On July 11, 2024, the 3rd U.S. Circuit Court of Appeals issued a groundbreaking ruling that allows NCAA Division I student-athletes to sue for recognition as employees, potentially qualifying for minimum wage and overtime under federal law. This decision, while not final, opens the door for ongoing litigation and likely leads to similar lawsuits nationwide.
How Did We Get Here❓
In November 2019, Ralph “Trey” Johnson, a former Villanova football player, sued the NCAA and member institutions, claiming that student-athletes should be classified as employees entitled to compensation for their athletic participation. Institutions sought to dismiss the lawsuit, arguing, among other things, that (1) Student-athletes are amateurs; (2) the Department of Labor (DOL) has historically ruled that interscholastic athletes are not employees under the Fair Labor Standards Act (FLSA); and (3) the athletes did not adequately demonstrate employee status through various multi-factor tests.
Despite these claims, the district court ruled in favor of the student-athletes, stating their complaint “plausibly alleges” an employment relationship due to the financial benefits reaped by institutions from their participation.
👀 The Lower Court’s Findings
The district court applied the “primary beneficiary test” (or “Glatt test”), which evaluates several factors to determine employee status. Ultimately, the court found:
Factors Supporting Amateur Status Were: Expectation of compensation and entitlement to a paid job.
Neutral Factors Were: Extent of training and duration of activity.
Factors Favoring Employee Status Were: Ties to formal education, accommodation of academic commitments, and educational benefits from participation.
In balancing the above, the court to concluded that the student-athletes plausibly alleged employee status.
💣 The Third Circuit’s Decision
In what can only be described as a monumental decision, the 3rd Circuit broadened the interpretation of “employee,” establishing that student-athletes may qualify under the FLSA if they:
1️⃣ Perform services for another party.
2️⃣ Do so primarily for that party’s benefit.
3️⃣ Are under the party’s control.
4️⃣ Receive express or implied compensation or in-kind benefits.
The court dismissed the argument that amateurism justifies non-compensation, labeling it “circular and increasingly untrue.” Additionally, the appeals court criticized reliance on multifactor tests for determining employee status, suggesting a need for a more nuanced analysis based on economic realities.
My favorite quote from the court’s order is:
“For the purposes of the 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,”
As someone who represents student-athletes in the world of NIL compensation, this decision was both expected and welcomed.
I have posted for years that the NCAA’s business model was ripe to fall and would eventually be upended. This decision is a MAJOR step in student-athletes receiving compensation beyond just NIL monies.