They’re in the Game: Johnson v. NCAA and Possible College Athlete FLSA Coverage

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^{By: Jennifer Cluverius and Michael DiLiello[1]}

Over the past decade, the NCAA and its member schools have been engaged in numerous legal battles regarding college athlete compensation and the employment status of college athletes. Most recently, the Third Circuit in Johnson v. NCAA affirmed that student athletes can proceed on claims that they are covered employees under the Fair Labor Standards Act (FLSA). If the plaintiffs are ultimately successful, Johnson would entitle student athletes to federal minimum wage and overtime protections – and could possibly have implications regarding Title VII, Title IX, and the federal tax code. Accordingly, colleges and universities should be paying close attention and preparing for the possibility of changes within their athletic departments.

In Johnson, a group of former college athletes claimed they are employees under the FLSA, and thus subject to the FLSA’s minimum wage and overtime pay requirements. If brought as a class action or collective action under the FLSA, such a case could result in back pay awards for all class members at the expense of the NCAA and the defendant schools. In its ruling, the Third Circuit reviewed an initial appeal after the lower court refused to grant the NCAA’s motion to dismiss the case, and accordingly was restricted to only addressing the legal question of whether the athletes could ever bring a claim under the FLSA. The Third Circuit upheld the District Court’s ruling that the claims could proceed and found that the athletes can plausibly claim they are employees under the FLSA.

The NCAA and the schools argued that college athletes are not subject to the FLSA partially based on Department of Labor (DOL) guidelines, which differentiate those who “work” and those who participate in an activity “primarily for their own benefit” or pleasure (“play”). In its opinion, the court gave very little credit to the NCAA’s arguments that the athletes could never bring such claims because they are “amateurs” who “play” their sports, and instead determined that the proper question is based on an “economic realities analysis grounded in common-law agency principles.” As such, it seems likely that both the District Court and the Third Circuit will not give much credit to this blanket “amateurism” argument as the case moves forward. The court went on to explicitly lay out the test for determining when college athletes should be considered employees under the FLSA, stating that they are employees if they “(a) perform services for another party, (b) ‘necessarily and primarily for the [other party’s] benefit’...(c) under that party’s control or right of control…and (d) in return for ‘express’ or ‘implied’ compensation or ‘in-kind benefits.’” The court then remanded the case for evaluation by the District Court.

In the process, the Third Circuit noted that this analysis may look different for “revenue” (predominantly football and men’s basketball) and “non-revenue” generating sports, and there may be a need “for an economic realities framework that distinguishes college athletes who ‘play’ their sports for predominantly recreational or noncommercial reasons from those whose play crosses the legal line into work protected by the FLSA.” The concurring opinion by District Court Judge David J. Porter highlighted similar concerns and went on to state that this is likely an issue better fit for a legislative solution. Judge Porter specifically noted the possibility of conflicting requirements for universities that could arise if athletes are considered employees under Title VII yet still subject to Title IX and the possible ramifications of payment for universities under federal nonprofit tax regulations. All of these issues, he noted, point to a better “legislative” solution than a judicial one.

Moving forward, colleges and universities will need to be wary of the potential ramifications of this case, especially if plaintiffs are certified as a class action or FLSA collective action. Given the possibility of athlete employment in the future, schools and conferences should also prepare for at least some of their athletes to be considered employees and the potential ramifications of that change, both financially and to simultaneously remain in compliance with other federal employment statutes and Title IX. Further, as noted by the concurring opinion, the complexity of the interrelated regulatory schemes at issue could renew and legitimize the NCAA’s push for a legislative solution from Congress, lobbying efforts that so far have produced a number of bills but otherwise have not gained much traction on Capitol Hill. Given the ramifications of the issues involved, Johnson has the potential to continue the massive upheaval of college athletics that has occurred over the past decade.

As always, for colleges and universities trying to navigate the ever-evolving landscape of athletics while remaining legally compliant, our Maynard Nexsen attorneys are willing and ready to assist.

_{[1] Jennifer Cluverius is a shareholder in the Maynard Nexsen office in Greenville, South Carolina and the leader of the firm’s Labor and Employment Practice Group. Michael DiLiello is a rising 3L at the University of North Carolina School of Law who is currently a summer associate in Maynard Nexsen’s Greenville office.}