Sports, Disputes and Employment – FIFA attempts to prevent Covid-19 legal legacy as transfer window and player contract issues loom

As the coronavirus pandemic places a hold on the 2019/20 football season, fans could be forgiven for casting their minds ahead to the summer transfer window to pass the time. However, speculation of new signings overlooks bigger issues: without key revenues, many clubs will struggle to pay their players and the crisis even threatens the broader transfer system and employment framework.

Amid a growing trend of pay cuts and wage deferrals, there are now less than three months before the contractual trigger point of 30 June, the typical season end, in player contracts in most of Europe’s top leagues. FIFA has reacted, announcing guidelines on 7 April 2020 for rule changes and temporary dispensations (the “FIFA Guidelines”) to be implemented by domestic associations and other footballing stakeholders.

As the uncertainty continues, we consider the legal issues faced by football’s governing bodies, clubs and players and what impact the FIFA Guidelines might have as football tries to prevent a legacy of contractual litigation and employment disputes.

Background

Football clubs are subject to a framework of rules, including the FIFA Regulations on the Status and Transfer of Players (the “FIFA Rules”). The FIFA Rules provide mandatory provisions and outline other areas where regulation is left, within certain parameters, to domestic associations in accordance with their own national laws.

Player contracts

Employment contracts for many of Europe’s top leagues are mainly standardised.

For example, in both England and Germany, professional footballers are employees of their club. The employment contracts are fixed-term, usually for one to five years, and often without any possibility of premature termination unless there is, for instance, a rare case of gross misconduct. Contracts typically conclude in the year of expiry on 30 June so that a player is free to commence employment at a new club on 1 July.

Transfer windows

Whilst the FIFA Rules provide a degree of harmonisation to facilitate the transfer market, the exact timings are left to the domestic associations.

For clubs in the English Premier League (the “EPL”), the summer transfer window opening depends on when the current season concludes. It commences upon the later of (i) the conclusion of the last fixture of the existing season (typically May) or (ii) 10 June 2020, being the date that falls 12 weeks before the transfer deadline of 1 September 2020. In the German Bundesliga, the summer transfer window typically starts on 1 July and ends on 31 August.

Impact of Covid-19

Amongst the complex web of rules, regulation and contracts, the traditional European footballing calendar has been shaken by the suspension of competitions, leaving clubs and their players facing unprecedented legal challenges.

Expiring contracts

Players whose contracts are approaching expiry on 30 June risk being left in limbo and without a club before the current season has concluded. What’s more, without active competition in which to showcase their talent, the bargaining power for all but the elite players to negotiate a new deal or agree a move has weakened. Outside of football’s elite, the livelihoods of players and their families are at risk.

Clubs are also left with a dilemma when negotiating with players whose contracts near expiry. They could agree new terms (often required to be another full season until 30 June 2021) in a very uncertain climate and at the risk of the club’s finances. Alternatively, they could lighten the wage bill, risking the wrath of managers and fans for leaving a depleted squad (at least temporarily) if and when the season resumes.

Pay cuts and wage deferrals

Without competitive football, player salaries weigh unsustainably on club finances. Even before the pandemic, wages represented roughly 50% of revenues in the Bundesliga and almost 60% in the EPL. That percentage dramatically increases as you descend the footballing pyramid.

The trend of pay cuts and wage deferrals is gathering pace. Players of most Bundesliga clubs, including German giants Bayern Munich and Borussia Dortmund, have already agreed wage reductions of 20% or more. Negotiations continue for EPL stars to follow suit. It follows political pressure, fuelled by UK Health Secretary Matt Hancock’s call for players to “play their part”, with the saga being played out in the media. Some clubs in lower leagues in England are placing players on “furlough” under the UK government’s Job Retention Scheme.

Amidst all the talk of ‘football giving back’, a compromise cannot always be reached. Swiss club FC Sion terminated the contracts of nine players who refused to accept reduced terms. Amongst that group, midfielder Alex Song has already confirmed that he will be bringing an unfair dismissal claim.

Agreed transfers

Even with UEFA relaxing Financial Fair Play requirements, nearly all clubs will need to tighten the purse strings. Those that have already agreed transfers with effect from 1 July may now find themselves scrutinising the fine print of agreements as they examine whether to pull out of deals.

Without coordinated intervention from football’s governing bodies, breach of contract claims appear inevitable as clubs challenge whether transfers go ahead and, if so, whether they should take place in the summer as planned or at some later date.

The FIFA Guidelines

The FIFA Guidelines are “general (non-binding) interpretative guidelines to the [FIFA Rules]” which may be developed and amended as the pandemic continues. The key outcomes are:

  • Contracts due to expire at the original end date of a season (i.e. 30 June) should be extended until the new end date of the season. Contracts due to commence at the original start date of the new season (i.e. 1 July) should be delayed until the new start date of the new season.
  • Clubs and players are “strongly encouraged” to work together to find appropriate collective agreements on salary reductions or deferrals on a club or league basis. Unilateral decisions to vary agreements will only be recognised where they comply with national law or collective bargaining agreements.
  • For transfers, where there are overlapping seasons and transfer windows, priority will be given to clubs currently owning a player to complete their season with their original squad. Any payments to be made prior to revised contract dates should also be delayed until the new start date of the new season or the opening of the transfer window.
  • FIFA will consider amended end of season dates and transfer windows submitted by domestic associations on a case by case basis. However, they are likely to be approved where they do not exceed the maximum of 16 weeks.

Comment

The FIFA Guidelines are a welcome development, but there is still much to ponder and implement. The outcomes rely heavily on footballing stakeholders (which vary from global brands to local clubs in debt) adopting their spirit. What comes next is crucial – in particular, how, and to what extent, the measures are implemented by national associations.

A number of grey areas persist. Aside from the elephant in the room that the guidelines assume the current season will eventually continue, they also give rise to further questions that will need to be answered:

  • Will national associations make contract extensions optional or compulsory? If they are optional, clubs will need to quickly determine which contracts to extend and on what terms. If extensions are mandatory, national associations will need to carefully consider the scope of their powers and their rights to interfere in private employment contracts.
  • How will the revised date for the end of the current season, and in turn the date for contractual expiry, be defined? It would seem prudent to wait until it is clear if and when the current season will end and when the 2020/21 season will start. A fixed date risks the issue resurfacing whilst the season remains on hold, but rolling or indefinite extensions could tie a player’s wages to a club at a time when cashflows are dwindling.
  • Do the measures do enough for clubs and players trying to negotiate salary reductions and deferrals? Under both English and German law, variations to employment contracts of this kind cannot be imposed unilaterally by clubs, nor (where there is an absence of applicable collective bargaining) at an umbrella level between leagues, clubs and players. With each employment contract a separate matter between the club and the player, there is a risk that negotiation impasses will soon become contentious.
  • Is a revision of contracts under the FIFA Guidelines vulnerable to opportunists? The FIFA Guidelines provide that a player whose contract “has expired or been terminated as a result of Covid-19” can be registered outside a transfer window. There is a risk that this allows players and agents to run down contracts to secure ‘mid-season’ moves, at the risk of the sporting integrity of competitions.

Both now and when any domestic measures are put in place, players and clubs alike should carefully consider and seek advice on the terms of employment contracts and any transfer agreements to determine their rights and obligations. Clubs must be mindful that unlawfully terminating a player’s contract (or trying to unilaterally impose pay cuts or wage deferrals) could leave them open to expensive legal claims and reputational damage.

The interpretation of contracts, like football, can sometimes be a game of opinions. However, clubs should consider long term relationships and reputational issues rather than pursuing aggressive cost cutting measures. Where issues do arise, honest and transparent discussions with contractual counterparties give the best chance of reaching a mutually agreeable way forward.