What the Northwestern Decision Means

The news from Wednesday that the NLRB Region 13 Director found that grant-in-aid football players from Northwestern were employees for purposes of the NLRA sent shockwaves through the sports world….the problem is, most folks don’t have an understanding of what the decision means, what the next step will be, or what the ramifications of the decision actually are.  This is not the same as if it were announced Brian VanGorder shaved his mustache. It’s not something you can just see and understand the impact.

Many have been quick to say this is the end of college athletics as we know it without having the slightest clue where we stand or what could be the outcome. Yes, a total re-work of the college athletic system is one possible outcome, but we’re a looooooong (I’d have to type 3 pages of “o”’s to truly express this) way from that. So, for those with some time to kill and an interest in being informed as opposed to emotional, let’s take a run down through Northwestern v. College Athletes Players Association (CAPA).

First and foremost, there are two things that serve as an absolute starting point: 1) The National Labor Relations Act, and 2) the decision just handed down. If you’re already spouting about how much players should be paid, you’re about 10 years into the speculative future. Slow your roll, breathe, grab a drink….Drink your drink…are you calmer now?  Hopefully.  Here are links to these two very important things:

  1. NLRA – http://www.nlrb.gov/resources/national-labor-relations-act
  2. Northwestern v. CAPA http://www.cnn.com/2014/images/03/26/Decision_and_Direction_of_Election.pdf

That’s a lot of words, and I don’t want to make your mind explode all at once. However, to have any concept of where we are, you need to have these things in mind.

Current Status of the Litigation:

The current status of the litigation is quite simple.  CAPA, on behalf of Northwestern’s grand-in-aid football players filed to be recognized as the bargaining agent for a collective bargaining agreement (CBA). Section 7 of the NLRA gives employees the right to form a union for collective representation. For unorganized labor, the first step is to hold a vote in order to determine if that’s what a similarly-situated group of employees actually wants. We’re somewhere just before this step with the Northwestern athletes.

CAPA, on behalf of the players, has effectively requested to hold an election to make that determination. Prior to the vote being held, Northwestern made a request of the Regional Director for the National Labor Relations Board (NLRB) to decide whether they had to honor this request for a vote. Northwestern’s position:  Grant-in-aid football players are not employees for purposes of the NLRA.

So far, I imagine that I’ve just provided a lot of extra detail that people were more or less aware of. The public at large has figured out that a gateway inquiry was the question of whether grant-in-aid football players are “employees” of the university. Here’s where it gets sticky. The NLRA defines employee in very broad, vague terms. The definition is found in Section 2(3):

(3) The term “employee” shall include any employee, and shall not be limited to the employees of a particular employer, unless the Act [this subchapter] explicitly states otherwise, and shall include any individual whose work has ceased as a consequence of, or in connection with, any current labor dispute or because of any unfair labor practice, and who has not obtained any other regular and substantially equivalent employment, but shall not include any individual employed as an agricultural laborer, or in the domestic service of any family or person at his home, or any individual employed by his parent or spouse, or any individual having the status of an independent contractor, or any individual employed as a supervisor, or any individual employed by an employer subject to the Railway Labor Act [45 U.S.C. § 151 et seq.], as amended from time to time, or by any other person who is not an employer as herein defined.

This was essentially the question the Regional Director was asked to decide prior to requiring the University to permit a vote on whether CAPA could become the CBA representative. These cases are always fact specific and rulings tailored to reflect the specifics which take place at the hearing. As many know, the Regional Director found that grant-in-aid football players were “employees,” and therefore moved the voting issue forward. The decision was based on several factors:

  1. That a player’s grant-in-aid scholarship constituted “compensation” for services,
  2. That these services were contracted for by the employer (Northwestern),
  3. That the University had considerable control over these athletes in their time commitment, their ability to rescind the scholarship if they stopped performing, and in what classes/academic pursuits they could choose,
  4. And that the substance of this agreement related to athletic services provided to the university as opposed to anything related to academic endeavors.

I’m somewhat simplifying. The opinion is 24 pages long and takes considerable effort to explain the factual findings from the hearing, but those are the big brush strokes. Let’s keep things simple/stupid and break down the opinion into many subcategories of analysis:

The Opinion Distinguishes between “grant-in-aid” athletes and walks-ons: This has received very little attention in the media thus far, but the opinion only found scholarship athletes to be “employees” for purposes of the NLRA. The Regional Director found that walk-ons had more control over their academic schedules and were not expected to perform and dedicate time quite as rigidly as scholarship athletes. More importantly, the Regional Director distinguished that walk-ons did not receive compensation for their services and thus did not meet the definition.

Whatever comes out of this decision, a fundamental tenet remains true: non-scholarship athletes are not covered. Assuming arguendo down the road the union was upheld, your walk-on athletes would not receive the benefits of any CBA. They are not even entitled to do so at their election. For any non-scholarship sport, those athletes would have no right to organize or collectively bargain without a completely separate theory of rights under the NLRA. Given NCAA scholarship limits, this means most teams would have about 20% of their football roster that could not organize or receive the benefits of CBA terms even were they implemented.

I’ve heard many proponents of labor organization in the realm of college athletics suggest that player benefits for medical reasons is an important reason to organize. I agree, and yes, one would expect scholarship athletes to be on the field and subject to injury at a much higher rate than walk-on athletes. Additionally, just because a term can’t reach 20% doesn’t mean it’s not worthwhile for the other 80% who probably receive 95% of the playing time. Fact remains, there is a component of similarly situated individuals who will never benefit from this “improved” process (in the hypothetical sense).

Further Limitations:  Not only was employee limited to grant-in-aid players, it was also limited to players with eligibility remaining. This underscores a problematic element of the entire process: the covered base of “employees” will constantly be in flux. At most, players are reasonably looking at 5 years of being a part of this union. Leadership will frequently fluctuate. Admission will frequently fluctuate. Additionally, “eligibility” is still determined by the NCAA under this scenario. Were a player deemed ineligible due to NCAA infractions, they’d no longer be covered. It’s an impossibility to give reasonable consideration to what this means other than that the rules on eligibility do not change given this ruling.

Scholarships as “Compensation”:  The Regional Director also determined that scholarships constituted “compensation for services rendered” and pointed to previous case law in pointing out that whether something is construed as “income” is not dispositive of being “compensation” under the terms of the NLRA. If your head is spinning a bit from my use of quotes and distinctions, welcome to the legal world. It’s a sad, word parsing arena of human ingenuity. Fabricated distinctions can and do exist for better or worse.

The problem is, as many have picked up on, this creates a conflict in federal law. Scholarships are generally exempt from IRS taxing under very specific, definitional terms. The decision that a scholarship constitutes compensation for purposes of the NLRA raises serious, and possibly lethal to the athlete’s cause, implications. Should scholarships be recognized as compensation, it is quite possible the tax issue would be revisited as well. College students (not athletes when it’s no longer beneficial of course!) might suddenly be responsible for $10,000 or more of federal income tax liability. The value of a college athletic scholarship far exceeds any measure for national poverty guidelines meaning these folks would owe money. The employer may fairly and rightly feel the need to withhold portions of their scholarship for tax purposes meaning previous fully covered rides could no longer do so.

In the alternative, many colleges may reduce athletic scholarships to 3 groups: 1) men’s football, 2) men’s basketball, and 3) Just enough female programs to be covered by Title IX. In the face of such uncertainty and added expense, schools may rightly decide the only programs they can offer scholarships for are the two consistent profit making endeavors and enough female programs to comply with other federal law. It may no longer be worthwhile or logical for employer universities to subject themselves to possible union activity and federal tax consequences to offer athletic scholarships for anything but the profit making sports. While not a guarantee, this is a very realistic possibility of your future with organized football unions.

There is another pertinent point to this part of the opinion: For all the woe-is-me athlete’s don’t get paid crowd: This decision drew a fundamental difference that athletic scholarships constituted remuneration for services rendered. For anyone claiming that the scholarship does not constitute payment, your victory is hollow and fictional without a determination by the Regional Director that scholarships in fact constituted substantial value. While the long game for this group may be that the CBA would enable the insular minority to achieve a “fair” wage for services rendered, the notion that the scholarship is meaningless or without value should not ring true today. Without the scholarship being seen as a considerable amount of enticement to the potential player, their status would be no different than the walk-on who was denied “employee” status in this opinion.

Are Scholarships Guaranteed? The Northwestern case had a couple of facts which made in somewhat unique. While athletic scholarships are renewable year-to-year generally, Northwestern made a decision in the 2012 year under revised NCAA regulations to offer 4-year scholarships. The Regional Director considered the terms of the “tender” offered by the university in reaching his conclusion that grant-in-aid athletes were beholden to the university to continue serving on the football team in order to maintain their scholarship. While perhaps logistically fair, the Regional Director was persuaded that such conditions gave the football program a substantial amount of control over these individual’s lives.

At Northwestern, a player would not lose his scholarship for injury, even if it rendered him unable to ever play, or for poor performance. However, voluntarily leaving the program or committing any one of a number of other infractions could cause a player to lose their scholarship. An interesting counterpoint would be to know how the outcome may have differed were scholarships fully guaranteed aside from egregious conduct. The evidence presented persuaded the Regional Director to side with the players, but a different agreement at a different university could in fact alter the outcome of the analysis.

Burden of Proof:  Finally, it’s important to recognize that any legal proceeding has a burden of proof. Most will best understand this principle by alluding to “guilty beyond a reasonable doubt.” That’s a burden of proof which the prosecution must achieve in a criminal prosecution. Absent the prosecution proving facts to at least the level, the default is to find the individual “not guilty” (as opposed to innocent). At this stage of the litigation, the burden was upon the employer (Northwestern) to demonstrate that the grant-in-aid football players did not meet the definition of “employee.” It was the Regional Director’s opinion that they failed to meet this burden. While perhaps a version of legalese in its own right, this is a powerful distinction in legal proceedings. The NLRA is designed to encompass as many employees as possible. Through its process, it’s designed to exclude even fewer. The employer did not win the day, but there’s a long road ahead….

What’s Next?

The decision from yesterday moves the process forward. Grant-in-aid Northwestern football players will now be given the right to vote on whether CAPA becomes their CBA representative. This solely decides whether CAPA becomes the representative. It doesn’t change the functional life of the college players in any meaningful form, and likely won’t for quite sometime.

Eric Hansen of the Southbend Tribune had on attorney Jerry Lutkus to his podcast to explain all the nuances and steps. You can find the audio of the podcast here.

Net result? There’ll be an appeal of the decision regarding “employees” to the NLRB. The decision of the Regional Director will likely be upheld. NLRB members are politically appointed and the current group is pro-union. As such, they’re likely to find the definition met and force Northwestern’s hand. In the meantime, the vote will be held and kept under seal (not counted) pending that appeal. Once and if affirmed, CAPA will be recognized starting the next stage of the litigation. This will involve Northwestern failing to bargain a CBA, being accused of an unfair labor practice, and taken back before the NLRB. Northwestern will eventually appeal to the Federal Appellate Court and re-litigate the issue of whether a union was properly recognized.

Time frame? 3-4 years minimum. Probably longer. For those expecting a swift change in anything are sorely mistaken. The issue of “employee” for these players is far from a forgone conclusion, and probably at least a decade before having long-term impact one way or the other. Expect the university to question the Regional Director on a variety of issues including the scholarship as compensation, the fractured status of the group given the disparate treatment for walk-ons, and the failure of the Regional Director to apply, and apply properly in the hypothetical, the decision of Brown University 342 NLRB 483 (2004)(dealing with graduate students). This type of shockwave decision takes a substantial amount of time to litigate, and we’re nowhere near the end of it. We’ve just passed a beginning hurdle.

What the Decision Doesn’t Mean:

While many have been more than willing to jump to the gun on the impact of this ruling, there are substantial questions which remain regardless of the outcome. Let’s explore them briefly….though I do mean briefly as we start to venture down the road of entirely hypothetical.

This is not a Universal Decision for Private Schools: Regardless of the outcome, as stated at the outset, these types of decisions are extremely fact specific. What cut against Northwestern could cut in the favor of other private institutions. While the decision creates a precedent future courts will rely upon, it is not dispositive of the final outcome. In fact, as the litigation progresses, it should be totally expected that other private institutions may modify their policies in order to create some new space to litigate. In deciding that Brown University didn’t apply, the Regional Director pointed to the court authorized factors such as academic credit for athletic performance and the status of college coaches as members of the academic faculty. While remote right now, what happens if a university reduced the number of credits required for graduation by athletes? What if the head coach was recognized as a member of the academic faculty? As suggested earlier, what if scholarships were structured in such a way as to permit a football player to remain at the university without paying if they decided to voluntarily leave the program?

Again, these possibilities may seem remote now, but as universities consider the brave new world of student-athlete-employees, it’s not entirely unreasonable that they may force these issues if/when the circumstance arises.

Private Schools versus Public Schools: Perhaps more importantly for the grand scope of college athletics, private institutions and public institutions will be very distinct cases. The vast majority of FBS football programs are public, not private. As such, they will command a different analysis and ruling.

Determining that grant-in-aid football players are “employees” for the NLRA in the context of a publicly funded school requires those individuals to be recognized as state employees. In such a situation, state law controls over federal law, and the analysis starts anew. Some states do not permit state employees to be members of a union. Given that publicly funded tax dollars are rolled up in the process, these institutions will fight even harder for their autonomy to decide on state tax dollars are spent. What it will create is a crazy, complicated, nearly incomprehensible  system where depending on what school an athlete chooses could dictate whether they get to be a part of a union or not.

As a corollary to what was mentioned earlier, this also means that the actual “value” of the scholarship could come into question for tax purposes. Private schools are typically more expensive than state schools. Thus, the “value” of the compensation could vary widely between different universities with an impact counterintuitive to what many would think. Practical athletes may decide to forgo a better educational opportunity in order to avoid the increase tax cost associated with the value of their contract. These issues are a long way from being fully fleshed out, but it is food for thought.

The NCAA is NOT a Party to the Process: Finally, and something that has somehow been ignored in the media, is that the NCAA is not privy to these agreements. The ruling handed down did not suggest that grant-in-aid players were in any way employees of the NCAA. It does not bestow upon them previously unforeseen rights to benefit from their image, sign autographs for money, get a piece of television contracts, or anything in that nature.

The decision deems the grant-in-aid athletes to be employees of the university in question. That’s it. Yes, it would (if affirmed) change the dynamic between player and university, but by itself does not radically change what a player should expect to receive. So long as the NCAA rules remain in effect regarding eligibility to play, the players would be subject to the same restrictions or risk foregoing eligibility. As stated earlier, an ineligible player would not be given access to CBA rights or benefits. Therefore, the decision that players were employees of a university would not, by itself, radically change the payment structure available to college athletes.

It’s reasonable to assume that the NCAA, as a voluntary organization of collegiate institutions, might change its regulations in response to pressure from organized labor, we’re even farther off from that than we are from a decision with respect to Northwestern. Again, other private institutions would have an opportunity to dispute whether under their facts, grant-in-aid athletes met the same criteria as Northwestern. Assuming we got there, the various differing public institutions and state laws would take DECADES……let me repeat that…..DECADES to figure out.

Where in that process the NCAA would decide to react is a hypothetical question of the highest order. I might as well ask what would happen if super smart dolphins elected to become land animals and invade India. The number of contingencies is staggering. In fact, it’s entirely plausible under this scenario that universities just stopped offering athletic scholarships altogether. They’d let the NBA and NFL absorb the monetary cost of taking chances on 17-18 year olds and merely deal with the athletes they could more easily control. Take this for what it is….a calculated business decision.

You might dislike what the NCAA and its member universities do, just don’t think they’re dumb enough to keep the status quo in the face of unionization of 18-22 year old transient entities. They’ll adjust, and we’ll all lose. I’ll let others take up the moral mount of what should be. I hope I’ve laid out a more complete picture of what is at the current moment.

– Moons

DISCLAIMER: Down the Tunnel in no way expresses this to be legal advice. Its author does not purport to be an attorney providing legal advice, and any and all opinions should be construed with this in mind. Any individual seeking a legal opinion should consult a licensed attorney in his or her state and not rely upon this article before proceeding. Down the Tunnel in no way endorses or certifies this piece as being a 100% accurate reflection of the law or its implications, and expressly denies any liability for a person acting upon this opinion article’s statements.

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