It may seem as though a huge amount of time has passed since the suspension of fixtures in the Premier League and many other topflight leagues across the world were announced.
However, in reality, we are only just beginning to scratch the surface of the implications that the COVID-19 pandemic will have on football.
This blog will focus on the impact of coronavirus on players on loan, both domestically and abroad, and we aim to give clubs and agents some guidance regarding their contractual position, including practical steps that they can begin to consider.
Domestic Loans
It is usual in English domestic loan agreements for there to be a clause which stipulates that the player’s parent club is to maintain its primary obligations under the player contract, during the period of time that the player is on loan to the loaning club. Essentially, this clause provides that the parent club shall continue to be responsible for paying the player his full contractual entitlement (as set out under his player contract with the parent club) whilst they are out on loan.
More often than not, the full contractual entitlement will include the player’s salary, any loyalty payments and any payments made to the player’s intermediary on the player’s behalf. Performance related bonuses are often outside the scope of what the parent club will pay, as the player will typically sign up to the loaning club’s bonus scheme.
In practice, those players who are out on loan at other English clubs remain on the payrolls of their parent clubs. The loan arrangement will usually then include a contractual provision for the loaning club to reimburse the parent club for the proportion of wages as agreed between them. The loaning club usually then makes a monthly payment to the parent club to cover the percentage of the wages that they have agreed to pay.
The contractual effect of this is that the player continues to be employed by the parent club and they will continue to receive payment from them. Although the player will be a party to the loan agreement, the player does not personally have a contractual employment relationship with the loaning club.
As a result of the financial impact of COVID-19 you will have seen various reports recently, asking their players to agree to wage reductions, deferrals and or caps to their salaries or, in some cases, the implementation of ‘furlough status’. We considered the legalities behind wage reductions, variations to player contracts and the Governments Coronavirus Job Retention Scheme in our recent article which can be found here.
With clubs already announcing player wage reductions and / or wage deferrals there are question marks over whether parent clubs will agree to accept late payments for the wages of their on-loan players. Given the contractual make up of a loan agreement, parent clubs would effectively be within their rights to refuse the deferral of payments due by the loaning club. This would mean that the loaning club would have to continue paying the relevant proportion of the player’s wage that was agreed between the two clubs, whilst the rest of the loaning club’s squad players would see their wages reduced or deferred. Therefore, on loan players would not be left out of pocket unless their parent clubs deferred the wages of its own squad.
In terms of the Governments Coronavirus Job Retention Scheme, some clubs are reportedly considering furloughing their players meaning that clubs can continue their employment, and for the players to continue to receive at least 80% of their salary (up to a limit of £2,500 a month), during circumstances in which the player would normally be laid off or made redundant. If a loaning club wants to furlough their full time squad players they will not be able to agree those same arrangements with players that are on loan to the club, because they do not have the contractual employment relationship with them. In short, an on loan player is not the loaning club’s employee.
Therefore, in light of the above, the loaning club will need to come to a commercial arrangement with the parent club regarding the payment of wages of on loan players. One option for loaning clubs would be to explore the proposal of the parent club continuing to pay the player’s wages without reimbursement from the loaning club. There is no getting away from the fact that this is a delicate situation and many clubs will be hesitant about making such proposals as they will not want to tarnish the relationship that they have with the parent club, given the effect that it may have on future business and future loan opportunities.
What about International Loans?
The position for players on loan at international clubs may be slightly more complicated. The majority of loans to foreign clubs will see the player enter into a new employment contract with the foreign loaning club, not least because different rules, regulations and laws will apply to the club-player relationship in that country. Therefore, the player temporarily moves onto the payroll of the foreign loaning club. This can cause particular difficulties if the foreign loaning club fails to pay the player or meet any of their other obligations under the contract.
Players who enter into separate playing contracts with the foreign loaning club will then be subject to the laws in that jurisdiction, including that country’s employment laws. Those players on an international loan will also be ineligible to receive remuneration under the Coronavirus Job Retention Scheme and they will need to consider whether any similar provisions have been implemented by the government in the country where they are on loan.
Given the difference in jurisdictions, the avenues for redress will also be different to those available to players in England and may include issuing proceedings in a foreign civil court, arbitration forum or petitioning FIFA to resolve the dispute. Consequently, this may mean that players and intermediaries will need to seek advice from professionals in the relevant jurisdiction.
What do the Rules and Regulations say?
Under the FIFA Regulations on the Status and Transfer of Players (“RSTP”) players are entitled to terminate their contract with a club who fails to pay them for 2 months (so long as they follow the correct procedure to notify the club of their default).
Terminating their contract would not be an attractive prospect for many players. The current crisis aside, if the player terminates his loan period early then it would be unlikely that the player would be able to play in competitive games for his parent club, or any other club during the remainder of that season. Further, in the event that the player terminated his contract then they would no longer be entitled to any future payments due under that contract. The player and the parent club would have to look to the loan agreement, or come to another arrangement, to reactivate the parent club-player employment contract in such circumstances. This will obviously put the parent club in a difficult situation regarding their loan agreement contract and relationship with the loaning club.
In both instances, the wording of the loan agreement will be crucial in determining how the matter can be resolved. Players and intermediaries should not rush in to terminating any contracts on the basis of non-payment during a loan spell without first seeking advice.
Practical Steps
Can the loan be cut short?
It is often common for a loan agreement to contain a clause that allows for the parent club to recall back the player that is out on loan. In these circumstances, the loan agreement is effectively cancelled. However, some loan agreements stipulate a particular time and period in which the club may exercise this right (usually the January Transfer Window). In the event that the player is recalled, the loaning club will be relinquished of its obligations to contribute to the relevant player’s salary.
What does the loan agreement say?
Parent clubs should check their loan agreement with the loaning club to determine what action they can take in the event the loaning club fails to pay or contribute to the player’s wages. In the case of an international loan, although the parent club may not have the contractual obligation to pay the player it is likely to face pressure from the player, and their agent, in the event that they do not receive the wages that are due. The parent club should therefore seek to enter into early discussions with the loaning club in circumstances that they are concerned that the player is at risk of not receiving their wages.
What if there is a dispute?
In relation to a domestic loan, any dispute arising out of or in connection with the loan agreement and / or player contract shall be referred to arbitration in accordance with rules of the relevant league or in accordance with the applicable FA rules. However, on an international loan, all conflicts shall be solved by the competent body of FIFA, in accordance with the RSTP.
Our Sports sector team has considerable experience in dealing with player loans and would be happy to discuss your options in theses unprecedented circumstances. Please get in touch with Elke Kendall, Andrew McGregor or Matthew Lavelle.
