By: Jack Di Masi
Due to Congress’s failure to enact a uniform statutory rule insulating student-athletes from employee classification, the Third Circuit’s Johnson v. NCAA[1] opinion now sits at the center of a fragmented legal regime that universities must manage immediately.[2] In Johnson, the Third Circuit held that student-athletes are not categorically barred from bringing Fair Labor Standards Act (FLSA) claims and remanded the case, leaving open pathways for wage-and-hour liability.[3] If college athletes perform services for an institution primarily for the institution’s benefit, under institutional control, and in exchange for express or implied compensation, they can be employees.[4] Efforts to pass a federal statute to categorically exempt student-athletes from employee status stalled, leaving Johnson as the controlling authority in the Third Circuit.[5] Similarly, the House v. NCAA[6] antitrust settlement, approved in June 2025 by the District Court for the Northern District of California, authorizes direct institutional payments under a revenue-sharing model, creating urgent compliance questions about payroll classification, tax withholding, and Title IX.[7]
Johnson’s economic-reality test is fact-specific; the Third Circuit instructed courts to evaluate the totality of circumstances––services performed, who benefits, the degree of institutional control, and the nature of compensation––rather than rely on a categorical amateurism defense.[8] This means that high-revenue programs may create situations in which some athletes qualify as employees, while non-revenue programs are less likely to do so.[9] Johnson did not create automatic employee status, but it opened factual pathways that plaintiffs can explore on remand.[10]
The House settlement further compounds compliance complexity.[11] Under the approved plan, participating institutions may allocate significant direct payments to athletes, with large shares projected for men’s basketball and football, and the settlement includes substantial back-pay awards for student-athletes who did not previously receive compensation but would have been eligible.[12] Institutional choices will affect payroll systems and tax compliance if athletes are deemed employees under Johnson.[13]
Title IX adds an additional critical compliance dimension.[14] The Department of Education’s Office for Civil Rights (OCR) issued guidance in January 2025 indicating that institutional compensation to athletes could count as “athletic financial assistance” under Title IX, and this must be considered in proportionality analysis for men and women.[15] The OCR later rescinded the guidance in February 2025; however, it still left legal ambiguity.[16] Even without binding OCR guidance, significant gender imbalances in payout schemes risk OCR complaints or private suits challenging unequal treatment.[17] Legal counsel should therefore model allocations across men’s and women’s programs and prepare justification records for any differential treatment.[18]
Lastly, developments in labor organizing complicate institutional legal counsel’s ability to plan.[19] The National Labor Relations Board (NLRB)’s regional activity, including a notable director finding that Dartmouth’s basketball players were employees entitled to vote on unionization, signals union risk for private institutions.[20] While public universities fall outside NLRB jurisdiction, private colleges must prepare for possible union petitions, collective-bargaining exposure, and any associated bargaining costs.[21] With this concern in mind, athletic departments should review handbook language and personnel policies to avoid coercive practices and should develop a response plan for possible union activity.[22]
Johnson and the House settlement have reshaped collegiate sports compliance. As congressional clarification remains nonexistent, courts, administrative agencies, and collective-bargaining processes will determine how athlete compensation is characterized and regulated. Institutions that proactively audit programs, adapt their payroll systems, document nondiscriminatory justifications for allocation decisions between genders, and prepare for possible labor contingencies will be better positioned to limit liability and preserve both the educational and competitive goals of their athletic programs. In this transitional era, practical and strategic legal planning will determine which universities successfully navigate the new compensation regime.
[1] Johnson v. NCAA, 108 F.4th 163 (3d Cir. 2024).
[2] See Protecting Student Athletes’ Economic Freedom Act of 2025, H.R. 2688, 119th Cong. (2025) (“To prohibit a student athlete from being considered an employee of an institution, a conference, or an association based on participation in certain intercollegiate athletics.”).
[3] See Johnson, 108 F.4th at 182 (holding that college athletes “cannot be barred as a matter of law from asserting FLSA claims simply by virtue of a ‘revered tradition of amateurism’ in D-I athletics.” (citing NCAA v. Board of Regents, 468 U.S. 85, 120 (1984))).
[4] Id. at 180.
[5] See H.R. 2688 (“To prohibit a student athlete from being considered an employee of an institution, a conference, or an association based on participation in certain intercollegiate athletics.”).
[6] House v. NCAA, 545 F. Supp. 3d 804 (N.D. Cal. 2021).
[7] See e.g., Dan Murphy, Judge OK’s $2.8B Settlement, Paving Way for Colleges to Pay Athletes, ESPN (June 6, 2025, at 17:28 ET), https://www.espn.com/college-sports/story/_/id/45467505/judge-grants-final-approval-house-v-ncaa-settlement [https://perma.cc/45HP-96CK] (“Questions about whether athletes should be considered employees and the current rules that dictate how long an athlete can play college sports remain unanswered.”); see also Christopher P. Conniff et al., House v. NCAA Settlement Approved: Era of Direct Payments to College Athletes Begins, Ropes & Gray (June 20, 2025), https://www.ropesgray.com/en/insights/alerts/2025/06/house-v-ncaa-settlement-approved-era-of-direct-payments-to-college-athletes-begins [https://perma.cc/3CLX-CQ62] (“The issue of employment status of student-athletes remains open . . . . Should a future suit determine student-athletes are employees under federal or state law, requiring additional compensation, defendants could seek modification of the House settlement.”).
[8] Johnson, 108 F.4th at 180.
[9] See id. at 182 (noting that an economic realities framework may distinguish college athletes who “play” their sports for recreational reasons from those whose play is considered work protected by the FLSA).
[10] See id. at 178 (“[P]laying sports can certainly constitute compensable work. Any test to determine college athlete employee status under the FLSA must therefore be able to identify athletes whose play is also work.”).
[11] See Murphy, supra note 7 (“The settlement approved this week will not put an end to the barrage of legal challenges.”).
[12] See id. (stating that the NCAA will pay athletes nearly $2.8 billion in back damages and an annual cap of roughly $20.5 million per school in 2025-26, which is expected to increase every year).
[13] See Conniff et al., supra note 7 (noting how schools are bracing themselves for future direct payments to athletes by “spinning out different entities for their athletics programs, private equity financing, and other alternatives.”); see also id. (“Non-profit colleges . . . will need to be mindful of potential tax implications, including the private benefit doctrine (which generally prohibits 501(c)(3) organizations from conferring more than incidental benefits on private parties)”).
[14] See id. (noting that, unlike third-party NIL deals, which are not subject to Title IX, direct payments from schools to primarily men’s football and basketball players must be Title IX compliant).
[15] US Education Department Rescinds Biden Guidance on Student Athlete Compensation, Reuters (Feb. 12, 2025, at 13:36 ET), https://www.reuters.com/world/us/us-education-department-rescinds-biden-guidance-student-athlete-compensation-2025-02-12/ [https://perma.cc/U2TZ-RK2Z].
[16] See Press Release, U.S. Dep’t of Educ., U.S. Department of Education Rescinds Biden 11th Hour Guidance on NIL Compensation (Feb. 12, 2025), https://www.ed.gov/about/news/press-release/us-department-of-education-rescinds-biden-11th-hour-guidance-nil-compensation [https://perma.cc/L56L-T8XM] (noting that the NIL guidance is “overly burdensome, profoundly unfair, and it goes well beyond what agency guidance is intended to achieve” because “Title IX says nothing about how revenue-generating athletics programs should allocate compensation among student athletes.”).
[17] See Vernon E. Inge, Jr., Rafiq R. Gharbi & Claire Allenbach, Client Alert: NCAA House Settlement Approved, Whiteford, Taylor & Preston LLP (June 9, 2025) https://www.whitefordlaw.com/news-events/client-alert-ncaa-house-settlement-approved [https://perma.cc/WD4F-EFJR] (commenting that the Johnson case precludes neither a Title IX nor a labor and employment case and that the Settlement Agreement “does not preclude athletes from bringing cases alleging the NCAA violated Title IX or labor and employment laws, including wage and hour claims under the Fair Labor Standards Act or the National Labor Relations Act.”).
[18] See id. (noting “it is still unclear whether [direct] payments could violate Title IX.”); see also Conniff et al., supra note 7 (stating “[t]here are already challenges on the basis of Title IX following the House settlement.”).
[19] See Conniff et al., supra note 7 (noting that issues of unionization and collective bargaining were not adjudicated in the House settlement).
[20] Jimmy Golen & Ralph D. Russo, US Labor Official Says Dartmouth Basketball Players Are School Employees, Sets Stage for Union Vote, Assoc. Press News (Feb. 6, 2024, at 11:40 ET) https://apnews.com/article/dartmouth-basketball-union-ncaa-employees-19839a9afb5c8048a015cbcb86c0e25b [https://perma.cc/W7LX-2HTY].
[21] See id. (stating“[u]nioniz[ation] would allow the players to negotiate not only over salary but working conditions, including practice hours and travel.”); see also Murphy, supra note 7 (noting many schools will have to find alternative means to fund their teams if players are deemed to be employees and eligible to unionize).
[22] See Golen & Russo, supra note 20 (stating that Dartmouth has avoided coercive practices by establishing productive relationships with unions through negotiating in good faith and respecting the rights of union members); see also Alexandra Cobb Haines, Game Changers: NLRB says Dartmouth College Men’s Basketball Players Are Employees of the University, Breazeale, Sachse & Wilson, L.L.P. (Feb. 2024), https://www.bswllp.com/game-changers-nlrb-says-dartmouth-college-mens-basketball-players-are-employees-of-the-university [https://perma.cc/E5XY-7K64] (“The Student-Athlete Handbook in many ways functions as an employee handbook, detailing the tasks athletes must complete and the regulations they may not break.”).
