type of activities described because athletics are not performed “primarily for the benefit of the student athletes who participate in them, but for the monetary benefit of the NCAA and the colleges and universities that those student athletes attend.”⁴¹

Lastly, Judge Padova discussed two aspects of the economic reality of the relationship between the parties—expectation of compensation and the Glatt multi-factor test that determines whether an intern should be considered an employee.⁴² The Glatt test, has seven factors:

The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
The extent to which the interns work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.⁴³

After an analysis of these factors, the court reasoned that the first and seventh factors weighed in favor of no employer-employee relationship, the second and fifth factors were neutral, and the remaining factors weighed in favor of finding an employer-employee relationship.⁴⁴ The court denied the NCAA’s motion to dismiss, and now the case is awaiting the Third Circuit’s decision.⁴⁵

III. Discussion

The analysis on this issue regarding whether student athletes are employees has recently changed due to the Supreme Court’s holding in the 2022 case, NCAA v. Alston, which allows student athletes to benefit financially from their name, image, and likeness (“NIL”).⁴⁶ So, now that student athletes can be compensated in some way for their work as an athlete, some argue they do not need to be considered employees who are entitled to a wage. However, only a select group of athletes will profit from NIL deals.⁴⁷ Athletes who attend smaller Division I, Division II, or Division III schools will not profit like the athletes who play lucrative sports like men’s football and basketball at large universities. Those student athletes will be adversely affected because they will be largely unable to build and benefit from their brand name.⁴⁸

Athletes should be compensated for the time and dedication they put into a sport that financially benefits their university and the NCAA. For example, in 2018, “the NCAA reported total revenues of $1,064,403,240.”⁴⁹ This revenue is attributed to “television and marketing rights, championships, tournaments, and sales” and relies solely on student athletic participation.⁵⁰ Not only do these athletes allow the NCAA and universities to profit substantially, but the institutions also have a vast amount of control over the athletes. For example, their academic schedule revolves around their sports schedule; some students are unable to pick their preferred major; and athletes are often required to participate in community service.⁵¹ Regarding their athletic schedules, athletes reported spending 30-40 hours a week on Countable Athletically Related Activities (“CARA”), which amounts to a full work week on top of their school schedules.⁵²

In addition, the National Labor Relations Board (“NLRB”) has already taken a stance on whether student athletes are employees.⁵³ The NLRB’s General Counsel, Jennifer Abruzzo, announced that student athletes “are statutory employees, who have the right to act collectively to improve their terms and conditions of employment.”⁵⁴ The NLRA provides protection for collective bargaining and unfair labor practices, but only if the individual is considered an employee.⁵⁵

When the Third Circuit announces their decision, they likely will denounce the amateurism argument due to the Court’s holding in Alston, where the Court disagreed with the NCAA’s argument that since student athletes are amateurs, the NCAA should receive “antitrust deference (or immunity).”⁵⁶ In addition, if the court decides to analyze the Glatt factors like Judge Padova, the students will likely prevail. However, the Third Circuit could also use one of the many other multifactor tests that other circuits have used to deny their employee status.⁵⁷ The Glatt test seems the most applicable to the issue because of the similarities in the relationships of intern and student athlete to employer.

Colleges and the NCAA have raised some legitimate financial concerns regarding the status of student athletes as employees. Specifically, there is a question of who will pay for the wage, overtime, and other benefits.⁵⁸ The NCAA and schools will likely argue that they cannot afford to pay student athletes, and if they can, they will be limited in which sports they can pay for.⁵⁹ This is a legitimate concern, especially for smaller schools. In addition, universities associated with the NCAA are required by Title IX to have an equal number of men and women scholarships.⁶⁰ Therefore, Title IX should prevent universities from cutting women’s sports, which are less lucrative, in order to maintain other teams.⁶¹ However, this could negatively impact both women’s and men’s sports, if universities cannot afford to have an equal number of men and women’s teams. While it’s important for athletes to be compensated for their time and energy, there is also a legitimate interest in preserving collegiate athletics for the future.⁶²

IV. Conclusion

Compensation for student athletes began with the Court’s unanimous decision in NCAA v. Alston, which drastically changed the landscape of college sports by allowing students to benefit from their NIL. Now, Johnson v. NCAA may take that decision even further by clearly defining student athletes as employees that are entitled to a wage. Like Justice Kavanaugh said in his concurrence in Alston, “nowhere 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.”⁶³ If the Third Circuit holds in favor of athletes being considered employees, causing a circuit split, the Supreme Court would likely hear the case because of the uncertainty and confusion universities would face.⁶⁴

Cover Photo by Ben Hershey on Unsplash

Caroline Hardig

Prior to law school, Caroline Hardig attended the University of Kentucky where she received a degree in Psychology and a minor in Spanish. Caroline enjoys writing about various areas in the law. In her free time she likes to exercise, spend time with friends and family, and watch sports.

References

1
Ohio State Athletics Reports Rebound in Revenue in 2022, Ohio State News (Jan. 26, 2023), https://news.osu.edu/ohio-state-athletics-reports-rebound-in-revenue-in-2022/.
2
Number of NCAA Student-Athletes Grows to New Record of 520,000, Athletic Bus. (Dec. 6, 2023), https://www.athleticbusiness.com/operations/governing-bodies/article/15303964/number-of-ncaa-studentathletes-grows-to-new-record-of-520000.
3
Dawson v. NCAA, 932 F.3d 905, 907 (9th Cir. 2019).
4
Id.
5
Peter Hayes, NCAA Granted Quick Review of College Athlete Employee Ruling, Bloomberg L. (Feb. 4, 2023), https://www.bloomberglaw.com/product/blaw/bloomberglawnews/bloomberg-law-news/.
6
Id.
7
Skyler Hicks & Babak Yousefzadeh, What the Third Circuit’s Looming Decision Regarding Whether College Athletes Can Constitute “Employees” Will Mean for Universities and Employers of Unpaid Student Interns, JD Supra (Jan. 18, 2023), https://www.jdsupra.com/legalnews/what-the-third-circuit-s-looming-8604968/.
8
Wages and the Fair Labor Standards Act, U.S. Dept. of Labor, https://www.dol.gov/agencies/whd/flsa (last visited Feb. 17, 2023).
9
29 U.S.C. § 203(e)(1).
10
29 U.S.C.§ 203(g).
11
Berger v. NCAA, 843 F.3d 285 (7th Cir. 2016).
12
Peter Hayes, Judges Grill Counsel on Whether College Athletes Are Employees, Bloomberg L. (Feb. 15, 2023, 5:59 PM), https://news.bloomberglaw.com/litigation/judges-grill-counsel-on-whether-college-athletes-are-employees.
13
Berger, 843 F.3d at 289.
14
Id. at 290.
15
Id.
16
Id. at 291.
17
Id. (citing Vanskike v. Peters 974 F.2d 806, 809 (7th Cir. 1992)).
18
Id.
19
Id. (citing Agnew v. NCAA, 638 F.3d 328, 343 (7th Cir. 2012)).
20
See id. at 292.
21
Id. at 293.
22
Dawson v. NCAA, 932 F.3d 905, 906 (9th Cir. 2019).
23
See id. at 907.
24
Id. at 909.
25
Id. (quoting Goldberg v. Whitaker House Cooperative, Inc., 366 U.S. 28, 33 (1961)).
26
Id.
27
Id.
28
Id.
29
Id. at 910.
30
Id.
31
Id.
32
See id.
33
Id. at 910-11.
34
Id. at 911.
35
Hayes, supra note 12.
36
Johnson v. NCAA, 556 F. Supp. 2d 491, 511 (E.D. Pa. Aug. 25, 2021).
37
Id. at 500.
38
Id. at 501.
39
Id. at 505.
40
Id.
41
Id. at 506.
42
Id.
43
Id. at 509.
44
Id. at 512.
45
Id.
46
Tyler Murray, Note, The Path to Employee Stats for College Athletes Post-Alston, 24 Vand. J. Ent. & Tech. L. 787, 788 (2022).
47
Id. at 788.
48
Id.
49
Johnson, 556 F. Supp. 2d at 497.
50
Id.
51
Id. at 498.
52
Id. at 497-98.
53
See NLRB General Counsel Jennifer Abruzzo Issues Memo on Employee Status of Players at Academic Institutions, N.L.R.B. (Sept. 29, 2021), https://www.nlrb.gov/news-outreach/news-story/nlrb-general-counsel-jennifer-abruzzo-issues-memo-on-employee-status-of.
54
Memorandum GC 21-08 from Jennifer Abruzzo, General Counsel, N.L.R.B., to All Regional Directors, Officers-in-Charge, and Resident Officers (Sept. 29, 2021).
55
National Labor Relations Act, N.L.R.B, https://www.nlrb.gov/guidance/key-reference-materials/national-labor-relations-act (last visited Feb. 24, 2023).
56
Gregory Marino, NCAA v. Alston: The Beginning of the End or the End of the Beginning, J.D. Supra (Aug. 5, 2021), https://www.jdsupra.com/legalnews/ncaa-v-alston-the-beginning-of-the-end-9351737/.
57
See Johnson, 556 F. Supp. at 508.
58
Murray, supra note 46, at 816.
59
Id.
60
Id.
61
Id.
62
See Ross Dellenger, Significant NLRB Move Will Aid Pursuit of College Athletes Becoming Employees, Sports Illustrated (Dec. 15, 2022), https://www.si.com/college/2022/12/15/nlrb-college-athletes-employees-pursuit.
63
NCAA v. Alston, 141 S. Ct. 2141, 2169 (2021) (Kavanaugh, J., concurring).
64
Hicks & Yousefzadeh, supra note 7.