College Athletes May Qualify as Employees Under New Test: Appeals Court

The court created a new test to differentiate athletes playing for fun and those whose play could be considered work.

A detailed view of a NCAA logo is seen prior to a First Four game of the NCAA Men's Basketball Tournament at University of Dayton Arena in Dayton, Ohio., on March 15, 2023. Andy Lyons/Getty Images

The NCAA’s long-standing rules against paying college athletes faced a major setback, as an appeals court found that those students may be entitled to a minimum wage and overtime pay under federal laws.

In a ruling issued on July 11, a three-judge panel of the U.S. Court of Appeals for the Third Circuit unanimously rejected the NCAA and member schools’ argument that the college athletes’ “amateur” status renders them ineligible for payment. Instead, the court created a test to determine when the playing of college sport “crosses the legal line into work” and should be compensated.

According to the judges, college athletes may be considered employees under the Fair Labor Standards Act (FLSA) if their relationship to the NCAA or a school reflects an “economic reality” in which their efforts primarily benefit the institutions.

“With professional athletes as the clearest indicators, playing sports can certainly constitute compensable work,” Circuit Judge L. Felipe Restrepo wrote for the panel.

“Ultimately, the touchstone remains whether the cumulative circumstances of the relationship between the athlete and college or NCAA reveal an economic reality that is that of an employee-employer.”

The case, Johnson v. NCAA, was originally filed in 2019 against the NCAA and two dozen member schools. All member schools in the NCAA have agreed not to pay students to play sports, as the NCAA’s bylaws prohibit schools from offering wages and forbid students from accepting them.

In their suit, athletes who played for their colleges claimed that their participation in Division I sports should classify them as employees entitled to back pay and damages under the FLSA.

The NCAA and member schools have fought to have the case dismissed. Arguing on the basis of a traditional definition of amateur sports, the NCAA said although athletes do not earn wages, they still benefit from participation in other forms by building better discipline, improving work ethic, and growing leadership and teamwork skills.

The plaintiffs, i.e. the athletes, disagreed. They alleged that not only were the so-called benefits are not enough to compensate for their services, but also that they were subject to extensive training and performance requirements that frequently interfered with their academic goals.

Economic Test

The Third Circuit didn’t rule on the merits of the athletes’ claims. It sent the case back to the lower court and told the court to apply the “economic reality” test in further proceedings.

In response to the ruling, NCAA officials maintained that athletes “should not be forced into an employment model,” which they warned would prompt colleges that stayed in Division I sports to shut down less popular sports—including women’s sports—to save money.

“We look forward to working with all stakeholders—including Congress—to continue to promote needed changes in the best interest of all student-athletes,” Meghan Durham Wright, a spokesperson for the NCAA, said in a statement.

The fight to allow schools to directly pay athletes received national attention in 2021, when the U.S. Supreme Court issued a unanimous decision in NCAA v. Alston, narrowly allowing colleges to offer players certain education-related benefits, such as computers and paid internship opportunities.

In its July 11 ruling, the Third Circuit referenced the majority opinion in Alston as well as a concurring opinion in that case by Justice Brett Kavanaugh, who wrote that the traditional definition of college amateurism alone “cannot justify the NCAA’s decision to build a massive money-raising enterprise on the backs of student athletes who are not fairly compensated.”

“It is highly questionable whether the NCAA and its member colleges can justify not paying student athletes a fair share of the revenues on the circular theory that the defining characteristic of college sports is that the colleges do not pay student athletes,” Justice Kavanaugh wrote.