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Defense Digest

Student Athlete or Employee? The Ball Is Still Up in the Air

Defense Digest, Vol. 30, No. 3, September 2024

September 1, 2024

by Alexandra O. Freeman

Key Points:

  • College athletes are not precluded from bringing FLSA claims as “employees.” 
  • Courts could find that college athletes are employees under the FLSA under the Third Circuit’s new test. 
  • Colleges could reduce or eliminate their athletic programs due to financial burden.

Following the Third Circuit’s ruling in Johnson v. National Collegiate Athletic Association, 2024 WL 3367646 (3d. Cir. July 11, 2024), despite their decades’ long standing as “student athletes,” Division I college athletes may now—under certain circumstances—be considered college employees and may be subject to the federal wage and hour laws. Specifically, the court in Johnson determined that Division I college athletes are not barred from bringing suit under the Fair Labor Standards Act (FLSA), which mandates that “employees” receive minimum wages and non-exempt employees are paid overtime for more than 40 hours worked during a workweek. As a result, courts may find that they are considered employees under the FLSA, and, therefore, that these student athletes (numbering approximately 190,000) would be entitled to compensation in the form of minimum wages, overtime pay, and other rights for their participation in intercollegiate athletic programs. 

In 2019, Ralph Johnson and five other former and current Division I college athletes filed suit against the National Collegiate Athletic Association (NCAA) and 13 Division I colleges (as representatives of a defendant class of all private and semi-public NCAA Division I member schools). Mr. Johnson and his fellow plaintiffs filed suit for unpaid wages under FLSA and various state wage and hours, arguing that their participation in Division I intercollegiate athletics should be compensated because they were, in fact, “employees,” as defined under the applicable laws. 

Following the filing of the lawsuit in the Eastern District of Pennsylvania, the NCAA and the colleges moved to dismiss the claims, but the court ultimately denied the motion. The court did, however, certify the matter for an interlocutory appeal, and the Third Circuit Court of Appeals accepted the appeal. 

Ultimately, the Third Circuit’s review was to determine “whether college athletes, by nature of their so-called amateur status, are precluded from ever bringing an FLSA claim.” The Third Circuit concluded that their “answer to this question is no.” This, however, means that, while the Third Circuit did not decide whether college athletes are employees under the FLSA, colleges athletes could be considered employees. This decision is a departure from the rulings in the Seventh and Ninth Circuits, which in 2016 and 2019 had determined that student athletes are not able to bring suit under the FLSA. 

In so holding, the Third Circuit went through the history of intercollegiate sports, beginning with the first intercollegiate competition—a rowing competition held between Harvard and Yale in 1852. Interestingly, this competition was not proposed by either school. Rather, it was the superintendent of a railroad who suggested the race, motivated by his financial interest to increase ridership on his railroad by transporting spectators to and from the race. The financial motivation behind college athletics has only grown since its inception, with the Third Circuit noting that, today, some colleges and universities make millions of dollars in revenue from their sports teams (mainly from their football and/or basketball programs) each year. 

In concluding that college athletes may ultimately be deemed employees under the FLSA, the Third Circuit remanded the case back to the trial court with the direction to apply “an economic realities analysis grounded in common-law agency principles.” The district court had previously applied the seven-factor test from Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528 (2d Cir. 2016) (determining that unpaid interns should not be classified as employees). However, in rejecting this test, the Third Circuit reasoned that “the Glatt test has limited relevance to athletes because it compares the benefits that an intern might receive at an internship with the training received at the intern’s formal education program. In comparison, interscholastic athletics are not part of any academic curriculum.” The Third Circuit, instead, fashioned a new test, deciding that “college athletes may be employees when they (a) perform services for another party, (b) ‘necessarily and primarily for the [other party’s] benefit,’ (c) under that party’s control or right of control, and (d) in return for ‘express’ or ‘implied’ compensation or ‘in-kind benefits.’” Therefore, in analyzing any of these claims, these are the elements which must be evaluated by the lower court to determine if an athlete is an employee, which will be the subject of significant discovery as the case proceeds in order to make a record for summary judgment. 

This ruling may have a huge impact on NCAA-affiliated colleges across the country, which may now find themselves defending against student athlete claims under the FLSA and state wage and hour laws. In departing from the rulings of the Seventh and Ninth Circuits, the Third Circuit has potentially opened the door for new suits to be filed across the country. 

Additionally, not all sports, nor all schools, generate the million-dollar revenues mentioned by the Third Circuit. While the court references the revenue brought in by large football and basketball programs, college athletic programs consist of more than just the football and basketball programs and players. Though some schools may benefit financially from a couple of their athletic teams, the majority of sports programs cost more than they bring in. Adding the payment of wages to already existing costs of athletic programs may prove prohibitive for some, or many, schools. 

The full impact of this decision is still unclear, but, ultimately, schools may find themselves defending lawsuits, eliminating athletic scholarships, cutting less financially lucrative sports teams, or getting rid of their athletic programs entirely in order to manage their finances. 

Alex is an associate in our Philadelphia, Pennsylvania, office. 

 

Defense Digest, Vol. 30, No. 3, September 2024, is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2024 Marshall Dennehey. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.

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Thought Leadership

Florida Supreme Court Rules Florida Statute §627.70152 Does not Apply Retroactively

In a decision that resolves years of appellate uncertainty and confirms that insurers and insureds alike can rely on the legal framework in place when a policy is issued, the Supreme Court of Florida last week found that Florida Statute §627.70152, which involves an insured’s requirement to provide an insurer with pre-suit notice before filing a suit, cannot be applied retroactively. In Universal Property & Casualty Insurance Company v. Hughes, the Court was presented with the issue of whether the statutory pre-suit notice requirement applied retroactively and whether it would apply to a breach of contract of an insurance policy that was issued before the statute went into effect. Before the Court was an appeal from a homeowner, Ms. Hughes, who sued her insurance carrier, Universal Property & Casualty Insurance Company (Universal) for breach of contract under an insurance policy that was in effect from April 24, 2019 through April 24, 2020. During the policy period, Ms. Hughes suffered a loss and, on May 29, 2019, made a claim for water damage. The carrier investigated the loss and issued payment; Ms. Hughes disputed the payment, finding the amount insufficient for repairs. On July 1, 2021, Florida Statute §627.70152 went into effect, which required insureds to provide notice of intent to initiate litigation against the carrier prior to filing a lawsuit; if an insured filed the lawsuit without complying with §627.70152, a court must dismiss the case without prejudice. On August 4, 2021, Ms. Hughes filed her lawsuit against Universal for breach of contract. Universal moved to dismiss based on her failure to comply with §627.70152. Ms. Hughes contended the notice requirement could not be applied retroactively. The trial court disagreed and dismissed the lawsuit without prejudice, and Ms. Hughes appealed. During the appeal, the Fourth District Court of Appeal, in Cole v. Universal Property & Casualty, 363 So. 3d 1089 (Fla. 4th DCA 2023), ruled that Florida Statute §627.70152 did apply retroactively to policies issued before the effective date of §627.70152. However, the Sixth District Court agreed with Ms. Hughes and overturned the trial court’s ruling, finding the statute could not retroactively apply to policies issued prior to the statute effective date. Thereafter, the other district courts weighed in, with the Third District Court agreeing with the Fourth District Court, and the First, Second and Fifth District Courts agreeing with the Sixth District Court. In resolving the conflict amongst the district courts, the Supreme Court advised “as a general rule, ‘the statute in effect at the time an insurance contract is executed governs substantive issues arising in connection with that contract.’ Hassen v. State Farm Mut. Auto. Ins. Co., 674 So. 2d 106, 108 (Fla. 1996). The Court applied the two-step test when deciding whether a statute has retroactive application: “First, the Court must ascertain whether the Legislature intended for the statute to apply retroactively. Second, if such an intent is clearly expressed, the Court must determine whether retroactive application would violate any constitutional principles.” Menendez v. Progressive Exp. Ins. Co., 35 So. 3d 873, 877 (Fla. 2010). In analyzing the Legislature’s intent, the Court must determine whether the Legislature has manifested a clear command for retroactivity in the statutory text.  In review of the statutory text, the Court found nothing in the language of the statute to indicate that the phrase “all suits” was serving another purpose of expanding its reach to suits based on policies that both predate and postdate the enactment of the statute. Buis v. Universal Prop. & Cas. Ins. Co., 394 So. 3d 738, 741 (Fla. 2d DCA 2024). Further, the Court noted the statute has an effective date, which has long been considered to be evidence against retroactive application of a statute. The Court concluded that, on its face, no provision of §627.70152 speaks to application of the statute to insurance policies issued before the statute’s effective date and therefore, the Legislature did not clearly command retroactivity of the statute to include insurance policies issued prior to the enactment of the statute. The Court briefly reviewed Universal’s argument that the presuit notice requirement was procedural, not substantive, and therefore should be applied retroactively; however, the Court agreed with the Sixth District Court’s finding that, in its entirety, §627.70152 transformed an insured’s ability to sue an insurance company under a property insurance policy and an insurer’s obligations to respond to and pay insurance claims, thus making the requirement a substantive change. The Court thereby upheld the decision of the Sixth District and disapproved the decision of the Fourth District in Cole.

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The Tolling Trap: Filing Alone Will Not Toll the Statute Without Good-Faith Service

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