Client Bulletin #533

3.31.14

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Last week, the Regional Director of the National Labor Relations Board's Chicago Regional Office decided that Northwestern football players on "grant-in-aid" scholarships are "employees" under the NLRA. The basis for his decision was that the players provide services for the benefit of the university for compensation and are under the university's control. The decision came after a labor union, the College Athletes Players Association, filed a formal petition with the NLRB seeking an election to determine whether the players wanted the union to represent them in collective bargaining with the university.

If the Regional Director's decision ultimately stands, it could result in certification of the union, which is funded by the United Steelworkers, as the scholarship players' representative for collective bargaining with the university.

Largely giving no weight to the argument that student-athletes have essentially the same academic requirements and lifestyle attributes whether they are on scholarships or not, and the fact that scholarship and non- or partial-scholarship athletes play together on the same teams and are essentially subject to the same team rules, the Regional Director applied the common law definition of "employee" to find that the Northwestern scholarship players only are "employees."

The private university in Evanston, Illinois, has already said that it will seek review of the decision by the full NLRB. Some legal commentators expect the NLRB to adopt the Regional Director's decision because of its current makeup. If the full NLRB agrees that the scholarship players are "employees" under the NLRA, there is no "direct" appeal from that decision. The next step would probably be a representation election within several weeks thereafter (unless the union withdraws its petition). The union may or may not get a majority vote in that election if one is held. If the union gets a majority vote, the NLRB would certify the union as the scholarship players' representative for collective bargaining, absent meritorious objections to the election. At that point, the university could refuse to bargain and could petition a federal Court of Appeals to deny enforcement of the Board's certification. Likewise, the NLRB could petition a court to enforce its certification.

What Is an "Employee"?

Under the common law definition, an individual generally will be an "employee" if the individual performs a service (1) for another, (2) for compensation, (3) under a contract of hire, and (4) is subject to the other's right of control. Here, ostensibly applying that definition, the Regional Director found that the following facts permitted the NLRB to have jurisdiction over the scholarship players as "employees":

  1. the players "perform football services" that are "for" the university;
  2. the players perform the football services in order to receive compensation (the scholarships, which the Regional Director found could be worth as much as $61,000 a year);
  3. the players' commitments to play football in exchange for compensation – the scholarship –are "contracts of hire"; and
  4. the players are under the control of the university with restrictions on their personal activities, and with risk of losing their scholarships ("compensation") for violation of the restrictions.

Northwestern, arguing that the scholarship players were not "employees" but instead were student-athletes, cited an NLRB decision from 2004 involving graduate teaching assistants at Brown University. But the Regional Director found that the Brown decision did not apply. First, he said, the Brown assistants were teaching as part of an academic program and thus were still "primarily" students. By contrast, he found that the Northwestern football players were not "primarily" students because (1) they spend 40-50 hours a week in football during the season, compared with about 20 hours a week in class; (2) the "football duties" are not part of an academic program; (3) the "football duties" are not supervised by academic faculty but instead by coaches; and (4) the players' scholarship compensation is not needs-based but instead is given solely in exchange for playing football.

With respect to the non-scholarship football players on the team, the Regional Director found that they were not "employees" who could be included in a bargaining unit because they did not get the scholarship "compensation." Thus, the Regional Director directed a representation election in a bargaining unit of the scholarship players only, excluding the non-scholarship players from the unit. The decision thus segregated the team of 112 players into a bargaining unit of 85 scholarship players who are eligible to vote, and a separate group of the 27 non-scholarship players who are not eligible to vote and who are thus disenfranchised from a matter of critical importance to them as team members solely based on the fact that they do not have scholarships. In so doing, the Regional Director rejected Northwestern's argument that it was improper for the NLRB "to fracture" the team group when determining the unit. The Regional Director found the situation "akin" to unpaid interns regularly excluded from a bargaining unit, with the lack of compensation to the interns being the sole basis for their exclusion.

In analyzing the facts of the Northwestern football program, the Regional Director seemed to give no weight to the fact that student-athletes receive significant personal benefits from participation in college sports, or that many of these benefits accrue regardless of the scholarship status of the player or the profitability of the sports program. Benefits that student-athletes may value include special admissions standards, priority in course selection, academic tutoring and advising, popularity on campus, enhanced job prospects after graduation, and intense training in a sport of choice. College athletes voluntarily decide that the personal benefits of participation in sports as part of the college experience are worth the personal sacrifices.

Implications for Universities

The rationale of the Northwestern decision could have a dramatic impact on institutions of higher learning, extending far beyond the "four corners" of the Regional Director's decision. Any scholarship that benefits a private college could arguably mean that the recipients were "employees" for purposes of the full range of laws that govern the employment relationship, including tax laws (unemployment, social security, and income taxes); the Fair Labor Standards Act, and state and local wage and hour laws; obligations under ERISA and the employer mandate of the Affordable Care Act; occupational safety and health; coverage under the federal, state, and local anti-discrimination laws; workers' compensation; and vicarious liability to employees or third parties for "employee" torts. Other issues could include uncertainty with respect to intellectual property rights, including control of images of players and confidential team information; applicability of "green card" requirements under immigration laws, as opposed to requirements for student visas; and coverage under insurance policies that include or exclude "employees" from the scope of coverage.

Moreover, if scholarship student-athletes at private institutions of higher learning are "employees" under the NLRA, the athletes have the Section 7 rights of "employees" under the Act, including the right to engage in protected concerted activity. Given the NLRB's aggressive positions concerning employment and social media policies, this change alone could have a significant impact.

Because the NLRB has no jurisdiction over government entities, the decision's import under the NLRA will be limited to private universities. The decision will have no direct impact on state-funded universities or the federal service academies.

To avoid the effect of the Northwestern decision, private universities could simply eliminate sports or other "performance-based" scholarships, following the example of the Ivy League colleges. But who would really want that? Such a move would be likely to harm many athletes and their families, affect schools' revenues and reputations, infuriate alumni and fans, and change the landscape of college sports as we know it.

In the end, perhaps the universities' salvation will be their alumni and fans who include politicians and other movers and shakers. At least one U.S. Senator, Lamar Alexander (R-TN), already has called the decision "absurd." Will they really allow this Northwestern decision to stand?

Lots to think about . . . but maybe after March Madness is over.

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Constangy, Brooks & Smith, LLP has counseled employers on labor and employment law matters, exclusively, since 1946. A "Go To" Law Firm in Corporate Counsel and Fortune Magazine, it represents Fortune 500 corporations and small companies across the country. Its attorneys are consistently rated as top lawyers in their practice areas by sources such as Chambers USA, Martindale-Hubbell, and Top One Hundred Labor Attorneys in the United States, and the firm is top-ranked by the U.S. News & World Report/Best Lawyers Best Law Firms survey. More than 140 lawyers partner with clients to provide cost-effective legal services and sound preventive advice to enhance the employer-employee relationship. Offices are located in Alabama, California, Florida, Georgia, Illinois, Massachusetts, Missouri, New Jersey, North Carolina, South Carolina, Tennessee, Texas, Virginia and Wisconsin. For more information, visit www.constangy.com.

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