The NCAA just paid $2.8 billion to settle a dispute about college athletes’ rights to share in revenue generated by their sports, effectively conceding that the relationship between schools and athletes is heavily economic and not purely educational. This appears to be another key step to resolving an increasingly disputed question in college athletics: Are college athletes employees?
Under the House v. NCAA settlement approved in June 2025, schools will now share up to $20.5 million per year directly with athletes. This concession came less than a year after the Third U.S. Circuit Court of Appeals, in Johnson v. NCAA, ruled that college athletes may be employees under the FLSA. And it came two years after a regional NLRB decision held that Dartmouth’s basketball team could unionize.
Today, athletes are unionizing, state courts are enjoining NCAA enforcement, and DOJ no-poach precedent is being invoked against the NCAA’s compensation structure. None of this is sports law. It is employment law, antitrust law and contract law. And its effects will be felt from college stadiums to warehouses across the country.
This is Part 1 of a three-part series tracing the employee-classification fight from its origins through the current circuit split. Part 2 examines how NIL collectives may have accidentally built employment relationships while paying athletes on 1099s. Part 3 covers the antitrust reckoning.
I. Where the Label Originated and Why It Worked for So Long
The term “student-athlete” wasn’t coined by educators or athletics directors. It was invented by lawyers.
In 1955, Fort Lewis A&M College football player Ray Herbert Dennison suffered a fatal head injury on the first play of a game and died two days later. The school’s director of student affairs and football coach had recruited him and arranged an athletic scholarship and on-campus jobs around his practice schedule. Dennison’s widow sought workers’ compensation death benefits from the Colorado Industrial Commission, arguing that he was a college employee when he died. Although the claim was ultimately denied, the case — State Compensation Insurance Fund v. Industrial Commission — served as a wake-up call for the NCAA.
The NCAA realized that if college athletes were “employees,” every member school would face liability each time a player got hurt. So “student-athletes” were born. The NCAA embedded the term everywhere — bylaws, handbooks, scholarship agreements, public communications — and maintained ever since that the relationship between its member schools and the athletes who play for them is “educational,” not “economic.”
And it worked for 70 years. Courts deferred. The Supreme Court of the United States itself fell in line, stating in dicta in NCAA v. Board of Regents of University of Oklahoma that “[t]he NCAA plays a critical role in the maintenance of a revered tradition of amateurism in college sports” and that “the preservation of the student athlete in higher education adds richness and diversity to intercollegiate athletics.”
But the economics kept changing, and the amateur label has become harder to justify. Television contracts ballooned into multibillion-dollar deals. Head coaches began earning $10 million a year. College football programs built facilities that rival those of NFL franchises. Through all of it, the athletes generating that revenue remained, on paper, “amateurs” receiving “scholarships,” not workers receiving compensation.
II. The Current Legal Battlefield: Employee Status Under the FLSA
A. Johnson v. NCAA
Johnson v. NCAA involved a class of Division I athletes who argued they were entitled to at least minimum wage for the hours they spent in mandatory athletic activities: practices, film sessions, travel, strength and conditioning, and team-mandated study halls. The NCAA and 13 member schools moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), leaning on the historic status of “student-athletes” as amateurs with no claim to employee benefits. The athletes took that label head-on, arguing “that the sports they played were actually detrimental to their academic performance because athletic performance provides no academic benefits, they are frequently precluded from enrolling in hundreds of courses that conflict with their athletic obligations, and they are unable to declare their preferred majors.”
The Third Circuit applied a multipart “economic realities” test to determine whether the athletes were employees. That test — which asks whether, as a matter of economic reality, a worker is dependent on the putative employer rather than in business for himself — is the same framework courts have used for decades to assess gig-economy drivers, warehouse workers and franchise employees under the FLSA. The court did not invent a sports-specific rule; it applied an established employment-law analysis.
The result was a direct circuit split. The Seventh and Ninth Circuits had already declined to extend FLSA coverage to college athletes under different analytical frameworks in Berger v. NCAA and Dawson v. NCAA, respectively.In those decisions, the courts found that students routinely engage in time-consuming university activities, including research, performance arts and student government, without becoming employees merely because their efforts provide value to the institution, and concluded that the educational relationship remains the defining feature of college athletics even when their athletic contributions may generate substantial revenue. With the Third Circuit now on the other side, the question is ripe for Supreme Court review.
B. The Economic Realities Test: What Business Lawyers Already Know
The framework applied in Johnson is not new doctrine. It considers the following nonexhaustive factors:
- The degree of control the putative employer exercises over the manner and means of the work.
- The worker’s opportunity for profit or loss based on managerial skill or entrepreneurial effort.
- The worker’s investment in equipment, materials or helpers relative to the employer’s investment.
- The degree of skill and independent judgment required for the work.
For business lawyers, the ultimate inquiry is familiar: Whether, considering the totality of the circumstances, the worker is economically dependent on the putative employer.
Following House, Johnson and the Dartmouth NLRB decision discussed below, there is now a stronger argument that these factors point toward employee status in the college athletics context. Specifically, proponents of paying college athletes have long argued that coaches control schedules, training methods and playing time; scholarship conditions and team mandates reach into nutrition, academic scheduling and drug testing; and athletes provide labor and physical risk that generate ticket, media and donor revenue, while universities supply the facilities, staff and infrastructure. Opponents have countered that many of the same forms of control exist in educational settings generally and are directed toward student development rather than labor extraction. They further argue that scholarships, academic support and access to educational opportunities are fundamentally different from wages paid in exchange for labor.
These arguments — that athletes are primarily students, that education is nonmonetary compensation and that the relationship is unlike traditional employment — echo arguments made for gig workers, franchise operators and unpaid interns, all with mixed results. While the results have been equally mixed in the college athletics space, the latest rulings might bring a reckoning sooner rather than later. And given that the same arguments apply outside the stadium, Johnson and its progeny are likely to have implications well beyond athletics.
III. Unionization: Dartmouth Basketball Players Test the NLRA Framework
While college athletes pursue employee status under the FLSA, they’re also testing it under the National Labor Relations Act. In the fall of 2023, all 15 players on Dartmouth’s men’s basketball team signed and filed a petition to unionize. In February 2024, NLRB Regional Director Laura Sacks ruled that the players were employees under the NLRA. Her reasoning tracked the same functional analysis at work in the FLSA cases: The players were subject to extensive institutional control, performed services that generated revenue for the university and received compensation in the form of tangible benefits.
In March 2024, the players voted 13-2 to unionize, becoming the first college athletes in history to win a union election. Dartmouth refused to bargain, and the players, wary that the incoming administration’s NLRB might reverse the favorable ruling on appeal, withdrew their petition in January 2025.
This proceeding highlights the hotly contested nature of these issues and the uncertainty of where they will go. While the regional director concluded that the players were employees under the NLRA, the withdrawal of the petition prevented appellate review and left unresolved whether student-athletes occupy a unique category that differs from traditional employees.
Universities will continue to argue that collective bargaining may be ill-suited to an intercollegiate system in which participation, eligibility, educational requirements and competitive balance are deeply intertwined, and developments in this area will be important to monitor.
IV. The Settlement That Changed Everything: House v. NCAA
While the FLSA and NLRB theories have stalled short of a final judgment, the most consequential development in college-athlete employment law arrived through a settlement in an antitrust case.
On June 6, 2025, the Northern District of California granted final approval to the settlement in House v. NCAA, a consolidated antitrust class action alleging that the NCAA and its member conferences conspired to fix athlete compensation at artificially low levels, in violation of Section 1 of the Sherman Act. The plaintiffs’ theory was straightforward: The NCAA’s compensation rules are a horizontal agreement among competing schools to suppress the price of labor. Put differently, the plaintiffs compared the amateurism model to a wage-fixing conspiracy that, in corporate America, would draw hefty fines and prison time for the responsible executives.
The settlement terms speak for themselves. The NCAA and its Power Five conferences agreed to pay $2.8 billion in back damages to current and former athletes. Beginning July 1, 2025, schools may share up to $20.5 million per year in direct revenue with their athletes. This is an officially sanctioned channel for paying athletes out of the same television and licensing revenue they generate. Importantly, this settlement amount reflects the difference between what the athletes received (scholarships and stipends) and what they would have received in a competitive labor market absent the NCAA’s restraints. This is a damages theory built entirely on the premise that college athletes perform compensable labor and is similar to back-pay theories used by employment law plaintiffs every day.
The revenue-sharing component is equally compelling. The $20.5 million per-school cap is not “scholarship money” or even the flashy new “NIL money.” It is straight up revenue sharing — the same term used to describe how professional leagues distribute income to professional athletes.
And the settlement did more than write a check. It also established the College Sports Commission, a new oversight body charged with administering revenue sharing and regulating direct payments to players, including NIL deals. Again, this is akin to the professional sports model in which the league commissioner’s office oversees how income is distributed to players. The settlement undoubtedly reflects the growing economic reality of modern college sports. Whether it constitutes a concession that athletes are employees, however, is more debatable. The NCAA and member institutions continue to maintain that direct compensation and employee status are distinct concepts and that athletes can receive substantial economic benefits while remaining amateurs/students rather than employees.
V. The Regulatory Vacuum: Executive Action Without Legislative Resolution
In 2025 and 2026, the executive branch directed the DOL and NLRB to issue guidance on athlete employment status. While welcome in tone for the NCAA and employers alike, those orders were limited in effect. Executive directives can instruct agencies to prioritize or deprioritize enforcement and initiate rulemaking, but they cannot override a federal appellate court’s construction of a statute.
Congress could resolve the friction between executive orders and judicial opinions. A federal statute defining college athlete employment status would preempt the circuit split created by Johnson and create a stable compliance framework. The most prominent effort is the SCORE Act, a proposed federal bill introduced in July 2025 to regulate collegiate athletics, establish NIL standards and codify the House settlement into law. Notably, the Act explicitly prevents college players from being classified as employees but would allow for direct compensation for their services. The Act, however, remains stalled.
VI. What This Means Outside the Stadium
Whatever rule the Supreme Court ultimately writes won’t stay confined to athletics. For example, that rule could impact the following relationships:
- Research institutions paying postdoctoral researchers “stipends” while directing 60-hour weeks, barring outside work and controlling their output under the label of “trainee.”
- Content platforms signing creators to “collaboration agreements” that mandate schedules, enforce exclusivity and terminate for missed metrics, under the labels “partner” or “independent contractor.”
- Real estate brokerages classifying agents as independent contractors while requiring floor time, mandating CRM use, setting listing-presentation standards and withholding leads from noncompliant agents, while labeling them “independent contractor.”
Courts increasingly scrutinize arrangements in which contractual labels diverge from functional realities. At the same time, courts have not abandoned the principle that some relationships are fundamentally educational, entrepreneurial or collaborative despite significant oversight and economic benefit. The challenge is not simply identifying control but determining the nature of the relationship as a whole.
Advocates for athlete employee status see the NCAA cases as a natural extension of modern worker-classification doctrine. Critics view them as an attempt to force a conventional employment framework onto a relationship that has historically combined education, extracurricular participation and athletic competition in ways unlike most workplaces.
The unresolved question is whether the Supreme Court will uphold the historic treatment of college athletics as a unique relationship warranting different treatment or hold that this is yet another example of worker misclassification.
The answer will have consequences far beyond sports, affecting how courts evaluate relationships that blend compensation, training, institutional oversight and economic benefit.
VII. Coming in Part 2
The House settlement resolved a backward-looking damages claim. But the most dangerous classification exposure in college sports may be the one no one has litigated: booster-funded NIL collectives paying athletes on 1099s while exercising control through exclusivity clauses, content-approval requirements, mandatory appearances and performance benchmarks — terms that may make those athletes employees under standard misclassification tests.
Part 2 examines how those relationships developed, why the IRS has remained conspicuously silent, and what the tax and employment-law time bomb may look like when it detonates.
Marc D. Katz is a partner at Vartabedian Katz Hester & Haynes in Dallas. For over 30 years, he has represented numerous professional sports teams, media and entertainment entities, and other employers throughout all industries, as well as colleges and collegiate athletes in classification disputes, wage-and-hour litigation, and complex contractual and employment matters. He is a frequent speaker and a subject matter expert with respect to issues at the intersection of sports and employment law.
Maria A. Garrett is a senior associate at Vartabedian Katz Hester & Haynes in Dallas, where she represents employers in high-stakes employment litigation—including executive disputes, restrictive-covenant enforcement, and trade-secret protection—and counsels companies on classification, hiring, and separation strategy.