The National Collegiate Athletic Association recently received preliminary approval of its $2.8 billion settlement House v. NCAA, which represents a seminal moment in the ongoing debate about compensating student-athletes.
Historically, the NCAA has maintained that student-athletes are amateurs, not employees, and thus not entitled to pay beyond scholarships and stipends. However, if approved, this settlement could fundamentally alter this landscape by not only providing significant backpay for the use of athletes’ name, image, and likeness (NIL) but also establishing a revenue-sharing model akin to professional sports.
- Background
The House v. NCAA case (Case Nos. 4:20-cv-03919 CW; 4:20-cv-04527 4:20-cv-03919CW (N.D. Cali.), was initiated by former collegiate swimmer Graham House, challenges the NCAA’s restrictions on athlete compensation. The lawsuit claims that athletes should be compensated for the commercial use of their NIL.
The proposed settlement aims to provide backpay for the years 2017-2020, when athletes were prohibited from earning NIL revenue.
Additionally, the settlement proposes a future revenue-sharing model where schools would share a portion of their athletic revenue with athletes as soon as the 2025-2026 school year. This model introduces a structure similar to salary caps in professional leagues. It is this potential change that could lead to a reevaluation of employment status.
- Athlete Employment Status
The question of whether student-athletes should be considered employees has been a contentious issue for nearly a decade. In 2014, a regional director from the National Labor Relations Board ruled that Northwestern University football players were employees based on the hours spent on the sprot and the strict rules set by the coaches, and therefore, they could unionize. However, in 2015, the Board’s council overturned the ruling stating that permitting the players to unionize would not promote stability, and that it had no jurisdiction over the state-run colleges.
Then, in 2021, NLRB General Counsel issued a memorandum (GC 21-08) stating that certain student-athletes are employees under the NLRA. This memorandum emphasized that athletes at private colleges and universities – particularly those generating significant revenue – should be recognized as employees with the right to organize and bargain collectively. If this stance is upheld, it would grant student-athletes collective bargaining rights and forever change their relationship with universities and the NCAA.
In May 2023, the NLRB General Counsel initiated an unfair labor practice charge against the University of Southern California. The charge asserted that the university, its conference, and the NCAA exert significant control over athletes’ activities, and that therefore they are employees under the NLRA. The hearing in that case concluded in April 2024, with a decision anticipated by the end of this year. A ruling in favor of the athletes would establish employee status under federal labor law.
In July 2024, the U.S. Court of Appeals for the Third Circuit rules that the NCAA athletes may be employees under the Fair Labor Standards Act (FLSA). Johnson v. NCAA, 108 F.4th 163 (3rd Cir. 2024). In this case, a former football player argued that student-athletes should be entitled to minimum wage and overtime pay because the athletes are treated like employees and the NCAA and its member schools profit immensely from the labor of student-athletes without providing fair compensation.
In Johnson, the court held that college athletes may be employees under the FLSA if relationship exhibits the “economic realities” of an employer-employee relationship. The court laid out the following criteria to determine whether the athletes should be considered an employee:
- The athlete performs service for another party
- The services are primarily for the other party’s benefit
- The athlete is under the control of the other party
- The athletes receives compensation or benefits in return for the services the athlete provides.
The outcome of this case could have far-reaching implications. If the courts recognize student-athletes as employees under federal wage and hour law, universities will need to compensate those athletes that meet the “economic realities” test. This recognition would not only provide direct financial benefits to student-athletes but also strengthen the argument for their right to unionize and collectively bargain.
- What’s Next in the House v. NCAA settlement
The preliminary approval of the House v. NCAA settlement sets up a timeline for the steps leading to final approval and conclusion of the case:
- On Oct. 18, 2024, former players will be notified of the decision, and a claims period will begin for eligible people. Only athletes that participated between 2016 and the beginning of the NIL era in 2021 will be eligible, but it should involve many sports.
- On Dec. 17, 2024 (60 days after notice), the projected amount of money to be distributed will be publicly available. The final number for specific individuals will depend on several factors.
- On Jan. 31, 2025, the window for people to submit claims for compensation, opt out of the settlement or bring objections to the court closes.
- On April 7, 2025, the court will have a hearing for final approval.
This settlement will bring transformative change to college athletics heading forward. Most notably, schools will have the ability be able to share up to $22 million each year with players. Additionally, the settlement projects to create bigger roster caps in many sports, open the door for scholarships to all rostered players and potentially create more enforcement capability by the NCAA
ADVERTISING ONLY: The information on this blog is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.
Past results obtained by Biller & Kimble, LLC are no guarantee of future results. Each case or matter is different and must be judged on its own merits.