THIRD CIRCUIT REJECTS NCAA APPEAL ARGUMENT REGARDING STUDENT-ATHLETE EMPLOYEE STATUS UNDER THE FLSA

By Gregg Clifton and Christina Stylianou, of Lewis Brisbois

In a long-awaited decision on the NCAA’s interlocutory appeal in Johnson v. NCAA following a February 2023 oral argument, a three-judge panel of the U.S. Court of Appeals for the Third Circuit has now rejected the NCAA’s effort to overturn the District Court’s denial of its motion to dismiss the plaintiffs’ complaint. In its newly issued decision, the Third Circuit disagreed with the NCAA’s argument that student-athletes are voluntary participants in college athletics and, therefore, cannot be both employees of their college or university and athletes at the same time. As U.S. Circuit Judge L. Felipe Restrepo stated in the court’s opinion, “For the purposes of the [Fair Labor Standards Act (“FLSA”)], we will not use a ‘frayed tradition’ of amateurism with such dubious history to define the economic reality of athletes’ relationships to their schools.”

The Johnson case is led by former Villanova football player Trey Johnson, along with other current and former athletes from more than a dozen Division I schools. The lawsuit was originally filed in the U.S. District Court for the Eastern District of Pennsylvania in November 2019. The plaintiffs allege that they are entitled to back pay and damages for unjust enrichment in connection with their athletic services rendered at games and practices.

In moving to dismiss and in appealing the District Court’s denial of the motion, the NCAA took the position that existing Department of Labor (DOL) guidelines prohibit student-athletes from being able to be considered employees, arguing that the “activity  of  college  students participating in interscholastic athletics primarily for their own benefit as part of the educational opportunities provided to the students by the school is not ‘work.’” U.S. Department of Labor Field Operations Handbook § 10b03(e) (2016).  In response, the plaintiffs argue they are/were employees of the schools they played for because they satisfy the FLSA’s relevant test for employee status, as their performance in athletic endeavors does indeed constitute “work,” due in large part to the control that each school has over its athletes’ time and labor and due to the separation and distinction between athletes’ athletic participation and their academic work.

Despite the DOL guidelines, in his initial lower court assessment of the NCAA’s motion to dismiss, U.S. District Court Judge John Padova found the NCAA’s legal arguments to be unpersuasive. Judge Padova noted that the term “employer” ought to be construed broadly under the law and that players appear to function as employees of their school under the “primary beneficiaries” multi-factor test in the Second Circuit Glatt v. Fox Searchlight Pictures case, which analyzed the economic interaction and relationship between an employer and their unpaid student interns.

In its own decision, the Third Circuit disagreed with the lower court’s methodology and rejected the Glatt test, finding there to be a distinction in that an unpaid internship is appropriate if it is part of an established educational program. Here, however, the court concluded that college athletic participation is not part of any type of academic curriculum. The Third Circuit’s rejection of the initial standard used by Judge Padova supports the plaintiffs’ argument that their participation in college athletics actually has a negative effect on academic performance and requires priority of athletics over academic goals, because of the demands placed on athletes by their athletic programs, including inability to schedule certain classes or select certain areas of study, among other examples.

The Third Circuit now returns the case to the district court and the courtroom of Judge Padova, with a mandate to apply a different test, a multi-prong “economic realities” analysis, to determine whether student-athletes are in fact employees. The new test will establish employee status if evidence provides sufficient proof that the student-athletes:

1. perform services for another party;
2. necessarily and primarily for the college’s benefit;
3. under the college’s control or right of control; and,
4. in return for “express” or “implied” compensation or “in-kind benefits.”

In supporting Judge Padova’s decision, the Third Circuit discussed how the courts have interpreted the student-athlete employment question over the last decade and how those interpretations have changed. As we have observed in numerous recent decisions, the court referred to the Supreme Court’s finding in NCAA v. Alston that the NCAA has violated antitrust law by attempting to restrict education-related expenses and its impact on conclusions of student-athlete employee status. The Third Circuit’s opinion also stressed how the National Labor Relations Board’s recent administrative conclusions and interpretations of the National Labor Relations Act (“NLRA”) have taken the position that college athletes are employees under the NLRA for the first time, allowing Dartmouth College’s men’s basketball players to be declared employees eligible to petition the NLRB to hold an election for membership to the Service Employees International Union. While the Third Circuit’s rejection of the NCAA’s appeal does not automatically render student-athletes as employees pursuant to the FLSA, the opinion echoes the current legal shift following several judicial decisions and federal agency administrative opinions that demonstrate a push toward employee status for student-athletes.

Of note, the Third Circuit’s ruling in Johnson declined to follow the lead of the Seventh and Ninth Circuits and ruled in contrast to those circuits. The Seventh Circuit, in its 2016 decision in Berger v. NCAA, and the 2019 Ninth Circuit decision in Dawson v. NCAA both refused to accept claims that college athletes were employees under the FLSA. If Judge Padova ultimately concludes that student-athletes are employees, the question could eventually be appealed up to and decided by the U.S. Supreme Court to eliminate the split of opinion among the circuit courts on this issue.

If it is ultimately determined that the athletes are FLSA employees, the athletes will need to be compensated for their athletic labor and will be owed at least minimum wage for their efforts, as well as applicable overtime compensation. The Johnson decision could ultimately lead to the NCAA and universities facing another huge financial settlement decision or a potential judicial order requiring payment to athletes of millions of dollars in unpaid wages, as well as an amendment to the NCAA’s and universities’ amateurism rules to acknowledge an employer-employee relationship with the athletes.