On 7 April 2020 FIFA released guidelines in an attempt to address key regulatory and legal issues arising as a result of COVID-19 (the “Guidelines”). The Guidelines cover a range of issues concerning player contracts and the transfer system.
This article, which is co-authored by John Mehrzad QC and Anirudh Mathur of the Littleton Sports Law Group will focus on the Guidelines’ recommendations on variations to player and coach contracts. It will also demonstrate that, in practice, the Guidelines are club/employer-friendly and increase the risks for players who wish to terminate their contracts and join an overseas club in response to any wage reduction or deferral.
Context
It has been widely reported that COVID-19 has caused severe financial pressure to mount on clubs with professional football leagues indefinitely suspended and cash flow severely reduced. In response, many clubs have already sought to negotiate wage reductions, payment deferrals or agree temporary employee ‘suspension’ – like ‘furlough’ status in the UK.
Under English law, those changes amount to a variation of the employment contract between club and player. To be lawful, such changes must be agreed by both parties; they cannot be unilaterally imposed.
However, the Guidelines are not consistent with that unequivocal position under English law. Whilst they state that FIFA’s recommendations are subject to domestic employment laws, FIFA adds that they are also designed to be consistent with FIFA’s Regulations on the Status and Transfer of Players (the “RSTP”).
However, that begs the practical question: how will the Guidelines be applied given their apparent tension with English law?
Expiring Agreements and New Agreements
The key pressing issue is how clubs and players are to deal with player contracts, which are due to expire shortly on 30 June 2020.
The Guidelines aim to encourage all parties to be flexible, open-minded and reach an agreement wherever possible. In order to facilitate that approach FIFA suggests that the contracts are extended to the point when the season actually ends, as according to FIFA that was the contractual intention (emphasis added):
Expiring player contracts usually end when the season ends, with a termination date that coincides with the end of the season. With the current suspension of play in most countries, it is now obvious that the current season will not end when people thought it would. Therefore, it is proposed that contracts be extended until such time that the season does actually end. This should be in line with the original intention of the parties when the contract was signed and should also preserve sporting integrity and stability.
Whilst laudable, that proposed solution by FIFA is too simplistic. By suggesting the parties intended their contracts to continue until the end of any season, FIFA interprets player contracts in a way that is impermissible under English law; player contracts in England are expressly drafted to terminate on a date – 30 June – not on an event, such as the end of the season.
Further, despite FIFA’s desire that contractual stability remains until the end of an extended season, there are also a myriad of scenarios in which the club and player may not wish to extend the player contract beyond 30 June, such as:
- A player who has fallen out with his manager and/or teammates;
- A club which cannot afford to pay wages beyond that date;
- A club which cannot afford to pay commissions which would ordinarily become payable to agents as a result of a variation or new contract;
- A player on loan at a foreign club has entered into a separate employment contract with that foreign club but is not receiving wage payments. His parent club can afford to continue to pay wages in full and suggests he return to the parent club, but what happens if the loan player is ineligible to play for his parent club for the remainder of the season, for example because he has already played for two loan clubs that season (per Article 5 of the RSTP) or due to restrictive squad sizes? FIFA makes no proposals in relation to either of those scenarios.
Unilateral Contract Variations
The Guidelines also suggest that FIFA may uphold as lawful unilateral decisions by a club to vary contracts if:
- Clubs and employees cannot reach agreement; and
- National laws do not address the situation, and collective agreements are not an option or applicable.
If so, the Guidelines list 5 factors that FIFA will apply when determining any dispute arising out of unilateral variation:
- whether the club has attempted to reach a mutual agreement with its employee(s);
- what the economic situation of the club is;
- the proportionality of any contract amendment;
- the net income of the employee after any contract adjustment; and
- whether the decision is applied to the entire squad or only specific employees.
It is clear from those 5 factors that FIFA’s approach to the lawfulness of a unilateral contract variation is now equivocal. In consequence, the Guidelines do not provide any certainty for players who are faced with an unagreed reduction or deferral of wages. In short, FIFA has tipped the scales back in favour of clubs.
In normal circumstances, players would be able to rely on Articles 12bis, 14 and 14bis of the RSTP for protection. Players could even terminate their contracts lawfully on the basis of non-payment of 2-months’ full wages pursuant to Article 14bis of the RSTP provided they have given at least 15-days warning to the club to pay outstanding sums before terminating. In light of the 5 factors set out by FIFA, those protections for players now must be heavily caveated.
Options for a Player whose Contract is Unilaterally Varied
As explained, a club cannot unilaterally impose a variation to a player’s salary under English law. This applies to all Premier League (the “PL”) and English Football league (the “EFL”) player contracts. There is no unilateral variation clause in such contracts. It follows that a club-imposed wage cut, or wage deferral, would be a fundamental breach of the player contract.
In response, the player would have different options.
- The player would be entitled to resign and sue the club for breach of contract (and, subject to having 2 years’ continuous employment, also constructive unfair dismissal). That may not be a particularly attractive option given the player would be left unemployed, unpaid and would need to incur legal fees to chase their former club for payment.
- The player could remain with the club but reserve his rights; effectively a ‘stand and sue approach’. That may be a more pragmatic option. The player would remain an employee, be paid the reduced wage but could bring a claim for their shortfall in salary.
- The player could continue with the club without protest or the reservation of rights. By doing so, however, the player risks accepting the wage reduction by implication of their conduct.
Any disputes between PL or EFL players and their clubs are subject to private PL or EFL arbitration respectively. Those arbitration processes are substantively and procedurally governed by English law. For that reason, a player faced with a unilaterally imposed wage reduction or deferral is very likely to succeed in arbitration if they ask those bodies to address the issue.
However, there is an interesting point regarding the extent of damages the player is entitled to recover. Consider a situation where the club dismisses a player for not agreeing a pay-cut (for financial restructuring reasons, on the basis that otherwise the club may go bankrupt). The Club then immediately offers the player a new contract on reduced payment terms. In the event the player refuses the new contract, the former club could argue the player has failed to mitigate losses – and damages should be reduced accordingly. It is to be seen if clubs in desperate financial circumstances now take this option.
Mischief Arising from the Guidelines and the International Transfer Market
The Guidelines also increase the risk for some players and their new clubs. That risk arises when a player decides to terminate their player contract in response to a unilateral variation and then joins an overseas club as a ‘free agent’. In that situation, the player would not have ‘reached agreement’ with their former club or availed themselves of domestic (PL or EFL) arbitration to ‘address the situation’ under national law.
It follows that, if the player’s former club brought an action against the new club, the forum for that dispute would be FIFA bodies - the Dispute Resolution Chamber (the “DRC”). That would mean instead of resolving the dispute under the certainty of domestic employment law in the UK (which disadvantages the former club due to the unequivocal position under English law), the dispute would instead be resolved (and former club could benefit) by the equivocal and uncertain approach set out by FIFA in the Guidelines.
Since FIFA’s intention is to avoid players walking out of their contracts to join other clubs during the extended season, there is a real risk that the DRC could find the player’s termination not to have been for ‘just cause’. As a result, the DRC could order compensation (and possibly even sporting sanctions) against the new club on the presumption of inducement under Article 17 RSTP.
Looking at the Guidelines forensically, FIFA has effectively sent a shot across the bows of any player who seeks to join an overseas club before the end of an extended season.
It is also worth adding that the compensation and sporting sanction repercussions under Article 17 of the RSTP means that, in practice, many clubs may not sign a player who is in dispute with their former club over the circumstances of their dismissal in response to a wage change.
Coaches
As a post-script, curiously the Guidelines also make simultaneous references to ‘players and coaches’ in relation to contract variations. This suggests the Guidelines also apply to coaches. That is odd since the RSTP does not set out a detailed regulatory framework for coaches; the only mention of ‘coaches’ relates to the jurisdiction of FIFA to hear disputes between coaches and clubs that have an international dimension.
That said, many coaches will also have contracts expiring on 30 June. This means coaches should also be aware of their similar rights and obligations as compared to players if their club seeks to impose unilateral amendments to their contract. However, in the event of an international dispute that is not resolved between the parties or under domestic laws, FIFA will apply the 5 Factors to determine the dispute. For the reasons already given, as for players who may seek to move abroad, the outcome of that dispute is not clear and many coaches (and their potential new clubs) may not be prepared to take that risk before the end of an extended season.
Conclusion
When considered practically, the Guidelines are club/employer friendly and increase risks for players and coaches who walk out of their contracts before the end of an extended season. That is, of course, what FIFA wants – it wants players and coaches to remain under contract until the end of the season. Under English law, FIFA’s proposals do not marry with the binding law of the jurisdiction. However, if players or coaches ‘transfer’ internationally and have not had their dispute addressed under national law, then there is a risk that FIFA bodies may find a unilateral reduction of salary to be lawful under its regulations. That outcome flies in the face of English law, but it is FIFA’s way of increasing risk for players and coaches when they consider walking out of their contracts on 30 June.
For more information on the topic, please contact Andrew McGregor or Elke Kendall.
