Work Hard, Play Hard: Third Circuit Establishes Test for Analyzing Employee Status of NCAA College Athletes Under FLSA

The landscape of college sports is undergoing rapid transition, driven by significant changes such as the advent and growth of name, image, and likeness (NIL) rights for college athletes and the House v. NCAA proposed settlement’s revolutionary revenue sharing model. Amidst this upheaval, on July 11, 2024, the U.S. Court of Appeals for the Third Circuit Court made a pivotal ruling in Johnson v. NCAA that increases the likelihood that college athletes will be deemed employees of their respective institutions. In an interlocutory appeal addressing the district court’s denial of the NCAA’s motion to dismiss, the Third Circuit emphatically rejected the NCAA’s longstanding argument that college athletes cannot be employees under the Fair Labor Standards Act (FLSA) simply because of a “revered tradition of amateurism.” However, the Third Circuit also concluded that the district court erred in analyzing the employee status of college athletes by incorrectly applying the test from Glatt v. Fox Searchlight Pictures. Accordingly, the Third Circuit remanded the case for the district court to determine whether college athletes can be employees under the FLSA using an “application of economic realities analysis grounded in common-law agency principles.” While the ruling does not answer whether college athletes are employees of their respective institutions, it is a significant step towards college athletes being deemed employees.

Johnson v. NCAA

The plaintiffs in Johnson include former Villanova football player Trey Johnson and other Division I college athletes who argue that they should be considered employees subject to the FLSA and should be paid for their time related to athletic activities. The case, which was originally filed in November 2019, claims that college athletes are entitled to back pay and damages for unjust enrichment based on the NCAA and member institutions profiting at their expense. Plaintiffs have argued that college athletes at NCAA Division I schools must schedule classes around required NCAA athletic activities and are often not able to enroll in classes of interest or pursue a preferred major. The NCAA moved to dismiss the case under Rule 12(b)(6) for failure to state a claim, arguing that the athletes are “amateurs” and are not, and have historically never been, considered employees of their respective schools or the NCAA. The district court applied the Glatt test and denied the NCAA’s motion to dismiss, leading to an interlocutory appeal to the Third Circuit.

Error in Applying the Glatt Test

The Third Circuit found that the district court erred in applying the Glatt test, which is traditionally used to determine the employment status of interns. The Third Circuit reasoned that Glatt was not an appropriate test with respect to college athletes because the Glatt test presumes that unpaid interns all perform work for their employers. The court further reasoned that the facts in Glatt are not analogous to college athletes because the work performed during internships can greatly benefit interns and interns expect to receive educational or vocational benefits not necessarily expected with all types of employment. In contrast, the Third Circuit reasoned that the educational and vocational benefits of college athletics cited by the NCAA (“increased discipline, a stronger work ethic, improved strategic thinking, time management, leadership, and goal setting skills, and a greater ability to work collaboratively”) “are all exactly the kinds of skills one would typically acquire in a work environment.” Moreover, the court held that the Glatt test has “limited relevance” to college athletes because it compares the benefits an intern receives at an internship with the training received at the intern’s educational institution. The court reasoned that college athletes are “not part of any academic curriculum” and point out that the plaintiffs allege that the sports they play are “actually detrimental” to academic performance.

Instead of the applying the Glatt test, the Third Circuit ruled that the determination whether college athletes can be considered employees should be based on “an economic realities analysis grounded in common-law agency principles.” The appellate court reasoned that this shift in analytical framework emphasizes a broader and more nuanced consideration of the athlete-institution relationship.

In applying such an analysis, the Third Circuit laid out four factors for analyzing if college athletes are employees under the FLSA:

• Performance of Services - Does the athlete perform services for another party?

• Primary Benefit - Are the services performed necessarily and primarily for the benefit of the other party?

• Control - Are the services performed under the control or right of control of the college or NCAA?

• Compensation - Are the services performed in return for express or implied compensation or in-kind benefits?

However, the Third Circuit underscored that the ultimate determination hinges on whether “the cumulative circumstances of the relationship between the athletes and college or NCAA reveal an economic reality that is that of an employee-employer.”

Rejection of the “Amateur Student-Athlete” Argument

In a significant blow to the NCAA’s long-used argument against college athletes being employees, the Third Circuit rejected that the tradition of amateurism in Division I athletics precludes college athletes from asserting FLSA claims. More specifically, the court held that “college athletes cannot be barred as a matter of law from asserting FLSA claims simply by virtue of a ‘revered tradition of amateurism.’” This rejection marks a departure from the NCAA’s long-standing position that its system of amateurism inherently disqualifies athletes from being considered employees.

Implications of the Ruling

While it will undoubtedly take time before any final ruling is issued in the Johnson case, the Third Circuit's new analytical framework could have far-reaching implications. Based on the district court’s prior ruling, the four-factor analysis established by the Third Circuit increases the likelihood that at least some college athletes may indeed be classified as employees under the FLSA. However, it is uncertain which athletes would command an employee status. For example, if revenue generation is used to determine whether a school receives a benefit under the primary benefit factor of the test, it could lead to a mixed result where athletes in revenue-generating sports are considered employees, while athletes in other sports are not. However, if a court also considers other benefits a school receives from its athletic programs, such as increased marketing reach, donations, and recognition, the analysis becomes more complicated. Ultimately, how courts apply the Third Circuit’s test could provoke further debate and scrutiny in the ongoing discussion surrounding college athletes’ employment status.

The Third Circuit ruling also creates a circuit split on employee status for college athletes. Both the Seventh Circuit (Berge v. NCAA) and the Ninth Circuit (Dawson v. NCAA) previously concluded that college athletes are not employees under the FLSA. This split could create issues for the NCAA, which wants national uniformity in its rules and regulations. The split could also result in the U.S. Supreme Court considering the issue, a process that could take years to reach an ultimate conclusion. As far as a federal standard, a bill to prevent college athletes from being considered employees has been referred to the United States House floor but has not yet been scheduled for a vote. The Republican-sponsored bill passed out of committee in a 23-16 vote along party lines. Even if the bill did pass the House, it is unlikely to pass in the Democrat-controlled Senate. In other words, as we previously detailed in another blog, it is unlikely that Congress will provide the NCAA the national standard that it desires anytime soon.

Conclusion

The Third Circuit's ruling in Johnson v. NCAA represents a critical juncture in the ongoing debate over the employment status of college athletes. By rejecting the application of the Glatt test and the NCAA’s amateurism defense, the court has opened the door for a more comprehensive examination of the economic realities faced by college athletes. As the case returns to the district court, those in the college sports world will certainly be watching closely to see how this legal battle unfolds and what it could mean for the future of college athletics. The potential ripple effects could influence NCAA policies, athletic program budgets, and the overall experience of college athletes. A change in employment status combined with the changes in the proposed House v. NCAA settlement would significantly alter the “business” of college sports.