Third Circuit Establishes New Employee Test for Student Athletes

In Johnson v. National Collegiate Athletic Association (NCAA), the US Court of Appeals for the Third Circuit held that student athletes should be permitted to pursue a claim under the Fair Labor Standards Act (FLSA). The opinion reviewed a lower court’s denial of a motion to dismiss based on the tradition of amateurism that previously exempted student athletes from employment protections.

In ruling that the athletes had a potential claim for relief, the Third Circuit did not necessarily reach a final decision on whether the individuals are “employees” or not. The court did, however, attempt to establish a workable test for employee status in this unique context. The decision creates a Circuit split that could mean this issue is destined for the US Supreme Court. Notably, this case involves the FLSA and standards for establishing employee status under the common law and other statutes, differ, and arguably are more difficult for student athletes to meet.

The District Court’s Decision Analogizing Student Athletes to Interns

In 2019, a group of 14 student athletes filed a lawsuit against the NCAA and the Division I member schools they attended, alleging that they were owed wages for the time they spent representing their schools as athletes.[1] The NCAA and member school defendants moved to dismiss the complaint on the grounds that, as student athletes, the plaintiffs were “amateurs” and that designation distinguished them from employees and brought them outside of the FLSA’s coverage.

The District Court for the Eastern District of Pennsylvania determined that the claims should be allowed to proceed because the student athletes had a plausible claim that they were entitled to wages under the “primary beneficiary” test for the FLSA, typically used to distinguish unpaid interns from employees. That multi-factor test, which arose out of the Second Circuit decision in Glatt v. Fox Searchlight Pictures Inc.,[2] identified seven factors that a court should consider in distinguishing an unpaid intern from an employee who is owed minimum wages under the FLSA.

The Glatt factors are designed to determine whether the worker receives greater tangible and intangible benefits from the relationship than what the worker contributes to the workplace’s operations. If so, no employment relationship is formed. Here, the District Court found that the student athletes received fewer benefits from the relationship than the school, sufficient to allege a plausible claim for unpaid wages.

The NCAA and member schools appealed that decision to the Third Circuit.

The Third Circuit Takes a Different Approach

On review, the Third Circuit struggled with applying the Glatt test to a student athlete. Indeed, the Third Circuit thought of student athletes as unique compared to other non-employees, such as interns, volunteers, or independent contractors—all of whose activities are commonly recognized as “work.” College athletics, however, involve activities that can be engaged in purely for personal purpose or pleasure. The Third Circuit reasoned that the Glatt test requires an assumption that the activities all qualify as “work,” which may not always be the case with college sports.  

The better test, according to the Third Circuit, is an “economic realities” test grounded in common law agency principles. Under this test, college athletes may be employees under the FLSA if they (1) perform services for another party, (2) necessarily and primarily for the other party’s benefit, (3) under that party’s control or right of control, and (4) in return for express or implied compensation or in-kind benefits.

The economic realities addendum to the common law was recognized by the Supreme Court in Nationwide Mut. Ins. Co. v. Darden,[3] to include those who may not qualify under strict common law principles or other federal statutes and thus, since at least 1947, in Rutherford Food Corp. v. McComb,[4] the Supreme Court has directed courts “to look to the economic realities of the relationship.” The Third Circuit in Johnson strives to create a test that can distinguish “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.”

In creating this hybrid test, the Third Circuit now joins two other federal circuit courts that have considered the issue and rejected strict application of the Glatt factors, although for different reasons. In Berger v. NCAA,[5] the Seventh Circuit also rejected application of the Glatt factors to student athletes, but also thought that no multi-factor test appropriately recognized the “amateur” status of student athletes and that, as amateurs, their “play” could not be considered “work” under the FLSA.

In Dawson v. NCAA,[6] the Ninth Circuit disagreed with Berger’s adoption of the “amateurism” exception to employee status, but determined that student athletes were still not employees of the NCAA (the plaintiffs did not bring suit against their school) because the NCAA was a regulatory body that did not provide scholarships to the athletes (which may have created an expectation of compensation) or have the ability to “hire or fire” them in the way that an employer typically would.  

Remaining Challenges in Determining Employee Status of Student Athletes

The concurring opinion by one of the Third Circuit justices in Johnson highlights a concern that a single test for all student athletes fails to distinguish the economic relationship “between the quarterback of a Power Four conference football team and his university” and that of a “Conference USA school and a member of its bowling team.” The concurrence homes in on one of the chief concerns schools have had, which is distinguishing revenue-generating athletes from athletes that do not generate revenue because employee classification of all student athletes would jeopardize the continued existence of so-called non-revenue generating college sports.

The reality is that virtually all college sports generate some revenue and almost no college athletic programs generate any net revenue, as any sports (like Power Four football) which may generate positive revenue use that revenue to support the other sports, but still operate at an overall deficit. The concurring opinion also flags some of the collateral legal issues that would arise if student athletes became employees, such as eligibility for federal student aid, state workers’ compensation regimes, and immigration status for students on non-working visas.

In short, the concurring opinion highlights all of the complexities involved in designating student athletes as employees with a single test.

What Comes Next

The issue of student athlete employment status will likely work its way to the US Supreme Court. Most recently, the Supreme Court addressed whether the NCAA’s caps on education-related benefits to student athletes violated antitrust laws in NCAA v. Alston.[7] However, it was Justice Brett Kavanaugh’s concurring opinion that generated the most attention.

Though the majority opinion ultimately ruled on a narrower issue, Justice Kavanaugh opined on the NCAA’s “amateurism” argument in a point that the Third Circuit expressly adopted in Johnson. Justice Kavanaugh wrote that the argument “that colleges may decline to pay student athletes because the defining feature of college sports . . . is that the student athletes are not paid” is “circular and unpersuasive,” and noted that the “NCAA’s business model would be flatly illegal in almost any other industry in America.”

As the concurring opinion noted, converting student athletes to employees creates several new challenges and risks for colleges and universities. Last April, Virginia became the first state to enact a law clarifying that student athletes are not employees while allowing schools to compensate student athletes for use of their name, image, or likeness.

If other states follow, or US Congress enacts a federal law exempting student athletes from employee status, then this emerging test under the FLSA may become moot. Until then, colleges and universities should explore ways to navigate during this time of uncertainty, feasibly minimize risk, and develop strategies for ensuring both the continued fair and equitable treatment of their student athletes and viability of their athletic programs.