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Student-Athletes Gaining Traction on Employee-Compensation Playing Field

October 11, 2021

Student-athletes have received some interesting calls recently from courts and regulators, which have shown a renewed willingness to consider them employees under federal law. With student-athletes also gaining new freedoms to monetize their name, image, and likeness, educational institutions face a period of heightened uncertainty as they navigate the legal intersection between these related rights.

NLRB General Counsel Memorandum GC 21-08

On September 29, National Labor Relations Board (“NLRB”) General Counsel Jennifer Abruzzo issued a memorandum, GC 21-08, that put educational institutions and athletic conferences on notice that she considers certain “Players at Academic Institutions” to be employees under the National Labor Relations Act (“NLRA”) and “will be taking that legal position in future investigations and litigation.” The memo also asserted that “misclassifying” Players as “mere” student-athletes rather than employees and “leading them to believe that they do not have statutory [employment] protections” has a chilling effect and could be a separate, independent violation of the NLRA.

The memo laid out several reasons for Abruzzo’s position. First, the definition of “employee” in Section 2(3) of the NLRA is broadly defined to include “any employee,” with limited exceptions, which supports an expansive interpretation of the term. Second, under common law, an employee includes a person “who perform[s] services for another and [is] subject to the other’s control or right of control,” and “[c]onsideration, i.e., payment, is strongly indicative of employee status.” According to Abruzzo, these factors all apply to student-athletes who perform services for their colleges and the NCAA in return for compensation (like tuition, room, board, and fees) and who are subject to the rules or regulations of their schools and the NCAA.

The memo also reinstated an Obama-era NLRB General Counsel memo, GC 17-01, that identified several specific factors that favor classifying certain student-athletes as employees. GC 17-01 (which had been rescinded under the Trump administration) addressed Northwestern University, a case involving a representation petition filed by a union seeking to represent Northwestern University’s scholarship football players. The NLRB had declined to exercise jurisdiction or to resolve whether student-athletes are employees under the NLRA, but nonetheless discussed the issue. 362 NLRB 1350, 1356 (2015). As articulated in GC 17-01, and repeated in the recently issued GC 21-08, the following factors (again, according to Abruzzo) favor a finding that student-athletes are employees:

  • the athletes play football (perform a service) for the university and the NCAA, thereby generating tens of millions of dollars in profit and providing an immeasurable positive impact on the university’s reputation, which in turn boosts student applications and alumni financial donations;
  • the football players receive significant compensation (up to $76,000 a year in the Northwestern University case), covering their tuition, fees, room, board, and books, and a stipend covering additional expenses such as travel and childcare;
  • the NCAA controls the players’ terms and conditions of employment, including maximum number of practice and competition hours, scholarship eligibility, limits on compensation, minimum grade point average, and restrictions on gifts and benefits players may accept, and ensures compliance with those rules through its “Compliance Assistance Program”; and
  • the university controls the manner and means of the players’ work on the field and various facets of the players’ daily lives to ensure compliance with NCAA rules.

The GC 21-08 memo concluded by arguing that recent developments bolster the General Counsel’s new position. It highlighted the Supreme Court’s unanimous decision in NCAA v. Alston, 141 S. Ct. 2141 (2021), which recognized that college sports is a profit-making enterprise, rejected the NCAA’s antitrust defenses, and expanded permissible types of “education-related compensation” that had been limited by the NCAA. It noted that, shortly after Alston, the NCAA announced the suspension of name, image, and likeness (“NIL”) rules for student-athletes. Now that student-athletes may earn money for use of their NIL, including through endorsement deals (and, as a result of Alston, may earn compensation and benefits that had previously been limited), they are even more akin to professional athletes. The memo also noted student-athletes’ recent collective actions about racial justice issues and demands for fair treatment—all efforts, in Abruzzo’s view, to improve their working conditions.

Name, Image, and Likeness

The Court’s June 2021 Alston decision did not specifically provide for collegiate athletes to earn compensation based on their NIL. But by that time, twenty states had passed laws affording collegiate athletes NIL rights, with seven of those laws set to take effect on July 1, 2021—nine days after the Alston decision was rendered. It was in this environment that, on June 30, 2021, the NCAA announced that it had adopted an interim NIL policy that included the following “guidance to college athletes, recruits, their families, and member schools”:

  • Individuals can engage in NIL activities that are consistent with the law of the state where the school is located. Colleges and universities may be a resource for state law questions.
  • College athletes who attend a school in a state without an NIL law can engage in this type of activity without violating NCAA rules related to name, image and likeness.
  • Individuals can use a professional services provider for NIL activities.
  • Student-athletes should report NIL activities consistent with state law or school and conference requirements to their school.
“NCAA adopts interim name, image and likeness policy” available at https://www.ncaa.org/about/resources/media-center/news/ncaa-adopts-interim-name-image-and-likeness-policy. Importantly, the NCAA stressed that this was “not pay-for-play,” merely an interim policy while the NCAA sought to “work with Congress to develop a solution that will provide clarity on a national level.” Id.

Since the NCAA’s interim NIL policy went into effect, collegiate athletes have signed numerous endorsement deals, from a few hundred dollars a month to seven-figure paydays. By some estimates, the NCAA’s interim NIL policy paved the way for a $1-2 billion sponsorship and endorsement industry in the first year alone.

On September 30, 2021, during a hearing before the House Subcommittee on Consumer Protection and Commerce, NCAA President Mark Emmert again stressed the need to create a federal, “uniform path” to preempt state law and govern NIL. (Hearing before the United States House of Representatives Subcommittee on Consumer Protection and Commerce, Written Testimony of Dr. Mark Emmert, President, National Collegiate Athletic Association, Sept. 30, 2021.) Emmert expressed concerns that the now “nearly 30 disparate state laws” create a “patchwork approach” and leave the issue “without a level playing field,” particularly for collegiate athlete recruiting. Id.

Given Abruzzo’s view that NIL compensation is one factor suggesting that student-athletes are akin to professional athletes (i.e., employees), Emmert added that the federal framework should make clear that “[s]tudent-athletes are . . . students first” and, crucially, they are “not school employees and cannot be hired and fired.” Id. Emmert cautioned that “[c]onverting student-athletes into employees will significantly and irreparably interfere with student-athletes’ higher education experience and shatter college athletics and the broad-based scholarship and participation opportunities it provides for nearly half a million student-athletes each year.” Id.

Case Law Development Under the FLSA

The NLRB General Counsel’s memo also arrived against the backdrop of ongoing litigation about whether student-athletes are employees under the Fair Labor Standards Act (“FLSA”). In Johnson v. NCAA et al., No. 2:19-cv-05230 (E.D. Pa.), a group of students allege that they engage in Division I athletics as employees and are entitled to wages from the NCAA and the universities they attend, including Cornell, Fordham, and Villanova. The district court recently denied the defendants’ motion to dismiss, allowing the students’ claims to proceed against the universities and the NCAA under a joint employer theory. While the case remains ongoing, the schools are seeking an interlocutory appeal in the Third Circuit on two questions: (i) are student-athletes, under the FLSA, ever employees of the schools for which they compete?; and (ii) if so, under what circumstances are student-athletes considered employees of their schools? While other circuit courts have previously concluded student-athletes are not employees in the FLSA context, these cases predate Alston. See Berger v. NCAA, 843 F.3d 285 (7th Cir. 2016); Dawson v. NCAA, 932 F.3d 905 (9th Cir. 2019).

While it is unclear if Alston will change the calculus for federal courts considering FLSA issues in the student-athlete context, the NLRB General Counsel’s memo is unlikely to have an impact there. The FLSA and the NLRA statutes have separate, well-developed case law on what constitutes an “employee.” The memo is also not a binding decision of the NLRB—only the view of its General Counsel—to which courts do not afford deference. See Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212 (1988) (“we have declined to give deference to an agency counsel’s interpretation of a statute where the agency itself has articulated no position on the question”).

Challenging Employment Status

Although the General Counsel’s memo and the Johnson court point to the Supreme Court’s analysis in Alston to support the position that student-athletes are employees under federal law, the Supreme Court’s reasoning could also support the opposite conclusion—insofar as the Court distinguished education-related financial support for student-athletes from direct compensation for playing a sport. See Alston, 141 S. Ct. at 2164 (praising district court’s care in crafting remedy that “would not blur the distinction between college and professional sports”). The more schools are able to divorce payments from compensation for a student’s “service” (i.e., athletic performance throughout a season), the more likely they may successfully challenge efforts to classify their student-athletes as employees.

Key Takeaways

As these legal trends develop, educational institutions will need to evaluate whether to treat certain student-athletes as employees under the NLRA and possibly the FLSA as well. It is yet to be seen how expansively the General Counsel’s memo and case law decided in the wake of Alston will be interpreted—including whether the NLRB ultimately adopts Abruzzo’s position. Whether and how Congress might respond remains another unknown.

In any event, schools will be faced with many decisions around how to refer to student-athletes, how to structure benefits like scholarships and additional education support, and how to manage NIL issues. Educational institutions will also need to prepare for the possibility of student-athletes engaging in organizing efforts such as labor protests, walkouts, and strikes—all of which are considered protected activities for employees. Ultimately, how schools navigate their relationships with student-athletes during this period of legal uncertainty will be informed by whether a school indeed views and treats student-athletes as students first.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Eric Amdursky, an O’Melveny partner licensed to practice law in California, Apalla U. Chopra, an O’Melveny partner licensed to practice law in California, Charles H. Baker, an O’Melveny partner licensed to practice law in New York, Jared F. Bartie, an O’Melveny partner licensed to practice law in Massachusetts, the District of Columbia and New York, Irwin Raij, an O’Melveny partner licensed to practice law in Florida, the District of Columbia and New York, Nicole M. Argentieri, an O’Melveny partner licensed to practice law in New York, Anton Metlitsky, an O’Melveny partner licensed to practice law in New York and the District of Columbia, Eric J. Andalman, an O’Melveny counsel licensed to practice law in Georgia and Illinois, Patrick D. McKegney, an O’Melveny counsel licensed to practice law in New York, Marni F. Barta, an O’Melveny associate licensed to practice law in California, David Z. Cohen, an O’Melveny associate licensed to practice law in New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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