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.
In the
football world the use of unilateral extension options (hereafter UEOs) in
favour of the clubs is common practice. Clubs in Europe and, especially, South
America make extensive use of this type of contractual clauses, since it gives
them the exclusive possibility to prolong the employment relationship with
players whose contracts are about to come to an end. This option gives to a
club the right to extend the duration of a player’s contract for a certain
agreed period after its initial expiry, provided that some previously
negotiated conditions are met. In particular, these clauses allow clubs to sign
young promising players for short-term contracts, in order to ascertain their
potential, and then extend the length of their contracts.[1]
Here lies the great value of UEOs for clubs: they can let the player go if he
is not performing as expected, or unilaterally retain him if he is deemed
valuable. Although an indisputably beneficial contractual tool for any football
club, these clauses are especially useful to clubs specialized in the
development of young players.[2] After
the Bosman
case, clubs have increasingly used these clauses in order to prevent players
from leaving their clubs for free at the end of their contracts.[3] The
FIFA Regulations do not contain any provisions regulating this practice,
consequently the duty of clarifying the scope and validity of the options lied
with the national courts, the FIFA Dispute Resolution Chamber (DRC) and the
CAS. This two-part blog will attempt to provide the first general overview on
the issue.[4] My
first blog will be dedicated to the validity of UEOs clauses in light of
national laws and of the jurisprudence of numerous European jurisdictions. In a
second blog, I will review the jurisprudence of the DRC and the CAS on this
matter.
Even
though the DRC’s and the CAS’s view on UEOs matter most prominently in daily
practice, it is impossible to entirely ignore the positioning of national laws
and EU law vis-à-vis the legality of
UEOs. In fact, as we will see later, arguments derived from national law also
play a fundamental role in the assessment of the UEOs by the CAS. A
comparative analysis of the UEOs validity under national laws is extremely difficult
to conduct, as these clauses are relatively rare outside of football and the
few rulings of lower level national courts are difficult to access. In an
ordinary employment contract, deprived of the specificities of the sporting context,
it is hard to fathom the utility for the employer to have the power to extend
the contract unilaterally at his or her will. Due to the operation of the
transfer market, football players are in a peculiar employment condition,
hardly comparable to that of any other employee. The investments clubs make on training
footballers and their transfer value contribute to this unique employment
relationship to the extent that footballers are considered intangible assets
for the clubs.[5]
Given the difficulty of comparing hardly comparable situations, the only way to
proceed to a comparative overview is to attempt to produce comparative
snapshots, which, due to the limited amount of space, are necessarily
incomplete.
In
Switzerland: It’s unenforceable
It is
ironical that in a liberal country like Switzerland, where contractual freedom
is interpreted widely, the validity of UEOs under national law is doubtful.
Although there are no provisions concerning UEOs in Swiss labour law, we can
conclude that under Swiss law these clauses are most likely unenforceable.[6] In
Switzerland such an option would be deemed to infringe employment law and thus
considered invalid when incorporated in employment contracts. According to Art.
335a para. 1 of the Swiss code of Obligations[7]
there must be formal parity between employer and employee concerning
terminations of contracts. UEOs clauses would circumvent this provision by creating
disparity between the parties, as they confer to one party the unilateral
possibility to prolong the contract. The Swiss Civil Court, although in
disputes arising outside the realm of football, has in the past denounced the
circumvention of the provisions. It imposed the equality of treatment between
employer and employee concerning the conditions of termination of an employment
contract. In one case regarding a two year contract for services abroad, which
included the possibility of tacit renewal and the right for the company to
recall the employee in Switzerland, the Court stated that the right to recall
the employee granted unilaterally to the employer gave him a more favourable
position than the employee with regard to the termination of the fixed-term
contract. This situation, stressed the Court, is contrary to the purpose of
then Art. 336 para. 2 CO, which aims to grant equivalent protection to the
parties.[8] A
next case involved a trilateral service contract between an employee, an
employer (Meco Mechanical Corporation) and a beneficiary (the government of the
then United Arab Republic, a short-lived political union between Egypt and
Syria). The contract included a right to early termination granted to the
beneficiary. The Court, nonetheless, stated that this right is contrary to “Article 347 (3) of the Swiss Code of Obligations, which prohibits the
agreement between different periods of notice for the employer and the service
provider. This prohibition cannot be circumvented by making the right of
termination or the automatic termination of the employment relationship
conditional upon a condition which is unilaterally dependent on the will of the
employer. Such a condition would allow the employer to terminate the
contract at a point in time at which the service provider could not.”[9]
It
should be noted that the principle of parity between the parties is not
considered part of the Swiss ordre public.
Consequently, if a case has to be decided on Swiss territory according to a
foreign law that allows for the use of unilateral extension options, Swiss law
cannot prevent the application of such clauses. However, if the clause leads to
over extensive commitment on the side of the employee, it might be considered
an infringement of the ordre public
and, thus, be deemed null and void.
In
Germany: It’s complicated
According
to a first ruling of
the Labour Court of Ulm, some UEOs are considered null and void. It concerned a
one-year agreement (valid from 1 January 2007 to the end of season 2007/2008)
between the club and the player, which contained an UEO giving the club the
right to extend the contract for one more year. [10]
The Court held the option invalid. More precisely, the Court considered the
unilateral option ineffective. Based on Art. 307 para. 1 BGB, provisions in
general terms and conditions should be considered invalid if they unduly
penalize the contractual partner and are not accompanied with appropriate
compensatory measures. In the present case, the Court found that the unilateral
option clause served only the purpose of providing the employer with an
additional income in the form of a transfer indemnity. In these conditions, the
UEO amounts to a disproportionate restriction of the freedom to work enshrined
in Art. 12 of the Grundgesetz (German
constitution).[11]
Nonetheless,
a few years after the decision of the Labour Court of Ulm, the German Federal
Labour Court held (implicitly)
another UEO clause for valid.[12] The
Court dealt with the option only incidentally, as the case mainly revolved
around the validity of the resolution agreement signed by the parties. The
player, 15 years old at the time, and the club had originally concluded a
contract for a period of four years (from 1 July 2006 to 30 June 2010) with the
option granted to the club to unilaterally extend the relationship for another
year (until 30 June 2011). Sometime after having joined the club, the player
started suffering psychological pressure due to a series of personal
circumstances and expressed the desire to terminate the contract prior to its
natural expiry. The parties then signed a resolution agreement, pursuant to
which the club agreed to a resolution in return of a payment of € 40,000. The
decision was focused on the validity of that agreement, it only briefly
scrutinised the extension option and considered it compatible with the
framework of § 15 Abs. 4 TzBfG (or of § 624 BGB for free employment), due to
the fact that the length of the contract respected the maximum binding time of
five years.[13] The
Court emphasised, in fact, that this is the threshold a fixed-term employment
contract has to observe in order to avoid curtailing excessively the employee’s
personal freedom and added that the standard is consistent with the principle
of freedom of work and of choice of work enshrined in Art. 12(1) of the Basic
Law.[14]
In the
Netherlands: It’s probably ok
It
takes a bit of legal extrapolation to conclude that any jurisdiction plainly
authorizes UEOs, given that none of those examined for the purpose of this blog
has a labour legislation in place which expressly supports the validity of
UEOs. However, in the Netherlands, where the national labour legislation does
not contain any provisions on UEOs, the only known (private) decision to date
recognized the validity of such clauses under Dutch law. In the dispute between
the Tunisian football player Hatem Trabelsi and his club Ajax Amsterdam the
unilateral option included in the contract was deemed to be valid and binding.[15] The
ruling found the option compatible with the dismissal system provided by labour
law in combination with contract law.[16]
In
Belgium, Spain, Austria and Italy: It depends on the collective bargaining
agreement
A very
common framework among jurisdictions seems to reflect the specificity of sport
in that it makes footballers’ employment contracts sort of double-layered
agreements regulated by employment legislation on the one side and by Collective
Bargaining Agreements (CBAs) on the other. In this context, the various
legislations delegate to CBAs the duty to outline the details of footballers’
employment conditions, among which one often finds the requirements for UEOs to
be validly included therein.
In Belgium, player contracts are mainly regulated
by provisions of employment law, in particular by the Act of 3 July 1978 on
employment contracts (the Employment Contracts Act).[17]
Yet, with regard to option clauses, the Football
Collective Agreement of 15 February 2016 states that,
although in general these options are not valid, they are not considered to be
unilateral under certain conditions. According to Art. 15 of said agreement, if
the clause (i) is agreed upon in writing at the outset, (ii) provides a total
duration, extension included, of the relationship of maximum 5 years, and 3
years for under 18 players and (iii) provides for a certain increase in salary
(at least 15% of the fixed remuneration and 5% of the match- or selection
premium, or 20% of the fixed remuneration, whereby the increase does not need
to exceed the amount of 20.000 Euro), it might be considered valid and binding
as not unilateral.
In Italy, the employment aspects of sports
are regulated by the Law 91/1981. This
special legislation, according to which some of the dispositions applicable to
subordinate employment do not apply in the sporting context,[18] was
enacted to reflect the peculiarities of the employment relationship in sport.[19]
This legislation does not include any express provision covering UEOs, but –
while generally stating at art. 5 that the duration of the fixed-term contract
cannot exceed five years - it relies on the CBA for specific contractual
requirements. Art. 2 para. 2 of the CBA
states that “option agreements are permitted both in favour of the Club and the
Player, on the dual condition that a specific consideration is provided in
favour of the party who grants the option and that the limit of the overall
duration of the Contract, such overall duration consisting of the sum of the
duration provided plus any extension represented by the option […], does not
exceed the maximum duration provided by law”. The “specific consideration” of
the English version is translated from “corrispettivo specifico” which means
that, aside from the five-year ceiling, the condition for the UEO to be valid
is an increase in the salary of the player.
In Austria these clauses are not invalid
as such, but they have to meet the requirements laid down in Section 6(4) of
the Collective Agreement for football players of the Austrian Football League (KV-ӦFB), as
amended on 1 July 2014. It reads as follows: “The granting of an option to be
exercised by a unilateral declaration is only permissible if each party of the
contract is granted equal rights and the exercise of the option is linked to
equivalent conditions for both parties […]. The date of conclusion of the
contract shall be decisive for the assessment of equivalence”.[20] The
Austrian Supreme Court
recently upheld the decision of the lower courts in a dispute regarding the
validity of an extension option contained in a football player’s contract.[21] The
one-year agreement, valid from 1 July 2014 to 30 June 2015, contained an option
that granted the club the possibility to extend the contractual relationship
for two more years, until June 2017, as long as the club exercised it by 31 May
2015. On October 2015 the player
remitted his salary payments to the club and referred the case to the Tribunal
to question the validity of the option. Both the Court of first instance and
the Court of Appeals considered the agreement ineffective as the clause did not
meet the requirements of Section 6 (4) KV-ӦFB. The ground on which the two
courts reached this conclusion was the lack of equivalency of rights under the
agreement, as (i) the increase in salary (of 15%) was not proportionate to the length
of the extension; (ii) at the time of signing the contract, the contractual
conditions for an extension were not defined.[22]
The Supreme Court held that the assessment of the lower courts could not be
disputed and reiterated that Section 6 (4) KV-ӦFB is unequivocally clear in
requiring the granting of equivalent rights to both parties of the contract for
an UEO to be acceptable. Equivalence, the Court continued, that has to be
assessed at the date of conclusion of the contract.
In Spain the main source of law regarding
the employment relationships of professional athletes is the Royal Decree
1006/1985. Regarding the duration of the contract, art. 6 of RD 1006/85
provides that (i) sportsmen contracts are always fixed-term contracts, (ii) the
extensions of these contracts, which shall always be definite as well, can be
achieved through subsequent agreements between the parties when the contract is
about to expire. Paragraph 3 of this provision admits different possibilities
of extension in so far as the Collective Bargaining Agreement provides so.[23] On the matter, the current Collective
Bargaining Agreement defer in turn to the RD 1006/85, as Art.
14 provides that “by mutual agreement between the Club and the Footballer, the
contract may be extended, in the terms established in the second paragraph of
article 6 of Royal Decree 1006/1985, of June 26”. At the moment, therefore, it
seems that extension options in Spain need to be agreed with the player.
In the
UK: Likely not
Sometimes
circumstances other than the CBA can play a role. The United Kingdom and the Premier League, for instance, represent a unicuum in the panorama of the
jurisdictions under scrutiny in the sense that, although here – as in other
countries – the employment relationship is governed by national law, collective
agreements and the rules of the Football Association (FA),[24]
two specificities place this system in a peculiar position. First of all, in
the United Kingdom collective agreements are not legally enforceable. It is
true that the terms of a collective agreement may be binding and enforceable
between the parties of an employment relationship if these have been
incorporated into the individual contract.[25]
However, a court may nonetheless conclude that the term is not enforceable.
Secondly, no single overarching collective agreement encompasses the employment
relationship between clubs and players in the Premier League. There are,
instead, a series of collectively negotiated agreements, such as the Standard
Players’ Contract.[26] In
an early decision that challenged the English ‘Retain and Transfer System’ as
an unlawful restraint of trade, the High Court placed emphasis on the
inequality of bargaining power in a professional football player’s relationship
with a club, stating that “in the football industry players commonly enter into
their first contract either while they are under 21 or shortly afterwards, and
that wherever they may subsequently go, within the Football League, there is
only one form of contract they can sign. The Court must be careful to see that
contracts made in these circumstances are justifiable in the interests of both
parties”.[27]
That
said, although there is no CBA in place that can enlighten us about the
validity of UEOs, a satisfying answer could nonetheless be found in the Courts’
rulings concerning contracts in the (to some extent) comparable context of the
music industry. The profession of the musician resembles in various aspects
that of the football player. As for footballers, musicians’ contracts are
linked to their performance, in terms of copies of albums sold, concert tickets
sold, royalties from the ads etc. The more a musician is perceived to be
promising, the more lucrative the contract he can get from the record company
will be. Just as sports professionals, musicians often begin their career in
their prime age. In order to get a foot in their respective highly rewarding
industries, sportsmen and musicians might agree to contractual clauses without
fully understanding the consequences or, more likely, even if they do fully
understand the implications of such contracts they may feel they have no option
but to sign them if they want their career to start or progress.[28]
This similarity allows us to draw some useful comparisons from the case law of
UK courts regarding musicians.
For
instance the House of Lords declared void an agreement between a young and
unknown musician by the name of Tony Macaulay and the publishing company
Schroeder Music Publishing Co Ltd, which contained a clause extending to 10 years
the original five-year undertaking of the company.[29]
When he signed the contract, the musician was aged 21. The agreement provided
that the duration of five years would have been extended to 10 in case the
royalties for the first five years exceeded £ 5,000. In the words of Lord Reid
“if the respondent’s work became well known and popular he would be tied by the
agreement for ten years”.[30] In
consideration of the duration of the contract and the fact that the payment
received by the author was minimal unless his work was released, which was not
an obligation for Schroeder Music according to the contract, Lord Reid was of
the opinion that the publishers’ appeal had to be dismissed. His reasoning was
grounded on the consideration that “if contractual relations appear to be
unnecessary or to be reasonably capable of enforcement in an oppressive manner,
then they must be justified before they can be enforced”.[31]
Lord Diplock deemed the contract unenforceable due to its substantial
unfairness and emphasised the need to accord protection to “those whose
bargaining power is weak against being forced by those whose bargaining power
is stronger to enter into bargains that are unconscionable”.[32] For
the same reason, the English Court of Appeal struck down as void a publishing
agreement between the already established band Fleetwood Mac and the publisher
which tied the band to the company for a five year period plus the possibility
to extend the relationship for another five years.[33]
The court held that the publishing agreement gave the company “a stranglehold
over each of the composers”[34] and
found the contract fundamentally unfair to the group.
These
two decisions give us an insight on how under English law, where – it is
important to bear in mind – as a general rule the letter of the contract
prevails, clauses of these kind tying professional musicians have been
considered null and void because of the disproportionate contractual power
between the parties. A conclusion that was confirmed even when the band
concerned was not unknown. It is easy to see how such reasoning could be applied
to UEOs in professional football.
Under
EU law: It should be fine
The
last unknown is the position of EU law with regard to UEOs. In many ways, UEOs
are contractual mechanisms used to attenuate the consequences of the Bosman ruling. Indeed,
they give the club the opportunity to prolong an employment contract without
the consent of a player, and therefore to obtain compensation in case the
player wishes to move to another club. However, the striking difference with a Bosman situation is that this
contractual set-up is not mandated by the private regulations of the football
federations or leagues. Instead, it is negotiated ab initio between the contractual parties, and hardly ever imposed by
a collective agreement. Thus, as long as the original free will of the player
is not constrained by private rules, which in fact might be the case in a
closed labour market where the clubs can act as an oligopoly and (implicitly)
coordinate their behaviour, one could argue that the free movement of a player
is restricted only by his or her own free will.
In its more recent Bernard ruling, the CJEU came close to
dealing with an UEO, but here again the forced prolongation of the contract was
imposed by the French collective bargaining agreement in force at the time of
the dispute and not negotiated on an individual basis between the parties.
Therefore, it is relatively unlikely that EU law could be successfully invoked
to challenge the validity of UEOs, unless those are at least identified as a
collective practice or informal rule applied by clubs against the will of players.
Conclusion:
A European legal mess
Notwithstanding
the hardly avoidable incompleteness of the above comparative sketch, a short conclusion
on the validity of UEOs in light of national and European law is in order. First
of all, it is clear that no single answer prevails Europe-wide. The brief analysis
carried out shows that each of the jurisdictions scrutinised approaches the
topic differently. The only uniformly shared regulatory trait is that national legislators
have not regulated the matter. Instead, we had to look for potential answers in
the jurisprudence of local courts, more often than not extrapolating from cases
outside of the realm of football. Furthermore, legislators commonly delegate to
CBAs the duty to define the employment conditions of professional football
players. In short, the legality of UEOs is usually dependent on the
interpretations of local courts or the decisions of local social partners.
However, where UEOs are deemed valid, it is always under stringent conditions
such as a strict limit to the overall duration of the extended contract and the
provision of a substantial increase in salary. Hence, the validity of UEOs
hinges on the rather subjective evaluation of the overall fairness of a
specific UEO in the context of a specific contract. Whether this is also true
of the jurisprudence of the DRC and the CAS when confronted to UEOs will be the
subject of our next blog.