Player contracts: How contractual stability can override a liquidated damages clause

Published 25 May 2017 By: Dr. Lucien W. Valloni, Stéphanie Oneyser

Football player holding ball

Football – one word that evokes not only a sport but also money related issues. 

Contrary to what one may think, football players often struggle to get paid by their club, in particular after the wrongful termination of the employment agreement by the club.

A recent example illustrates this phenomenon – here with a happy ending for the player. 

 

Introduction

Who would have thought that football is a sport where the main actors – i.e. the players – have to beg to receive their regular salaries and to sue the club for wrongful termination? For sure, the official and public image of this sport does not show the other side of the coin. 

The Court of Arbitration for Sport (CAS) – the competent arbitral court in most of the employment law related football disputes – recently rendered a decision in which a football player had to initiate proceedings against his former club based on wrongful termination. The CAS showed some empathy with the player's situation.

 

Facts and decision 

On 9 July 2012, the club and the player signed an employment contract valid from 1 July 2012 until 31 May 2014, according to which the player had to play for the club and the club had to pay the remuneration the parties agreed on.

On 6 May 2013, the club terminated the employment contract with immediate effect without giving any reason.

On 4 September 2013, the player lodged a claim against the club with the FIFA Dispute Resolution Chamber (FIFA DRC) for breach of contract and requested among other things the residual value of the employment contract until 31 May 2014 minus what he acknowledges to have received from another employer after the termination of the club.

On 28 January 2016, the FIFA DRC acknowledged in their decision[1] that the club breached the employment contract and ordered, among other things, that the club pay the player over 1.3 million USD as compensation for the breach of contract.

The club appealed with the CAS and requested to annul FIFA DRC's decision.

The CAS upheld FIFA DRC's decision almost in its entirety and confirmed that the club has to pay the player over 1.3 million USD as compensation for the breach of contract within 30 days of notification of the award plus default interest until the date such payment is made.

 

Analysis

The CAS panel deemed that the FIFA Regulations on the Status and Transfer of Players (Regulations) were applicable and, additionally, Swiss law, insofar as the application relates the normative application (the rules) and interpretation of the FIFA regulations. However, the CAS panel found that to the extent it had to decide on matters not addressed in the FIFA Regulations, the CAS panel would take into consideration the relevant provision of the applicable law as defined in the employment contract (here: Qatari law).

The CAS panel then took a look at the employment contract and at the relevant termination provision, Article 10 of the employment contract. 

Article 10 of the employment contract reads as follows:

"1. The [club] and the [player] may terminate this contract, before its expiring term, by mutual agreement

2. […]

3. When the termination of the contract is not due to a just cause or a mutual agreement between the [parties] concerned, the [club] or the [player] shall be entitled to receive from the other party in breach of the contract a compensation for a net amount of:

  • To the [club]. Total amount of the contract
  • To the [player]. Remaining salaries of the same season"

The CAS panel held that it was undisputed that the club unilaterally terminated the contractual relationship between the parties without just cause with effect from 7 May 2013. However, the CAS panel noted that while the parties agreed on this fact, they were not in agreement regarding the validity and the legal consequences of such termination:

  • the club submitted that Article 10(3) of the employment contract constitutes a valid liquidated damages clause and should apply; as the club terminated the contract only a few days prior to the end of the season 2013, the club should not have to compensate the player for the 2014 season (until 31 May 2014);

  • the player argued that article 10(3) of the employment contract is unilateral (in favour of the club) and must be deemed null and void; the amount of compensation payable to the player is therefore not subject to the said provision; the amount payable because of the breach of contract must be instead calculated on the basis of the other criteria mentioned under Article 17 of the FIFA Regulations. 

In its analysis of Article 10 of the employment contract, the CAS panel observed that the player knew or should have known the contents of the employment contract and that there was no sign of undue pressure to accept the term in question – in other words, the player was aware of this provision and its content and should have thought about it.

However, the CAS panel underlined that Article 10(3) of the employment contract was a provision that unilaterally accommodates the club's wish to be permitted to terminate the employment contract without just cause before its expiry without taking on a huge financial risk; on the other hand, the player is in reality precluded from terminating the contract early without just cause because of the severe financial consequences of the same provision (i.e. the payment of the total amount of the employment contract).

The CAS panel came to the conclusion that the way Article 10(3) of the employment contract had been drafted implies a set-up which disproportionately favours the club and constitutes an easy way for the club to terminate the contract at the end of the first year without any consequences, whereas the player in turn does not have such an equal opportunity. Therefore, the CAS panel held that the reciprocal obligations deriving from Article 10(3) of the employment contract are so unbalanced and clearly contrary to the general principles of contractual stability that the Article 10(3) is null and void.

As a consequence thereof, since no valid agreement could be assumed to exist between the parties concerning the amount of compensation payable to the player due to the club's termination of the employment contract without just cause, the CAS panel calculated the amount of compensation that could be granted to the player in accordance with Article 17 Paragraph 1 of the FIFA Regulations – i.e. taking into account the entire remuneration payable to the player under the employment contract for the remaining time of its duration (i.e. until 31 May 2014) minus the amount earned under another contract during this period (duty to mitigate damages according to Swiss law).

In total, the club was ordered to pay over 1.3 million USD to the player, plus 5% interest. 

 

Conclusion 

This decision tackles a practical issue that is unfortunately frequent in the world of football when it comes to international players with a more modest standing than football superstars such as Messi and Ronaldo. Very often, these international players have no choice but to sign one-sided contracts being clearly at their disadvantage. In this case, the CAS in the authors’ view rightly held that a clearly unbalanced contractual clause is null and void.

Note: FRORIEP's arbitration team in sports law (lead by Dr. iur. Lucien W. Valloni) assisted and represented the player in the CAS proceedings.

 

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Author

Dr. Lucien W. Valloni

Dr. Lucien W. Valloni

Lucien is a highly experienced litigator in both international and domestic commercial and arbitration cases in the Swiss courts, up to the Swiss Federal Supreme Court level. Lucien is also one of the best-known sports lawyers in Switzerland, with extensive experience in sports litigation on various bodies of sports organisations as well as in sports arbitration at the Court of Arbitration for Sport in Lausanne. 

Lucien has been a partner at our Zurich office since 2005. He has represented domestic and international clients in numerous high-profile cases in all fields and courts up to the Swiss Federal Supreme Court. He also advises clients on commercial, employment, entertainment and media, insurance, real estate, aviation and international enforcement matters, including the recovery and enforcement of state debts.

Lucien has published textbooks on litigation and sports law in Switzerland and lectures widely.

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Stéphanie Oneyser

Stéphanie Oneyser

Stéphanie's practice focuses on civil litigation matters and insolvency law.

She joined our firm as an associate in April 2014.

After obtaining a Master of Laws degree from the University of Fribourg in 2009, she did her legal internships with a business law firm in Zurich and the District Court of Horgen. Until 2014, she worked as a law clerk at the District Court of Horgen and passed the Zurich Bar Exam in 2013. Stéphanie has also experience in arbitration cases. She has worked for Prof. Pierre Tercier who was chairman of many ICC arbitration proceedings. Moreover, she advices in arbitration proceedings in sport law under the CAS Rules.

Her working languages are German, English and French.

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