By: Donald L Swanson

The National Collegiate Athletic Association (“NCAA”) and its member schools have not fared well in court.  They tend to lose . . . a lot.  And their loosing streak continues.

The latest loss is in a lawsuit filed on November 6, 2019, as Johnson v. The National Collegiate Athletic Association, Case No. 19-cv-05230 in the U.S. District Court for Eastern Pennsylvania.

Plaintiff’s complaint in the Johnson v. NCAA lawsuit asserts multiple types of claims around this idea:

• “student athletes who engage in interscholastic athletic activity for the colleges and universities are employees who should be paid for the time they spend related to those athletic activities.”[Fn. 1]

In response, Defendants move to dismiss Plaintiff’s complaint for failure to state a claim upon which relief can be granted.

U.S. District Court Judge denies the motion to dismiss.  That denial is before the Third Circuit Court of Appeals on an interlocutory appeal—oral arguments happened on February 15, 2023. 

What follows is a summary of the District Court Judge’s grounds for the denial.

Facts

Defendants are the NCAA and 25 schools in NCAA’s Division 1.[Fn. 2]

Student athletes cannot receive wages for playing sports at any NCAA Division 1 school. That’s because:

• All NCAA schools have agreed that they won’t pay wages to student athletes; and
• NCAA Bylaws prohibit wages for student athletes.

Scholastic restrictions on Division 1 athletes are significant: 

• students must schedule classes around their required NCAA athletic activities;
• at Villanova University, for example:
  • Plaintiff Johnson had to participate in athletic-related activities on weekdays between 5:45 a.m. and 11:30 a.m.; and
  • he could not enroll in a non-core class during that time, even if that class is a degree completion requirement; and
• many student athletes report that participation in Division 1 sports prevents them from taking classes they want to take and from majoring in their preferred major

Division 1 schools also require student athletes to participate in such things as:

• Countable Athletically Related Activities (“CARA”), which are recorded on timesheets under an NCAA Division 1 Bylaw; and
• Non-CARA activities like meals, physical rehabilitation, dressing, showering, travel, extra workouts and consultations with coaches, fundraising, and community service.

A student athlete who fails to attend meetings, participate in practice, or participate in scheduled competitions can be disciplined, including suspension or dismissal from the team.

Many student athletes report spending:

• more than 30 hours per week on athletic-related activities; and
• more than 40 hours per week on bowl and championship activities for football.

The NCAA and its Division 1 schools procure large revenues from sports:

• In 2018, NCAA reports total revenues of $1,064,403,240 from television rights, marketing rights, championships, tournaments, and sales;
• In 2018, Villanova University reports total revenues from NCAA sports of $48,977,278; and
• In 2016, NCAA Division 1 schools report the following median total revenues from NCAA sports:
  • $97,276,000 in the football power five subdivision;
  • $33,470,000 in the football bowl subdivision;
  • $17,409,000 in the football championship subdivision; and  
  • $16,018,000 without football teams.  

NCAA and defendant schools say that student athletes acquire intangible educational benefits, including “discipline, work ethic, strategic thinking, time management, leadership, goal setting, and teamwork.”

NCAA Division 1 schools exercise significant control over their student athletes.  Such athletes:

• are governed by NCAA Bylaws, which address “recruitment, eligibility, hours of participation, duration of eligibility and discipline”;
• are supervised by coaching and training staff;
• have adult supervisors maintain timesheets for them;
• must comply with handbook standards for performance and conduct, both on and off the field;
• are subject to school discipline for specified misconduct, including suspension and dismissal from a team;
• are subject to NCAA rules on agents and gambling;
• are subject to NCAA restrictions on social media use (e.g., can’t make derogatory comments about other teams); and
• are subject to NCAA policies on consumption of alcohol and use of nicotine products.

Accordingly, Plaintiffs claim to be employees of the defendant schools and seek payment of wages for the time spent in NCAA sport activities, including:

• unpaid minimum wages as employees plus attorney fee and costs; and
• an amount equal to the benefits unjustly retained by the Defendants from Plaintiffs’ uncompensated labor.

Dismissal Standard

On a motion to dismiss, the Court:

• considers “only the complaint,” takes the complaint’s factual allegations as true, and construes those allegations “in the light most favorable to the plaintiff”;
• is not bound to “accept as true a legal conclusion couched as a factual allegation”; and
• considers whether the complaint alleges “sufficient factual matter to show that the claim is facially plausible.”

Ruling and Rationale

The District Court denies Defendants’ motion to dismiss.  What follows is a summary of the District Court’s rationale.

Employee Defined

Applicable law defines the term “employee” as “any individual employed by an employer”—a “broad” and “expansive” definition, under which the courts must look to “the economic realities of the relationship.”

Defendants assert three reasons why the student athletes cannot be their employees:

1. student athletes are amateurs;
2. Department of Labor has determined that interscholastic athletes are not employees; and
3. economic realities of the relationship are not that of employer/employee.

Amateurism

U.S. Supreme Court recognizes that college athletics in the United States is defined by its century-old “revered tradition of amateurism.”  So, Defendants argue that the history of not paying student-athletes is “precisely what makes them amateurs.”

Yet, the U.S. Supreme Court recently rejected the argument that such language “forecloses any meaningful review of those limits today.”  Here’s how:

• “the decades-old ‘stray comments’ about college sports and amateurism . . . were dicta and have no bearing on whether the NCAA’s current compensation rules are lawful.”

So, it is possible for Plaintiffs to be Defendants’ employees, despite any stray comments from the Supreme Court that seem to suggest otherwise.

Department of Labor

Department of Labor regulations say that a student’s participation in athletics and other extracurricular activities does not result in an employer/employee relationship.

The Department’s Field Operations Handbook says (emphasis added):

• “University or college students who participate in activities generally recognized as extracurricular are generally not considered to be employees”; and
• “Activities of students in such programs, conducted primarily for the benefit of the participants as a part of the educational opportunities provided to the students . . . do not result in an employer-employee relationship.”

Defendants contend that such Handbook statements:

• provide a reliance defense because 29 U.S.C. § 259 says, “no employer shall be subject to any liability . . . [for failing] to pay minimum wages . . . [if acting] in good faith in conformity with and in reliance on any written administrative regulation”; and
• provide a direct defense because the District Court must follow the Department’s Handbook rules.

The District Court rejects such contentions for two reasons: because, (i) there is no evidence that a reliance defense exists in this case, and (ii) the Department’s Handbook rules are not technically “law.”

The District Court also rejects the same contentions for a third reason: because the sports activities are conducted for the benefit of the NCAA and its member schools—not “primarily for the benefit” of the students or their “educational opportunities.” 

Economic Realities

–Comparative  Benefits

Plaintiffs allege that performance by student athletes “is integral to the billion dollar Big Business of NCAA sports,” that NCAA “sports contests cannot take place without athletes,” and that NCAA and its member schools gain huge amounts of revenue from Plaintiffs’ athletic activities.

By contrast, the benefits that student athletes receive from NCAA schools are training in “discipline, work ethic, strategic thinking, time management, leadership, goal-setting and teamwork.” 

The District Court sides with Plaintiffs on this, finding that such benefits for student athletes are inconsequential in comparison to the huge amount of money gained from student athletes by NCAA and its member schools.

–Expectation of compensation

Defendants argue that student athletes cannot be employees because (i) the athletes participate in athletics without any expectation of payment, and (i) such amateurism “defines the economic reality of the relationship between student athletes and their schools.”

The District Court rejects this argument as circular and because of the superior bargaining power held by the NCAA and its member schools: student athletes cannot be coerced into waiving their legal protections.

–Multifactor Tests

Courts have developed multifactor tests on the employee vs. non-employee issue.  And regardless of which test is used, the allegations of Plaintiffs’ complaint are sufficient to state a claim that Plaintiffs are Defendants’ employees.

Conclusion

The string of losses by NCAA and its member schools continues in the pending lawsuit of Johnson v. NCAA.

It will be interesting to see how the U.S. Third Circuit Court of Appeals will rule on the pending interlocutory appeal. 

Here’s guessing that the Third Circuit will affirm the District Court’s denial of the motion to dismiss and remand the case so that it can proceed to trial.

If at the end of the Johnson v. NCAA lawsuit, the NCAA and its member schools ultimately lose on the athletes-as-employees issue, the negative financial impact on many schools could be significant.

—————–

Footnote 1.  This quote is from a “Memorandum” opinion issued by Judge John R. Padova on August 25, 2021, (Doc. 55) in the Johnson v. NCAA lawsuit in the Eastern Pennsylvania federal court, at 1 of 30.

Footnote 2.  The 25 colleges and universities are:

1. Villanova University;
2. Fordham University;
3. Sacred Heart University;
4. Cornell University;
5. Lafayette College;
6. Bucknell University;
7. Drexel University;
8. Duquesne University;
9. Fairleigh Dickinson University;
10. La Salle University;
11. Lehigh University;
12. Monmouth University;
13. Princeton University;
14. Rider University;
15. Robert Morris University;
16. Seton Hall University;
17. Saint Francis University;
18. Saint Joseph’s University;
19. Saint Peter’s University’
20. University of Delaware;
21. Pennsylvania State University;
22. University of Pennsylvania;
23. University of Pittsburgh;
24. Rutgers State University of New Jersey; and
25. Temple University.

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