By Claire Zillman, reporter
FORTUNE -- The stunning decision Wednesday that football players at Northwestern University have the right to form a union raised a lot of questions about the future of college athletics, but one of the biggest is what it means for the future of the college athletic scholarship.
The decision by Peter Ohr, regional director for the National Labor Relations Board in Chicago, in favor of the university's scholarship football players hinged on the definition of "employee." In order for a group of individuals to gain access to rights of the National Labor Relations Act -- including the authority to unionize -- the group must first be classified as employees, which, according to common law, means "a person who performs services for another under a contract of hire, subject to the other's control or right of control, and in return for payment."
In the case of the Northwestern football players, the athletes meet this definition and can therefore unionize, according to Ohr, because the scholarship they receive – valued at as much as $76,000 per calendar year – counts as payment.
"While it is true that the players do not receive a paycheck in the traditional sense, they nevertheless receive a substantial economic benefit for playing football," Ohr wrote.
The players also meet the other requirement of the employee definition: They are subject to the control of their employer -- in this case Northwestern University -- because they must follow the football team's strict rules or risk losing their scholarships. For instance, the football players must live on campus for two years, the athletic department must approve their off-campus employment, players must disclose to their coaches detailed information about the cars they drive, and they cannot reject a coach's Facebook friend request.
That said, it's really the payment -- in the form of a scholarship -- that's key here. If you take away the free tuition that an athlete receives -- like in the case of a "walk-on" player -- Ohr says that the "employee" classification no longer applies, even though the walk-on player might follow the same schedule and abide by the same rules as the athletes on scholarship. "I find that the walk-ons do not meet the definition of 'employee' for the fundamental reason that they do not receive compensation for the athletic services that they perform," Ohr said in his decision.
The decision in favor of the football players on Wednesday means that they've cleared the first hurdle in their battle to unionize. They still have a long way to go. Northwestern has already promised to appeal the decision to the full NLRB in Washington, D.C. From there, the decision could go to a court of appeals and then on to the United States Supreme Court.
But if Northwestern's football players and other college athletes continue to win these legal battles, universities could fundamentally reconsider their system of awarding athletic scholarships, since it's that "payment" that -- as of Wednesday -- subjects universities to student athletes' potential unionization and collective bargaining power.
"Schools will think long and hard about what they do and whether giving scholarships to players makes sense," says Don Schroeder, an employment lawyer at Mintz Levin. They'll have to decide "fiscally and from cultural standpoint, if they want to negotiate with a union."
The school plans to put less of an emphasis on its traditional two-year degree program as part of a sweeping strategic review at the school.
By John A. Byrne, contributor
(Poets&Quants) -- Northwestern University's Kellogg School of Management said today it plans to shrink the size of its two-year MBA program by up to 25% and double or triple the enrollment in the school's one-year MBA program for business undergraduates.
"It's very clear MOREFeb 6, 2012 2:18 PM ET
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