Editor’s Note: Saverio Spera is an Italian lawyer and LL.M.
graduate in International Business Law at King’s College London. He is
currently an intern at the ASSER International Sports Law Centre.
This blog is a follow up to my previous contribution on the validity of Unilateral Extension Options
(hereafter UEOs) under national and European law. It focuses on the different
approaches taken to UEOs by the FIFA Dispute Resolution Chamber (DRC) and the
Court of arbitration for sport (CAS). While in general the DRC has adopted a
strict approach towards their validity, the CAS has followed a more liberal
trend. Nonetheless, the two judicial bodies share a common conclusion: UEOs are
not necessarily invalid. In this second blog I will provide an overview of the similarities
and differences of the two judicial bodies in tackling UEOs.
The emergence and function of the Portmann criteria
Since their first appearance in a case widely known as
the South American Bosman for the
impact it had on the whole system of contracts established by the Uruguayan
Football Association, the so-called ‘Portmann’ criteria are often referred to
in decisions on the validity of UEOs.[1]
In short, these criteria provide that:
- the potential
maximum duration of the employment relationship must not be excessive;
- the option has to
be exercised within an acceptable deadline before the expiry of the current
contract;
- the original
contract has to define the salary raise triggered by the extension;
- the content of the
contract must not result in putting one party at the mercy of the other, and;
- the option has to
be clearly emphasized in the original contract so that the player can have full
consciousness of it at the moment of signing.[2]
These five requirements, proposed by Prof Wolfgang Portmann, were meant to represent the standard UEOs had to meet in order to be
considered valid and biding upon the players. More precisely, in order not to constitute
an excessive self-commitment that would result in a violation of Swiss ordre
public.[3] They
emerged in the course of the South American
Bosman as Prof. Portmann’s report was presented by Atlético Peñarol in the
(unsuccessful) attempt to uphold the validity of the unilateral option the club
had used in its employment contracts. From that moment on, the Portmann
criteria became a recurrent theme in decisions by the DRC and the CAS. However,
these criteria have been used over the years in a rather incoherent fashion and
their importance in the assessment of UEOs is not unequivocal.
Thereafter, in its first decision, the DRC used the
criteria to assess the validity of an UEO.[4]
But then it drastically drifted away from them. Actually, in the ensuing
decisions the DRC did not refer to the five conditions at all. In some
instances it limited itself to recall its established jurisprudence finding the
validity of UEOs disputable since they give the stronger party in the
employment relationship the power to unilaterally extend or terminate the
contract.[5] In
another occasion, the DRC expressly dismissed the binding effect of the
Portmann report, underlining that it only constitutes a non-binding
recommendation.[6]
Furthermore, interestingly, in the appeal proceedings of
the Atlético Peñarol case the CAS did not mention the Portmann report in its evaluation
of the UEO. The Panel only referred to it in the part of the award that
assessed the question of the applicable law and noted that Prof Portmann’s
starting point was radically different from that of the Panel, as he deemed
Uruguayan law applicable to the dispute, while the Panel applied Swiss law/the
RSTP.[7] Having
said that, the CAS also seems to have departed from its initial approach, but
in a rather different way than the DRC. In an early award of 2007, the CAS refused
to give too much weight to the Portmann report and focused its reasoning on
other circumstances.[8] Yet,
the ensuing awards did not follow suit on this approach. In its more recent
awards, the CAS held that the criteria constitute soft guidelines and often de facto relied on them to reach its
conclusion on the validity of an option.[9]
In one occasion, the CAS even added to the list of requirements two criteria,
“emanating from recent developments in the FIFA DRC and CAS jurisprudence”,
namely (i) the proportionality between the extension and the main contract and
(ii) the desirable limitation of the number of extensions to one.[10]
Regarding the relevance of the Portmann criteria, it
seems that the only shared trait between the DRC and the CAS is that both have drifted
away from their approach. Though, in quite opposite ways.
Increase in salary as a sine qua non condition for the
validity of UEOs
The question of the increase of the player’s salary is
considered central, by both the DRC and the CAS, in deciding the validity of
UEOs.
In fact, an improvement of the player’s salary is
considered by the DRC as a possible ‘validating’ circumstance since the first
published decision on the issue.[11] The
FIFA Chamber placed particular emphasis on the necessity to offset the unequal
bargaining power that UEOs give to football clubs. To do that, a significant
economic gain for the player must be envisaged in the contract as a result of the
extension. In the view of the DRC, this is a necessary but sometimes not
sufficient condition for the validity of a UEO, since the specification of the
financial terms of the renewal in advance “necessarily cannot take into account,
neither by the player nor the club, the possible enhancement of the player’s
value, and hence earning power, over a two year period”.[12]
In its awards on the matter, the CAS contends that the
player must derive a clear economic advantage from the exercise of the option.[13] Thus,
the increase in salary is the only requirement that is fully embraced by both
the DRC and the CAS. It is interesting to note, however, that in only one
occasion did the CAS explicitly mentioned that “[e]ven if the financial terms had
to be specified in advance, they necessarily take no account of the possible
enhancement of a players value – and hence earning power – over a five year
period e.g.: if he becomes an international player during that time”.[14] It
is also worth noting that, at least in one award, the CAS concluded that an
increase in salary has to be evaluated only in relation to the previous economic
conditions of the player’s contract and not in relation to the salary he could earn
somewhere else.[15]
In light of the above, it is safe to conclude that an
UEO coming with a substantial increase in salary for the player has good
chances to be deemed valid by the DRC and the CAS. To this end, a few
additional observations are relevant. Firstly, how much is enough?
Unfortunately, no clear guidelines can be derived from the case law. Secondly, it
is practically impossible to predict the increase in value of a football player
over a long-term period. Consequently, what can be considered a reasonable
increase in salary at the signing of the contract might be deemed insufficient
a few years later. Lastly, and probably most importantly, this approach might
overlook the fact that an increase in salary is not always the only element a
footballer takes into account in his career, as sometimes more personal
considerations might push a player to move to a different club in another
country. For instance family reasons might play a significant role in such a
decision. Furthermore, football players might often consider more convenient
for the development of their careers to give up on an increase in salary in
order to have the chance to move to a club with more playing opportunities. An
increase in salary, even substantial, should not be the altar on which a
footballer’s fundamental freedom of movement and, ultimately, of choice is
sacrificed.
The player’s behaviour
The player’s stance has often been evaluated by the
DRC in particular as a concurrent element in determining the validity of an
UEO. The main argument is that a certain behaviour of the player, such as
keeping training and playing official matches with the club, implies a tacit
acceptance of the extension. Once again, the DRC and the CAS are not entirely
on the same line. The DRC jurisprudence gives more weight to this aspect, while
the CAS has mentioned that particular attention has to be paid to “the player’s
conduct during the period leading to the negotiation of the alleged extension
clause” only in one single case.[16]
With regards to the circumstance that the player has
played in official matches as a consequence of the extension, the DRC showed a
swinging trend. In one instance, it deemed it not relevant.[17]
Yet, in a subsequent decision (the only one by the DRC upholding the validity
of an UEO to date), the fact that the player had kept taking part in training
sessions and playing official matches for the club after the extension had
quite a different impact on the reasoning of the Chamber.[18]
More recently, the DRC stated that the fact that the player trained with the
club for a month after the alleged renewal does not imply his tacit acceptance
of the unilateral extension.[19]
The applicable law
As seen in the first part of this blog, each national jurisdiction interprets the validity of
UEOs differently. Consequently, the choice of applicable law can play a major
role in the outcome of a case, although the issue arises mainly when the
dispute is brought before the CAS. The matter is complicated by the fact that
CAS panels have a certain degree of discretion in deciding the law applicable
to a dispute, and by the circumstance that even when they apply the same law
they might reach different conclusions. With regard to the latter point, let us
take into consideration two cases in which the CAS has established Greek law as
the applicable law. In one occasion the Panel deemed “appropriate to mitigate
the letter of Greek law by the spirit of general principles”, as its content
concerning UEOs was considered inconsistent with “general principles of labour
law”[20] and
consequently dismissed the appeal of the club. In another one, instead, the
Panel concluded that the dispute had to be decided according to FIFA
Regulations and Swiss law on a subsidiary basis, “with the important exception
of any issues related to the Contract […] which shall be decided in accordance
with Greek law”.[21]
Therefore, given that in Greece unilateral options allowing clubs to
automatically extend employment contracts are legal, the Panel upheld the
validity of the clause.[22]
A radically different approach was taken by the CAS in
the Atlético Peñarol case discussed above. In the absence of an express choice of law of the
parties, the Panel deemed the FIFA Regulations and, subsidiarily, Swiss Law
applicable. It is worth recalling the reasoning of the Panel, as it could pave
the way to a reasonable solution for the UEOs issue. The arbitrators noted that
the application of art. 187 of the Swiss LDIP gives wide freedom of choice to
the parties, who can even require the arbitrators to decide ex aequo et bono, i.e. without any
reference to specific State laws. This means that art. 187 LDIP allows, a fortiori, to refer to rules that
transcend the particular State laws, such as sports regulations. The Panel
stressed that sport is a phenomenon that naturally crosses borders, and thus it
is necessary to ensure uniform legal standards. Only if the same terms and
conditions apply to everyone who participates in organised sport, is the
integrity and equal opportunity of sporting competition guaranteed. In
practice, the FIFA Statutes and Regulations provide such uniform rules. Additionally, the arbitrators
underlined that the application of Uruguayan law would lead to a result
incompatible with the minimum standards of protection of employees provided by
Swiss labour law. Hence, the CAS concluded that the Uruguayan system of UEOs is
not compatible with the FIFA Regulations. Furthermore, the Panel noted that
these options effectively bypass the basic principles of the FIFA regulations,
which “very particularly protect the interests of training clubs through
training compensation and the solidarity contribution […] It is not possible
that this protection of the contents of a contract between clubs and players
can be bypassed in order to serve only the interests of one party, in this case
the club, which does not itself have to make a commitment. So the Panel
considers that the unilateral contract renewal system is not compatible, in its
very principle, with the legal framework which the new FIFA rules were designed
to introduce”.[23] In
other words, the Uruguayan system seemed to reintroduce, through the backdoor,
the system that was abolished with the reforms of the FIFA Regulations 1997,
2001 and 2005.[24]In
such a system the player is bound to a contract negotiated at a moment of his
career when he did not have a strong bargaining power. Which is to say, the
player is left at the mercy of the club. The arbitrators stressed that only the
most talented players can escape this mechanism, when the club receives an
important transfer offer for their services.[25]In
that occasion, the player will hardly refuse the transfer knowing that, doing
otherwise, he will be bound to the club because of the UEO in his contract.
Conclusions: The way forward
We have seen in part 1 of this blog that we lack a coherent regulatory framework for UEOs at the
national level. This second part has also shown that things are not much
clearer at the DRC and the CAS, as the two bodies, while agreeing on the
existence of certain criteria, take different approaches on the assessment of
each of them (except for the increase in salary). Furthermore, the outcome of a
case can be heavily dependent on the applicable law. Consequently, the future
validity of UEOs is uncertain, given that no uniformity can be found in the CAS
jurisprudence.
The uncertainties related to the applicable law issue
are manifold. Upholding the validity of national law, although granting some
advantages in terms of foreseeability, presents two main drawbacks. First of
all for the clubs which draft the contracts and cannot predict to what extent
this law will be deemed applicable by the CAS and, consequently, are unable to
draft the contract with all the necessary information desirable in respect to
UEO clauses.[26]Secondly,
and most importantly, this approach overlooks the fact that football is a
global phenomenon, and the transfer market a transnational one, which requires
uniform rules at the international level.
The conclusion reached by the Panel in the Atlético
Peñarol case is a fair starting point in the quest for more certainty in the
matter. The undisputable merit of that award was to clearly highlight (i) the unequal
nature of a clause that is accepted by the player at the early stages of his
career and (ii) the necessity to have a body of regulations that can be
understood and predicted by the entire international football family.[27]
Let us conclude, therefore, that only the universal application of a set of
regulations, such as the FIFA RSTP, would ensure legal rationality,
predictability and, significantly, “the equality of treatment between all the
addressees of such regulations, independently of the countries from which they
are”.[28] A fortiori, when at stake is the
fundamental freedom of movement and choice of footballers, the need to rely on
a uniform body of principles and rules, a lex
sportiva, universally applicable without discrimination becomes crucial.
However, applying the FIFA Regulations in a
standardised way still leaves a problem unsolved. This body of rules is in fact
silent on the very issue of UEOs. FIFA could tackle the issue in a variety of
ways, for instance by codifying in the RSTP a revisited version of the Portmann
criteria. Suggesting precise reforms to FIFA goes beyond the purpose of this
blog, but one thing is sure: in the face of the extreme uncertainty that
surrounds the validity of these clauses, having one single body of rules
expressly targeting the issue and universally applicable would be of great help
to all the parties involved.