The NCAA is facing a new antitrust lawsuit filed not by student-athletes, but by their coaches. The plaintiffs filed a putative class action claiming they were harmed by an illegal wage-fixing agreement in the NCAA’s bylaw restricting Division I baseball programs to three paid baseball coaches and one “volunteer” coach.
This case highlights the trend of growing legal challenges to how the NCAA operates and increasing examination of anticompetitive effects in labor markets, hot on the heels of the FTC’s announcement of a proposed ban on virtually all employee non-competes.
NCAA Volunteer Coaching Restrictions
Taylor Smart and Michael Hacker, the plaintiffs and would-be class representatives, are both former “volunteer” coaches who worked without pay for the University of Arkansas and the University of California, Davis, respectively. Smart and Hacker describe their coaching work at these Division I institutions as a full-time commitment, with similar responsibilities to the paid assistant coaches they worked alongside. However, an NCAA bylaw requires that “volunteer” baseball coaches receive no compensation or remuneration from their universities.
In their complaint, both plaintiffs allege that the NCAA and its Division I member institutions are engaged in an illegal monopsony over Division I coaching positions. They argue that NCAA Division I member schools are the only buyers in the market for elite college sports coaches and that, by coming together and approving the NCAA “volunteer” bylaw, the member schools have unlawfully agreed to limit competition on the labor market for coaches. In the plaintiffs’ eyes, the bylaw amounts to a cartel agreement, fixing the wage for “volunteer” coaches at zero dollars. This wage fixing is brought as a per se violation of Section 1 of Sherman Act akin to price fixing.
Any Division I university seeking to pay more than three assistant baseball coaches will be subject to sanctions by the NCAA for violating its bylaws. Such sanctions can include fines against the university, reductions in the number of scholarships it can offer, other restrictions on university recruitment, and the invalidation of prior victories.
However, the complaint may not be a home run. A court applying the rule of reason may find the “volunteer” position is not identical to the paid assistant coaching positions, as the volunteer coach may not recruit players, a major part of college coaches’ work. Additionally, other paid coaching opportunities do exist, in Divisions II and III, or with the National Association of Intercollegiate Athletics, the National Christian College Athletic Association or one of the professional baseball leagues.
Antitrust Challenges to the NCAA
This is not the first antitrust challenge to the NCAA’s rules. In Law v. NCAA, an earlier NCAA rule restricting the salaries of assistant basketball coaches was found to be anticompetitive after the Tenth Circuit applied the rule of reason. In NCAA v. Alston, as previously covered, the Supreme Court held in its unanimous opinion that the NCAA’s restrictions on the educational benefits student-athletes could receive were subject to standard antitrust analysis under the rule of reason, not a more lenient standard justified by the protection of “amateurism” and endorsed the district court’s order enjoining those restraints. While the majority decision was narrow, Justice Kavanaugh authored his own concurring opinion remarking that the NCAA “is not above the law,” and cast a skeptical eye towards other NCAA regulations.
Labor Market Antitrust Enforcement
Smart v. NCAA is part of a larger pattern of increased scrutiny of antitrust violations in labor markets. As we’ve previously highlighted, in 2016, the US Department of Justice Antitrust Division (DOJ) and Federal Trade Commission (FTC) released its Antitrust Guidance for HR Professionals and vowed to challenge no-poach agreements and wage-fixing agreements as per se violations of the antitrust laws. In 2020 and 2021, it followed through with criminal charges, successfully arguing that no-poach agreements operate as horizontal market allocation and wage fixing amounts to price fixing, both per se violations of the Sherman Act.
The DOJ and FTC have also addressed labor market competition through rulemaking. In September 2022, the FTC released a policy statement committing to protecting “gig” workers from unfair, deceptive, and anticompetitive practices, highlighting misleading earnings claims and undisclosed expenses as examples. Additionally, in early January 2023, the FTC proposed a rule that would categorize certain employee noncompete clauses as unfair methods of competition, and prohibit employers from imposing noncompete clauses on workers. While the rule still awaits public comment, companies should be aware of the potential antitrust consequences of their employment policies and behave accordingly.
The Implications of Labor Market Scrutiny for the Future
Labor market restrictions are coming under increasing antitrust scrutiny from both enforcers and private plaintiffs in the US. The legal theories used by the DOJ in criminal no-poach and wage-fixing cases have created a pathway for antitrust challenges through private suits like Smart. As the number of challenges in the labor market increase across a variety of sectors, heightened scrutiny of sports regulations is expected. As the NCAA has come under fire for many of its practices, greater scrutiny of labor markets by private plaintiffs and the DOJ may put pressure on them to make changes. The NCAA and other sports regulatory bodies should be prepared to face antitrust challenges and defend allegations of anticompetitive behavior in 2023 and for years to come.
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For further information, please contact:
John Eichlin, Linklaters
john.eichlin@linklaters.com
