Reigniting the Debate Over Student Athletes as Employees

July 18, 2015 Shar Bahmani General

Lawsuits filed by former and current student athletes at UCLA, Penn and Northwestern keep alive the question of whether college student athletes are entitled to employee rights.

The 2017 College Football Bowl season has kicked off. For the next few weeks, television sets across America will be treated to games all over the nation’s map beginning with the Air Force Reserve Celebration Bowl in Atlanta’s Georgia Dome and concluding with the College Football National Championship on January 9 in Raymond James Stadium in Tampa. In between those two games, 39 other games will be played featuring some of the best student athletes from every which corner of the United States. These battles for college football supremacy will be brought to your living room by a variety of TV networks, with the bulk of the coverage coming from the ESPN family of networks.

However, the battle on the gridiron is not the only intriguing struggle that college student athletes are currently engaged in. The legal battle in the courtroom involving various groups of student athletes has continued to capture headlines in the employment law world. Over the last year, groups of student athletes have spearheaded a number of different legal efforts to be recognized as employees of their academic institutions.

Employee, student athlete, intern: Why is the label so important?

The answer to that is simple. An employee receives certain protections and entitlements under the Fair Labor Standards Act of 1938 and other state­equivalent statutes. For instance, if student athletes receive recognition as employees, they would be entitled to be paid at least the minimum wage and compensated at the overtime rate for hours worked over 40 in a workweek. Multiply the number of student athletes by the number of universities across the United States by the number of hours spent practicing, preparing and competing … and you get an idea of why the National Collegiate Athletic Association (NCAA) has paid attention to these recent claims with the same meticulous detail that Joe Lunardi displays every week with his latest edition of college basketball bracketology.

The FLSA is not the only federal statute that would become applicable to student athletes if they were to be declared employees. The protections afforded to both employers and employees under the National Labor Relations Act would also become available. As employees, student athletes would have the right to form unions, engage in collective bargaining and challenge University policies — such as permissible use of social media policies — that arguably curtail NLRA rights.

Recent legal challenges have included lawsuits brought under antitrust laws, the FLSA, as well as the NLRA.

O’Bannon, et al., v. NCAA

Ed O’Bannon is a folk hero around Westwood, the home of the UCLA Bruins. In 1995, O’Bannon, along with his younger brother, Charles, and other players like Tyus Edney and J.R. Henderson etched their way into Bruins folklore by leading the Bruins to their first — and last — NCAA basketball championship since the John Wooden era.

Following a nine-year NBA career that ended in 2004, O’Bannon became the lead plaintiff in a lawsuit against the NCAA[1], alleging that he was entitled to compensation from the NCAA because the NCAA used his name, image and/or likeness in various materials. The primary crux of the lawsuit was to challenge the set of NCAA rules that bar student athletes from receiving a share of the revenue that the NCAA and its member schools earn from the sale of licenses to use the student athletes’ names, images and likenesses in video games[2], live game telecasts and other footage. The O’Bannon plaintiffs argued that these rules violated the Sherman Antitrust Act, which regulates competition in the marketplace.

A federal judge agreed. O’Bannon’s legal team initially achieved a favorable ruling on August 8, 2014, when the Honorable Claudia Wilken of the U.S. District Court for the Northern District of California issued a decision finding “that the challenged NCAA rules unreasonably restrain trade in the market for certain educational and athletic opportunities offered by NCAA Division I schools.” Judge Wilken’s injunction against the NCAA did the following:

  • It prohibited the NCAA from setting rules prohibiting its members school from giving student athletes scholarships up to the full cost of attendance at their respective schools.
  • It prohibited the NCAA from setting rules prohibiting its member schools from offering their student athletes a “limited share of the revenues generated from the use of their names, images and likenesses.” This “limited share” allowed schools to give up to $5,000 per year in deferred compensation, to be held in trust for student athletes until after they leave school.

However, the matter was appealed up to the Ninth Circuit, which issued a ruling on September 30, 2015, affirming in part, and reversing, in part, Judge Wilken’s decision. The Ninth Circuit panel agreed with the district court decision that some of “the NCAA’s rules had significant anti­competitive effects within the college education market, in that they fixed an aspect of the ‘price’ that recruits pay to attend college.” As a result, the Ninth Circuit decision affirmed the first portion of the injunction which allowed schools to give student athletes scholarships up to the full cost of attendance at their respective schools. However, the Ninth Circuit reversed the second part of Judge Wilken’s injunction that allowed member schools to pay student athletes up to $5,000 per year in deferred compensation.

Both the NCAA and the O’Bannon plaintiffs petitioned the U.S. Supreme Court. Both were denied as the Supreme Court declared in early October 2016 that it would not review the case.

The case, although in essence a dispute over antitrust law, brought to the national limelight the growing debate about whether college student athletes who are engaged in sports as part of their educational experience at an academic institution, should be compensated for their labors that produce high profits, visibility and other benefits for their schools. Most notably, the O’Bannon cases started the legal discussion regarding the NCAA’s notion of “amateurism.”

The University of Pennsylvania Case

Gillian Berger and two other former University of Pennsylvania track and field athletes brought a lawsuit against the NCAA in 2013 seeking a Declaration from the District Court that they were employees within the meaning of the FLSA. The plaintiffs based their argument on a 2010 U.S. Department of Labor fact sheet put out by the DOL to help determine whether interns are employees within the act. The plaintiffs argued that all of the factors which tend to establish an unpaid internship on the fact sheet are glaringly absent in the case of student athletes, and therefore, their athletic endeavors performed for the financial benefit of their universities were done neither as interns, nor student athletes, but as employees.

District Court Judge William T. Lawrence of the U.S. District Court for the Southern District of Indiana granted the NCAA’s motion to dismiss. Per Judge Lawrence, the “FLSA defines ‘employee’ in a circular fashion, as ‘any individual employed by an employer.’ ‘Employ,’ in turn, is defined by the act as ‘to suffer or permit to work.’” Because the FLSA’s definitions are of little to no help, courts routinely examine the “economic realities” of the relationship reviewing several different factors in order to determine whether an individual is an employee under the Act.[3] Even though the plaintiffs argued the factors listed on the intern fact sheet established their standing as employees, Judge Lawrence explained “there is not one set of immutable factors that applies to all interns in all situations, and there is certainly not one test that applies equally to interns and student athletes.” Instead, the court determined a flexible support considering the totality of the circumstances that should be used.

Unfortunately for the plaintiffs, the circumstances indicated that they were not employees. Judge Lawrence supported his “finding that student athletes are not employees … [by] the fact that the existence of thousands of unpaid college athletes on college campuses each year is not a secret, and yet the Department of Labor has not taken any action to apply the FLSA to them.”

Displaying the same determination that propelled them to victory on the track and field, the plaintiffs appealed the decision to the Seventh Circuit. However, the NCAA recently scored another victory from a three­judge Seventh Circuit panel in a December 5, 2016, decision. The Seventh Circuit agreed with the district court that “because status as an ‘employee’ for purposes of the FLSA depends on the totality of circumstances rather than on any technical label, courts must examine the ‘economic reality’ of the working relationship between the alleged employee and the alleged employer.” The Seventh Circuit acknowledged that student athletes spend a tremendous amount of time practicing, presenting and playing for their respective schools, but, in its view, “student athletic ‘play’ is not ‘work,’ at least as the term is used in the FLSA.”

Following the decision by the three­judge panel, the plaintiffs petitioned the Seventh Circuit for a review en banc.

The Seventh Circuit case is Gillian Berger et al. v. NCAA et al., case number 16­1558.

The Northwestern University Case

While the former student athletes in the University of Pennsylvania case sought recognition as employees under the FLSA, the case involving current student athletes at Northwestern University implicated the NLRA. As explained above, the NLRA guarantees the right to organize and join labor unions. The right, however, applies only to employees employed by private sector employers. As a result, a group of Northwestern student athletes seeking to unionize filed a petition in early 2014 with the Chicago regional office of the National Labor Relations Board.

And the NLRB regional director sided with the student athletes, delivering a rare victory in this debate for student athletes. The regional director’s opinion concluded that based on the totality of circumstances — including the amount of time the student athletes were required to spend practicing for and participating in games vis a vis the amount of time the student athletes spent as students — that the student athletes are more employees than students. Further, because Northwestern is a private university, those players have a right to seek union representation.

However, the victory was short lived. The university appealed the regional director’s decision to the NLRB, which punted on the issue by dismissing the matter on jurisdictional (the NLRB concluded that it “would not effectuate the purposes” of the NLRA to assert jurisdiction) rather than substantive grounds.

The NLRB decision didn’t completely shut the door on the players, explaining the board would consider a reexamination of the issue “if the circumstances of Northwestern’s players or football bowl subdivision (FBS) football change such that the underpinnings of [the] conclusions regarding jurisdiction warrant reassessment.” This statement, coupled with the fact that the NLRB never addressed the merits of the argument may have made the university somewhat nervous, because the university made certain revisions to its “Football Handbook,” including changes to the handbook’s social media policy. Specifically, the handbook’s policy was revised from a broader policy barring athletes from social media posts that “could embarrass you, your family, your team … or Northwestern University” to specifically prohibiting the athletes from making posts that “contain full or partial nudity, sex, racial or sexual epithets, underage drinking, drugs, weapons, or firearms, hazing, harassment. or unlawful activity.”

Why does this matter? Excellent question. The reason is because the NLRA protects employee’s rights to engage in concerted activities for their mutual aid and protection and in doing so, prohibits employers from adopting policies that would chill these rights. It is well established that such “concerted activities” involve social media posts and communication through various social media platforms. Thus, even though Northwestern appeared to have been momentarily saved from dealing with student athlete unionization, it wasn’t taking any chances that the NLRB may someday change its mind and grant it’s student athletes NLRA protections.

Northwestern’s actions must have caught the attention of someone at the NLRB, because the NLRB’s Office of the General Counsel recently admonished the university in an advice memorandum[6] that it’s social media policy, prior to the recent modification, violated the NLRA. However, the NLRB declined “to issue a complaint in this case because the employer, although still maintaining that athletic scholarship football players are not employees under the NLRA, modified the rules to bring them into compliance with the NLRA and sent the scholarship football players a notice of the corrections, which sets forth the rights of employees under the NLRA.”

The NLRB memorandum appears to have temporarily reignited the debate over whether student athletes are “employees” under the NLRA.

[1] The class of plaintiffs included a group of current and former FBS Football and Division I basketball college­student athletes.

[2] For instance, NCAA video games are annually purchased by consumers which feature players on college teams with images that closely resemble their real-life counterparts.

[3] The DOL recently addressed the need to apply an economic realities test to determine whether a worker is an independent contractor or an employee. I covered this topic here.

[4] The advice memorandum was issued on Oct. 11, 2016.