A three-judge panel on the U.S. Court of Appeals for the Third Circuit heard dueling arguments from attorneys for the NCAA and for former Villanova football player Trey Johnson and other athletes over whether Division I college athletes are employees under the Fair Labor Standards Act (FLSA).
To put it mildly, the panel regarded the NCAA’s core principle that college athletes shouldn’t be paid as unpersuasive and incongruous, and the judges signaled they view college athletes as employees.
The hearing was held in a Philadelphia courtroom, presided over by Judges Theodore McKee, David Porter and L. Felipe Restrepo. The panel’s decision, expected later this year, could eventually lead to college athletes gaining recognition as employees who are owed wages akin to their work-study classmates. Meanwhile, universities and the NCAA would be on the hook to pay those athletes as joint employers.
Arguing for the NCAA, attorney Steven Katz encountered a “hot bench,” in that the judges quickly launched into challenging questions and didn’t hesitate to interrupt him. Katz warned that if the players win, it would “create a minefield of unforeseen consequences” that might prove detrimental to women athletes and raise thorny legal questions under two other laws, Title VII and Title IX.
Judge McKee wasn’t persuaded, referencing glaring weight room discrepancies for men’s and women’s basketball players at the NCAA basketball tournaments as reason to believe there are already inequities under the NCAA’s watch.
Katz also faced scrutiny when he argued that college athletes are not professional athletes, because they play without an expectation of compensation. That argument has worked with other courts studying this issue. It didn’t seem to persuade this three-judge bench, who suggested college athletes don’t expect pay because they know the NCAA and colleges have agreed college athletes can’t be paid.
Among other points raised by the judges when questioning Katz:
· A question about why the NCAA is comfortable with athletes at the service academies being paid. Katz parried the question by saying all students at the academies are paid, but the court found more important that the NCAA is comfortable with the athletes being paid.
· Katz argued that NIL is irrelevant since the source of NIL payment is not the school but instead a third party, such as a sponsor. He analogized it to a college athlete with a large family trust fund. This athlete would not be an employee of the school by virtue of his or her wealth. Later in the hearing, attorney Michael Willemin, who argued for Johnson, said it is “not reasonable” to believe colleges are not involved with NIL, in a nod to NIL being used to recruit athletes.
· The panel repeatedly stressed that college athletes are under a level of control not faced by their classmates. They referenced how the athletes can’t pursue certain areas of study because of conflicts with the athletic schedule. They also mentioned that a student can hire an agent for professional music or arts pursuits, but an athlete cannot. They even noted that college students in many states can lawfully bet on sports, whereas their athlete classmates are forbidden from doing so.
· The panel said the experience for athletes is different in regard to revenue generation for their school—including that no one would pay to watch a student go to a library to study for a midterm whereas the athletes help to generate billion-dollar TV contracts because people want to watch them play.
The technical question before the panel is whether Judge John Padova of Pennsylvania’s federal district court applied the correct standard when denying the NCAA’s motion to dismiss two years ago. If the answer is “yes” then the case returns to Padova for pretrial discovery, where the NCAA and member schools would be required to answer questions under oath and share sensitive documents. If the answer is “no”—and that doesn’t seem likely after the hearing—then the case would return to Padova with new and more NCAA-friendly instructions on how to address the legal issues.
Padova, drawing from an FLSA case involving Enterprise Rent-A-Car branch managers and whether the parent company was their joint employer, reasoned that the NCAA appears to be a joint employer of college athletes. Padova stressed, among other points, how NCAA rules govern the work relationship between athletes and their colleges, including with respect to punishing colleges that compensate those athletes in ways the NCAA deems impermissible. Padova also underscored a concurring opinion by Justice Brett Kavanaugh in NCAA v. Alston. Kavanaugh described the NCAA and its members as a cartel and blasted the logic of refusing to pay college athletes because college athletes are not paid as circular.
The Johnson case is different, and arguably more modest, from other legal efforts that seek the recognition of college athletes as employees. If Johnson prevails, college athletes would gain the right to minimum wage and overtime pay. As Willemin noted during Thursday’s hearing, they would not gain benefits commonly sought by college athletes’ advocates. To that end, they would not be able to form a union, obtain healthcare and retirement benefits awarded to full-time employees, or sign employment contracts that pay star college players much more than benchwarmers. Johnson is fundamentally about treating college athletes at least as well as their work-study classmates, some of whom are also on scholarship and some of whom are paid to work at games where their athlete classmates aren’t paid.
But the implications of Johnson are profound. As amicus briefs filed by the Southeastern Conference and a group of education associations argued, some colleges might cut—or at least threaten to cut—teams or athletic departments if those colleges must pay athletes a wage. Colleges would also need to adhere to Title IX in paying athletes, meaning there must be gender equity in pay. Schools might also worry about the impact of paying athletes on the favorable tax treatment they receive because they currently meet education requirements under tax law.
But Willemin and the panel found some of these worries misplaced given the amount of money generated in college sports. Willemin also addressed a question about whether a scholarship counts as a form of payment or in-kind contribution that might negate the need for a wage. He flatly disagreed with that suggestion since the FLSA guarantees pay, specifically minimum wage. Willemin said if schools want to drop scholarships in exchange for complying with FLSA, they can, but scholarship money is not a wage.
While judges can be hard to predict, the tea leaves suggest the Third Circuit will return the case to Padova, who will oversee discovery. The NCAA would then be faced with a crucial decision: Does it continue to play defense, knowing that an eventual loss—maybe in 2024 or 2025 or later—seems likely, or does it try to cut a deal and radically change its rules to allow for pay?
That will be up to its new president, Charlie Baker. It seems he will have his “work” (he is an employee after all) cut out for him.
