ISDE 2012 MASTER IN INTERNATIONAL SPORTS LAW

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1 ISDE 2012 MASTER IN INTERNATIONAL SPORTS LAW TERMINATION OF FOOTBALL CONTRACTS WITHOUT JUST CAUSE IN BELGIUM STIJN FRANCIS

2 1 Introduction Pacta sunt servanda reflects not only one of the essential principles in the world of law 1 but also in the world of football. Contracts should be respected and cannot be terminated prematurely. It was only with the European Court s judgment in Bosman 2 that this principle became under pressure in football. Increased labour mobility, and higher remunerations were triggers for football players to maximize their income by seeking higher paying clubs and escaping from existing contracts. Further to the Bosman case, the European Commission and FIFA agreed 3 to remove the most restrictive elements of the FIFA Regulations. The new regulations created a new balance between the players fundamental right to free movement and stability of contracts together 1 Cfr. Vienna Convention on the Law of Treaties of 1969 where this principle has been explicitly included. 2 Case C-415/93 Union royale belge des sociétés de football association ASBL v Jean-Marc Bosman, Royal club liégeois SA v Jean-Marc Bosman and others and Union des associations européennes de football (UEFA) v Jean-Marc Bosman, For an extensive analysis, please check : The Bosman Case : the end of the transfer system?, Leuven, Peeters, 1996, XVI+339 p. 3 Please note that this agreement is only a informal agreement and is hence not legally binding and creates thus some legal uncertainty. Some commentators state that the new rules are also illegal under EU law (J-C Drolet, Extra Time : are the New Fifa Transfer Rules Doomed?, International Sports Law Journal, 2006, p ) 2

3 with the legitimate objective of integrity of the sport and the stability of championships 4. The legality of FIFA regulations under EU law are still debated and create legal uncertainty 5, but the Belgian legal framework only further feed this legal uncertainty 6. One of the most debated questions in Belgium is the enforceability and consequences of the law of 24 February 1978 regarding the employment contract for professional sportsmen (the Law 1978 ) 7. This law, which will be analysed in detail further, creates a system enabling players to prematurely terminate their employment contract by only paying a compensation which is, in general, lower than the market value of the player. Each transfer period players and their agents threaten clubs to make use of this law in order to obtain a transfer to another club. 4 IP 02/824, 05/06/2002, Commission closes investigations into FIFA regulations on international football transfers, 5 Cfr. Footnote 3 6 Please note, however, that such legal uncertainty may also be supported by some parties (cfr ECA Statement on the de Sanctis Case, 04/03/2011: the uncertainty of outcome in any individual cases encourages respect of contracts and stability in the game, which we support. ). Other commentators such as R. Parrish find such legal uncertainty problematic (cfr R. Parrish, Contract Stability: the case law of the court of arbitration of sport, Published in European Sports Law and Policy Bulletin, 1/2011. In the Belgian case, the legal uncertainty rather seems to be caused by the passivity of legal policy and decision makers. 7 Published in the Belgian State Gazette on 9 March Although the Law 1978 is one of the most debated laws in the world of Belgian football, only very limited specific research has been carried out in respect of this topic. 3

4 In this research project, the Belgian legal framework will be compared with the FIFA regulations. On the basis of this comparison, we will try to see what would happen if a football player in Belgium would make use of Belgian law to claim its freedom as a player and to sign with another club. 2 Belgian Legal Framework In Belgium, the Law 1978 is applicable to sports professionals and their employers. In this research project we will only focus on the most common situation of professional football players with fixed term contracts. The Law 1978 is supplemented by the general provisions of Belgian labor law and a Collective Bargaining Agreement (hereinafter referred to as the CBA ). A) General rule Belgian law provides as a general rule that at the expiry date of a professional football contract, the contract automatically terminates without the need of paying any compensation. B) Premature Termination The Law 1978 provides that if a fixed term contract is terminated before the expiration date and without serious grounds, the injured party shall be entitled to compensation. 4

5 This compensation shall be equal to the salary due to the player under the labour contract. This compensation shall, however, not exceed twice the amount of the compensation that would have been due when a contract for an indefinite period was entered into. The amount due when a contract for an indefinite period has been entered into has been stipulated in the Royal Decree of 13 July The following scheme clarifies these amounts 9 : Yearly salary Termination during the first 2 years of the contract Termination after the first 2 years of the contract <EUR 17, months 3 months EUR 17, EUR 6 months 3 months 28, EUR 28, EUR 6 months 6 months 38, EUR 38, EUR 12 months 12 months 115, Royal Decree of 13 Juli 2004 regarding the fixture of the amount of the compensation as referred to in article 5, second paragaraph of the Law 1978, as published in the Belgian State Gazette dd. 3 August S. De Groof and F. Hendrickx, Compensation in case of breach of contract according to Belgian labour law, as published in Contractual Stability in Football, Sports Law and Policy Centre, p

6 EUR 115, months 18 months Next to a financial sanction, the player who terminates his contract without serious grounds is not allowed to play the same season for another club who is active in the same league as his previous team 10. C) CBA The CBA refers to the Law 1978 and specifically provides that, without prejudice to the Law 1978, parties undertake not to early terminate the contracts except for serious grounds which shall be brought before a judge or competent commission. Considering the fact that the Law 1978 is mandatory law, is very doubtful whether said provision of the CBA will ever be enforceable. D) Template Professional Contract Most professional football clubs make use of a the so call template for a professional football contract. It is interesting to have a further look at the provision in this contract regarding the early termination of such contracts: 10 By way of example a player of a first division club who makes use of his rights under the Law 1978 to prematurely terminate his contract cannot play for another club in first division during the same season, but can go to second division or to a foreign league. Although not confirmed by case law, this would also mean that a player from a Champions League team could not play for another team that has qualified for the Champions League. 6

7 Pursuant to the legal provisions, each party that terminates the contract prior to the expiration thereof needs to pay a compensation. This compensation is equal to the amount of the salary due until the expiration of the contract, with a maximum of the amount which is equal to the double of article 5, par 2 of the Law In other words, this template contract reflects the legal provisions of the Law E) Gentlemen s agreement Notwithstanding the abovementioned legal and contractual provisions, the Belgian professional clubs have entered into a gentlemen s agreement. This agreement prohibits Belgian professional clubs to sign players who made use of the Law 1978 to terminate their contracts without just cause FIFA regulations In this section we will provide a deeper analysis of the applicable principles and provisions that are relevant for the termination of the contract without just cause. 11 It is interesting to see that also other countries such as Mexico have a similar gentlemen s agreement. The agreement in Mexico goes even one step further as the player who made use of his right and wishes to return to Mexico will be blocked. 7

8 A) Contractual Stability The starting point of the regulations is the pacta sunt servanda principle. This is included in article 13 which provides that contracts should be respected. Article 16 furthermore provides that if a contract is terminated, this cannot be done unilaterally during the course of the season. B) Termination without just cause If a contract is being terminated without just cause, financial and sporting sanctions may be applicable 12. Unless otherwise provided for in the contract, the financial sanction for the breach shall be calculated with due consideration for the law of the country concerned, the specificity of sport and any other objective criteria. Sporting sanctions shall be applicable to the player and the new club in the player is to be found in breach of the contract during the protected period 13. According to the definitions of the FIFA Regulations, the protected period is a period of 3 entire seasons or 3 years, whichever comes first, following the entry into force of a contract, where such contract is concluded prior to the 28 th birthday or two entire seasons / years when such contract is concluded after the 28 th birthday. 12 Article 17 of the FIFA Regulations on the Status and Transfer of Players. 13 article 17.3 and 17.4 of the FIFA Regulations 8

9 According to O. Ongaro 14, the inducement to a breach of contract is accessory to the actual breach. This means that if there is no claim for breach of contract against a professional player, there cannot be a claim for inducement to such breach against the new club 15. In the light of this research project it is also important to note that the FIFA Regulations provide that the parties may stipulate in the contract the amount that the player shall pay to the club as compensation in order to unilaterally terminate the contract (a so called buyout clause). A buyout clause hence provides the player the opportunity to cancel the contract at any moment and without a valid reason and no sporting sanctions shall be applicable to the player or the club 16. In this respect it is important to note the difference between a buyout clause and a socalled liquidated damages clause 17. The liquidated damages clause aims at estimating the amount of damages caused by the termination without just cause while a buyout clause is a contractual right to prematurely terminate a contract. 14 O. Ongaro, The FIFA regulations on the status and transfer of players, as published in Contractual Stability in Football, p Please note that this author does not provide a basis is for this reasoning. 16 Commentary on the Regulations for the Status and Transfer of Players, Article O. Ongaro, The FIFA regulations on the status and transfer of players, as published in Contractual Stability in Football, p.39. 9

10 4 Belgian law vs FIFA A) Jurisdiction The Law 1978 provides that sports professionals may not undertake to submit their disputes under the Law 1978 to arbitrators 18. Parties can only go to an arbitration court once the dispute has arisen. FIFA regulations provide that FIFA shall be competent for all disputes, notwithstanding the right for clubs or players to seek redress before a civil court for employment-related disputes. This means that a player who makes use of the Law 1978 to terminate his contract without just cause has the right to either go to a civil court or to an arbitration court. B) Conflict of law Belgian law is not in line with the FIFA regulations on various points. One of the most essential differences regarding the termination without just cause is that the Law 1978 provides a very detailed calculation method for the compensation a player should pay when he terminates his contract without just cause. There is no discussion that for top talents, the Law 1978 would provide for a very cheap way to terminate a contract. Pursuant to FIFA Regulations 18 Article 9 of the Law

11 the compensation that is due shall be calculated with consideration of the law of the country concerned, the specificity of sport, and any other objective criteria. As Belgian Law 1978 is a mandatory law, it shall prevail over the FIFA Regulations. Any deviation from the Belgian mandatory legal provisions will be considered null and void. The civil or arbitration courts should hence not take into account the FIFA regulations as they deviate from the mandatory Belgian law provisions, and this notwithstanding the fact whether international elements (and hence article 22 of the FIFA regulations) are applicable Practical Case The general impression in the world of Belgian football is that the Law 1978 is a very tempting tool for players agents to use in discussions whenever they would like to get a transfer. The Law 1978 is a very cheap way for top players to get out of their contract while only risking a small financial sanction. Obviously this is not an ideal situation for clubs which are afraid to lose top players with only a very low compensation amount in return. 19 Although most CAS panels have been unwilling to apply the law of the country concerned (cfr. R. Parrish Contract Stability: the case law of the court of arbitration of sport), the mandatory nature of the Belgian law shall subordinate the FIFA regulations. 11

12 We will now try to analyse whether this really is a threat for Belgian clubs. Let us assume that the following details are applicable: Salary = EUR 20,000 / month; Contract duration = 2 more years and 3 rd year with the club; Market value player = EUR 1 million Please note that in a Belgian context the few known cases were solved by way of a settlement. The use of the Law 1978 has not yet been tested in an international context. The following cases can hence not be compared in the light of existing case law. 5.1 No international element involved Let us start with the most simple case. A Belgian player is no longer happy with his Belgian club and wants to move to another (bigger) club in Belgium at the end of the season. Normally the bigger club should pay a transfer fee of about EUR 1 million but refuses to do so and induces the player to make use of the Law 1978 to terminate his contract. The new club hence also disrespects the gentlemen s agreement. In this case, the player will go to a Belgian labour court, Belgian law will be applicable and the Belgian court will rule that, pursuant to the Law 1978, the player would only need to pay EUR 360,000 to obtain is 12

13 freedom. FIFA regulations will not be relevant as there is no international element involved. The former club is being left behind with EUR 360,000 instead of EUR 1 million. Up to now, the gentlemen s agreement has always been respected between clubs so the risk that a player can successfully use the Law 1978 to go to another Belgian club seems to be highly unlikely. 5.2 International element involved As soon as an international element is involved in the dispute (ie a non- Belgian player or an transfer to a non-belgian club), FIFA Regulations shall also be applicable to the dispute on the basis of Article 22 of the FIFA Regulations 20. In this case we will analyse (i) the position of the former club vis-à-vis the player, and (ii) the position of the former vis-à-vis the new club. i. Position vis-à-vis the player The player pays the former club EUR 360,000 and consequently signs with the new club. If the former club disputes this transfer (by example by refusing to deliver the ITC), the dispute will be brought before the court. The court must 20 An interesting case in this respect is TAS 2008/A/1679 Christian Eduardo Giménez v/ Deportivo Toluco Futbol Club. As son as there is one international element, FIFA regulations should be taken into account. 13

14 accept the unilateral termination on behalf of the player and the player will condemned to pay EUR 360,000 as a compensation to the former club. Although the former club will try to refer to the applicable FIFA Regulations and claim a higher compensation, labour and FIFA courts must let the mandatory Law 1978 prevail over any other conflicting FIFA provision. One of the arguments in defense of the former club is that the judge should take into account the specificity of sports 21. In the Belgian context this argument cannot be followed as the Law 1978 is not only a mandatory law but has also been specifically - designed for a sports context. It can therefore be assumed that it takes into account the specificity of sports so it will be highly unlikely that a court will accept this argument. The player will hence be a free agent and can sign for the new club. The ITC should consequently be delivered. ii. Position vis-à-vis the new club 21 For example in CAS 2007/A/1359 FC Pyunik Yerevan vs Edel Apoula Edima Bete, AFC Rapid Bucaresti & FIFA, the panel considered that the specificity of sports allows the panel to consider the specific nature of damages that a breach by a player of his employment contract with a club may cause. The de sanctis case (CAS 2010/a/2145) also emphasises that the specificity of sports allows the panel to take into consideration other criteria than the ones mentioned in article 17 of the Fifa Regulations. 14

15 The question now arises whether the new club can be sanctioned pursuant to article 17.4 of the FIFA Regulations 22. Under Belgian law, the new club cannot be sanctioned by the competent courts as the Law 1978 does not provide such sanction for a foreign club. Moreover, the new club will normally not be a party to the dispute between the player and his former club. The Belgian court will only intervene in the relationship between the player and his former club. The question now remains whether the former club could go to FIFA in order to impose sanctions on the new club as pursuant to the abovementioned FIFA Regulations such sporting sanction is possible. As explained, a distinction must be made to a player inside and outside the protected period. Only if a player is inside the protected period, a club can be sanctioned for inducement 23. To sanction a club, the player would need to be in breach of his contract. The question that needs to be solved shall hence be whether a player 22 This article provides the following: In addition to the obligation to pay compensation, sporting sanctions shall be imposed on any club found to be in breach of contract or found to be inducing a breach of contract during the protected period. It shall be presumed, unless established to the contrary, that any club signing a professional who has terminated his contract without just cause has induced that professional to commit a breach. The club shall be banned from registering any new players, either nationally or internationally, for two registration periods. 23 Article 17, 4 FIFA Regulations 15

16 who makes use of his mandatory right under the Law 1978 is in breach of his contract. In my view, a parallel can be found with the analysis of buyout clauses and liquidated damages clauses. It should be checked whether the Law 1978 rather has the function of estimating the liquidated damages or rather just grants a contractual right to prematurely terminate the contract. If the latter is the case, the new club cannot be sanctioned as there is no breach as such of the contract. Looking at the exact wording and the preparatory works of the Law 1978, it rather seems that his law has the intention of constituting a liquidated damages clause than a mere buyout clause. There is no doubt that any FIFA or CAS body will try come to this conclusion in order to be able to sanction the new club 24. If the player is no longer in the protected period (and notwithstanding the Law 1978 has the purposes of a liquidated damages clause or buy out clause), the new club cannot be sanctioned and the player is free to sign without any sanctions involved. 24 The reasoning for this statement is that FIFA and CAS would like to have uniformity and promote legal uncertainty in case of a premature termination of contracts. This legal uncertainty is included in FIFA regulations and FIFA and CAS jurisprudence. 16

17 6 Conclusion Belgian clubs often claim to be taken hostage by agents who threaten to make us of the Law 1978 in order to force a transfer of the player. As it is rather likely that the Law 1978 should not be considered as a mere buy-out clause but rather as a liquidated damages clause, the Belgian clubs should only feel threatened in case the relevant player is outside the protected period. A few tips for Belgian clubs are useful to cover their interests and to avoid any meaningless discussions. First of all, the club should arrange that a player does not fall outside of the protected period. This can be done by way of options in the contract to extend the contract or by timely offering new contracts to the players. To cover the limited risk that a court would judge that the Law 1978 can be considered as a mere buy-out clause instead of a liquidated damages clause, it would be easy to insert a buy-out clause in the contract. It will in such case be very difficult to argue that when the player makes use of his rights under the Law 1978 such rights have the purpose of a buy-out clause. Next to these rather easy solutions, the Belgian legislator should definitely need to consider an update of the Law 1978 as the amounts to which are referred to no longer reflect the economic ratio it used to have. 17

18 7 Bibliography 7.1 Regulations Royal Decree of 13 Juli 2004 regarding the fixture of the amount of the compensation as referred to in article 5, second paragaraph of the Law 1978, as published in the Belgian State Gazette dd. 3 August FIFA Regulations for the Status and Transfer of Players Commentary on the Regulations for the Status and Transfer of Players IP 02/824, 05/06/2002, Commission closes investigations into FIFA regulations on international football transfers, 7.2 Case law Case C-415/93 Union royale belge des sociétés de football association ASBL v Jean-Marc Bosman, Royal club liégeois SA v Jean-Marc Bosman and others and Union des associations européennes de football (UEFA) v Jean-Marc Bosman, 18

19 lex.europa.eu/smartapi/cgi/sga_doc?smartapi!celexplus!prod!c ELEXnumdoc&lg=en&numdoc=61993J0415 Cas 2010/A//2145 Sevilla FC SAD v. Udinese Clacio S.p.A. & CAS 2010/A/2146 Morgan de Sanctis v. Udinese Clacio S.p.A. TAS 2008/A/1679 Christian Eduardo Giménez v/ Deportivo Toluco Futbol Club. CAS 2007/A/1359 FC Pyunik Yerevan vs Edel Apoula Edima Bete, AFC Rapid Bucaresti & FIFA 7.3 Legal Doctrine J-C Drolet, Extra Time : are the New Fifa Transfer Rules Doomed?, International Sports Law Journal, 2006, p R. Parrish, Contract Stability: the case law of the court of arbitration of sport, Published in European Sports Law and Policy Bulletin, 1/2011. In the Belgian case, the legal uncertainty rather seems to be caused O. Ongaro, The FIFA regulations on the status and transfer of players, as published in Contractual Stability in Football, p.39. S. De Groof and F. Hendrickx, Compensation in case of breach of contract according to Belgian labour law, as published in 19

20 Contractual Stability in Football, Sports Law and Policy Centre, p The Bosman Case : the end of the transfer system?, Leuven, Peeters, 1996, XVI+339 p. R. De Buen, Employment/labour law in the framework of sports (player s and employer s perspective), Global Executive Master in International Sports Law. 20

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