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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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The Supreme Court of Ohio has clarified that an administrative appeal under Ohio Revised Code Chapter 2506 does not bar a separate action for damages and declaratory relief that could not have been pursued in the administrative appeal. The Ohio Supreme Court considered Sheetz, Inc. v. Centerville (2026-Ohio-3531) as a result of a certified question from the Southern District of Ohio. The question was whether Sheetz, the gas station/convenience store brand, was barred from seeking damages in a separate action since damages were not sought in their administrative appeal. Ultimately, the Ohio Supreme Court ruled that res judicata does not bar a separate action for damages after ruling on an administrative appeal because R.C. Chapter 2506 is limited to judicial review and cannot grant affirmative relief. The case arose after Centerville’s city council rejected a site plan proposed by Sheetz, Inc. that had received unanimous approval from the City’s planning commission. Sheetz filed an administrative appeal pursuant to R.C. 2506 in the Montgomery County Court of Common Pleas, and two months later filed a complaint for damages and declaratory relief under 42 USC § 1983 as a takings action with the city, city council, and other objectors as improper takings and a violation of due process, as well as interference with business and contractual relationship. The city and city council removed the § 1983 action for damages to federal court. Montgomery County Court of Common Pleas reversed the city council’s denial, and allowed the Sheetz project to move forward. Upon that ruling, the federal court issued a show-cause order questioning whether the § 1983 action was barred by the doctrine of res judicata via claim preclusion (which includes all theories of recovery).  Sheetz argued that Ohio courts of common pleas do not have authority to award damages or declaratory relief as party of the R.C. Ch. 2506 appeal, therefore res judicata could not be triggered to apply to the § 1983 action. Additionally, Sheetz moved to certify the issue to the Ohio Supreme Court, citing differing results between the second and sixth districts on this same issue. Centerville approached the question, not from a claim preclusion standpoint, but from the holding in Grava v. Parkman, Twp which states that a final judgment rendered on the merits bars all subsequent action based on the same transaction or occurrence.  In yet another approach, an objector argued that claim preclusion was satisfied because Sheetz could have raised its damages claims in the administrative appeal – Sheetz disagrees. In their analysis, the Supreme Court of Ohio broke down the elements of a claim preclusion analysis: 1) a prior final, valid decision on the merits by a court of competent jurisdiction; (2) a second action involving the same parties, or their privies, as the first; (3) a second action raising claims that were or could have been litigated in the first action; and (4) a second action arising out of the transaction or occurrence that was the subject matter of the previous action. The Court held that R.C. Ch. 2506 does not permit a party to argue damages as R.C. Ch. 2506 limits the common pleas jurisdiction as if it were sitting on appeal, and therefore can only affirm, reverse, vacate, or modify the appealed order, or can remand the case to the administrative body. Further, the Court held that Grava’s conclusion that a final judgment precludes additional litigation for different relief is inapplicable under this fact pattern because it was meant only to apply to those matters in which the plaintiff brings the exact same case twice, but for new relief. The Court found Grava was inapplicable because Sheetz could have requested damages or declaratory relief in the R.C. 2506 appeal. Therefore, Grava would be nothing more than dicta if it even did apply. Going further, the Ohio Supreme Court disavowed Sixth Circuit precedent which, in reliance on Grava and other district court decisions, permitted an owner to seeking relief under 42 U.S.C. § 1983 alongside an administrative appeal. See Moore v Hiram Twp., 988 F.3d 353 (6th Cir.2021). The Ohio Supreme Court found that the Sixth Circuit had disregarded a critical decision in Community Concerned Citizens, Inc. v. Union Twp. Bd. of Zoning Appeals, 1993-Ohio-115, which clearly held that a R.C. Ch. 2506 appeal cannot be combined with a complaint seeking other claims for relief. Id. at ¶ 11. To that end, the Ohio Supreme Court has determined that the decisions Moore relied on (outside of Grava) are no longer good law, and that Moore was wrongly decided. The decision draws a clear procedural boundary: Chapter 2506 provides judicial review of an administrative decision, not a forum for independent claims seeking affirmative relief. Although Grava may place claims arising from a single transaction within the potential scope of claim preclusion, those claims are not barred unless the complete claim-preclusion test is satisfied. Because Sheetz could not have pursued damages or declaratory relief in its Chapter 2506 appeal, the separate action was not precluded. The remaining question for practitioners looking to apply or defend against this exception is when does the statute of limitations begin to run on damages and declaratory relief claims related to an administrative decision on appeal? A takings action in federal court has a 2-year statute of limitations, or as a state claim, 4 years (like the other tortious claims raised therein). Correlating this case with others, an administrative appeal will not likely toll the statute of limitations on claims based on a final decision by a municipal authority. Therefore, practitioners should look for these cases to be brought simultaneously.

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