Wednesday, May 14, 2014

College Football Unions May Cut Scholarship Benefits to Players

I am no legal expert; this post is simply an opinion piece by a layperson.  But, I think college football player unions may cut football scholarships.  

The NLRB has ruled that Northwestern University football scholarship students are employees.  The decision is being appealed.  Many people are scratching their heads over this--wondering why students would want to go in this direction.  If scholarship students are deemed to be employees, does that change the nature of their scholarship funds (at least in part)?  Might more of those funds become wages?

It's a complex issue and some suggest that the whole unionization movement is tied into a desire by some to force schools to pay their athletes.  First, students join a union--next they demand more money. 

From a school's perspective, I believe the institutions will want to maintain amateur non-employee status for their student athletes.  And so they will do what they must to maintain that relationship.  In some ways the issues surrounding this issue reminds me of the legal hornets' nest that is  independent contractor status. 

Independent Contractors

Companies shift costs and risks by using independent contractors rather than employees.  But the courts and regulators saw many employee-employer characteristics retained by such relationships.  The courts took a closer look.  Were employer-like controls put on these contractors, did they have to be  in a certain place at a certain time although it was not essential to the job? Were they provided with tools rather than being allowed to use their own?.  When these relationships were "audited," the result was that many independent contractors were deemed to be employees--and thus companies had to pay certain taxes on amounts paid to these contractors.  The money owed could be very large and the regulators got more aggressive with audit programs.  Companies wanting to use independent contractors started paying more attention to developing formulas and rules, but often these protocols were based on case law (essentially the principles that come out of cases as opposed to statutes written up by legislators or regulators). Employers ended up with "no-no" and "to do" lists, but many still got into hot water with regulators.  It was essential that companies treat contractors in certain ways to insure that the regulators saw them as independent contractors.

The relationship of  independent contractors to employees may be similar in some ways to the relationship between amateur student athletes and  athletes deemed to be employees.  But what's important for this discussion is that the process which companies follow to maintain a proper independent contractor status may be similar to the way schools may have to work to maintain a pure scholarship student athlete status versus a student athlete employment status.  Checklists and new protocols may be used to insure that athletes are students and not employees.

Business Have Options to Avoid Employer-Employee Status

Businesses have other ways to work around the independent contractor issues. Some companies use a third-party organization that  provides workers to them.  There are various names for these, but essentially, this organization will "employee" people for the company--take care of payroll, benefits, and certain other employment law issues.  I suspect it is possible that a college sports conference could create an organization that hired on students who played football at their member institutions and created a central organization to manage the issue.

A company can hire employees, can use independent contractors, or they can use a third party provider.

Universities may wish to continue to have amateur programs or they may turn themselves into a professional sports enterprise by either paying their athletes or perhaps funding another organization to pay their athletes through their conference or some other means. I also believe that once the employment law issues are raised, tax law issues will follow.  Once the college sports scholarship issue becomes embroiled in employment law, it will take on a life of its own and could take shape in law like the independent contractor issue.

One result at least initially might be for schools to review their scholarship practices and determine if there are things they can do to limit the risks of student scholarship athletes being found to be employees.  For example, students who receive a housing stipend to live off campus may find such stipends discontinued if the courts view this as a wage-like payment.  If it is safer to house students in dormitories for employment law reasons rather than pay out of pocket to have them live off campus, athletes may find themselves in dorms all four years.  Funds for off-campus living expenses that may have gone for food may be swapped out for cafeteria credit.  If scholarship students need to demonstrate more independence perhaps schools may look much more closely at most everything provided. Schools may also have to be very careful about directing student athlete eating habits and other personal habits that they do not seek for other students.  If the government becomes embroiled in the legal question of whether scholarship students are employees, the schools will find they have a new overseer for issues that the NCAA or other such conferences ruled on before.

Another potential change might be that schools will need to make scholarship treatment more uniform.  In the case of Northwestern, the football program delivers millions of dollars each year in revenue to the University.  However, the  University is also paying several million dollars a year for scholarships to these athletes.  And of course the funds from football feed back into the University.  But perhaps if the University could show that all scholarship students receive equal treatment in terms of benefits, an argument could be made stronger that scholarship benefits are provided to improve the university as a whole in areas that drive revenue as well as areas that do not.  In other words, if someone who receives a academic scholarship receives the same benefits as someone who plays baseball, the University may have a stronger argument that its scholarship programs are not tied to revenues the way an employer might tie wages to different individuals in an employment relationship.  Just how this may strengthen a legal argument is unknown as well, but it may be a step taken. 

Of course at some schools, the sports programs are under scrutiny.  Some exceptional football programs were eliminated over expenses and a renewed focus on scholarship.  If a school has a strong lobby that wants to reduce sports programs and their importance, legal expenses and issues surrounding such programs may be the impetus needed to scrap or reduce such sports programs.

Elimination of athletic scholarships might be another consideration.  I believe this is a strong possibility if the issue becomes embroiled in the courts.  Sports might likely continue, but with no scholarship dollars, student athletes would be hard-pressed to make a case that they somehow were employed to play ball.  I believe scholarships are not needed to get college students to compete in organized sports.  Scholarships are needed to get the best athletes to compete at certain schools.
No one knows where the employment law issues are going to take college football, but there are many directions that may have unintended consequences.  Once the courts are brought into a complex subject like this, it may literally take an Act of Congress to extract the issue from the courts.

With a movement afoot to pay students to play in the college arena, some believe it's time for colleges and universities to take a step back and have college athletics return entirely to an amateur status without any financial benefit of any kind. If the student athletes and their supporters at schools like Northwestern can't appreciate $65,000 a year in support of their education without forming a union, some would say  it's time to pull the plug rather than pay these athletes to play.

Sporting Chance Press is the publisher of Pillars of the NFL: Coaches Who Have Won Three or More Championships and other fine book including Maddie Takes the Ice;  The 10 Commandments of Baseball: An Affectionate Look at Joe McCarthy's Principles for Success in Baseball (and Life);  Public Bonehead, Private Hero: The Real Legacy of Baseball's Fred Merkle; and Sports and Faith: Stories of the Devoted and the Devout.  Seen here.