A guide to Premiership Rugby’s Salary Cap Regulations 2018/19 – what happens if there is a breach?
Published 28 August 2018 By: Christopher Stoner QC
The article is the second of two pieces by the author on Premiership Rugby's Salary Cap Regulations for 2018/19 (the Regulations).
Their practical operation
What happens on suspicion of a breach
The disciplinary process
The sanctions that may be applied
Other notable aspects of the Regulations
At the time of publishing, the Regulations for the 2018/2019 season are not yet available on the Premiership Rugby website (although they may be uploaded soon). The principal changes to the published Regulations have however all been well communicated (see here and here2). A copy of the Regulations for the 2016-2017 season (which the author refers to as the published Regulations) are available here.3
This article updates a piece that the author originally wrote in 2015.
Operation of the Salary Cap Regulations
The Regulations, which are principally well drafted, are necessarily detailed and equally necessarily require a degree of self-regulation, with each Club required to submit to a central Salary Cap Manager appointed by Premier Rugby Limited extensive documentation (as more fully identified below).
The definition of “Salary” is very wide ranging4 and includes, purely by way of example, salary, bonuses (including match, win and year-end), certain insurance or assurance premiums, national insurance, accommodation costs, holiday costs, child support or maintenance payments, certain loans, pension contributions (other than certain statutory obligations), payments in connection with promotional, media or endorsement work, signing-on fees, certain payments in kind, payments for off-field activities for the club and agents fees.
Sums which are excluded for the purpose of determining the total Salary for a particular club, include payments or benefits in kind in connection with individual sponsorship, endorsement, merchandising, employment or other individual agreements between a player and a third party or "Connected Party" (as defined), provided that the Salary Cap Manager concludes on the balance of probabilities that the monies should not be considered part of the club’s "Salary".
Other sums such as international match fees, "legitimate and reasonable expenses" (whatever that means) incurred by a Player which are paid, payable or reimbursed by a Club, insurance premiums payable in respect of the personal private medical insurance of a player, education fees (e.g. university tuition fees for a player) are also excluded.
Any salary paid to a Home Grown Academy Player or either of the permitted Excluded Players (subject to the provisions of Regulation 3.35) are similarly excluded from the calculation of the Club’s "salary" payments for the purposes of the Cap calculation.
The pivotal figure in the operation of the Salary Cap Regulations is the "Salary Cap Manager" whom is “responsible for all aspects of the operation of the Regulations, including without limitation, monitoring compliance with the Regulations and overseeing the audit process.6”
Whilst if a Club or a Player has any questions relating to the operation of the Salary Cap Regulations it can ask the Salary Cap Manager (who, if he thinks the point raised by a Club is one that all Clubs should be aware of, may disseminate his answer widely – albeit without revealing the name of any Player involved or the terms of his contract), the majority of the Salary Cap Manager’s role is as an "enforcer" or "policeman" as opposed to a help-desk.
It is to the Salary Cap Manager that the Clubs have to deliver in June of each year, in respect of the forthcoming Salary Cap Year a copy of:
A declaration, in a specified form, signed on behalf of the Club by its Chairman, CEO and Financial Director certifying what those individuals, having made full and proper enquires, expect the Club to pay during the current Salary Cap Year by way of "Salary";
The total amounts paid or payable provided or to be provided as Salary in that Salary Cap Year by or on behalf of the Club or a Connected Party in respect of both Senior Players and Academy Players (or indeed any Connected Party of the Players); and
Minutes, in a prescribed form, of the meeting of the board of directors of the Club at which the declaration was formally approved.
For the Salary Cap Year which has just closed (the Salary Cap year running from 1st July to 30th June), in the following September the Clubs also have to deliver to the Salary Cap Manager a copy of:
A certificate, in a prescribed form, signed on behalf of the Club by its Chairman, CEO and Financial Director which includes:
the total amounts paid or payable, provided or to be provided as Salary in the previous Salary Cap Year by or on behalf of the Club or a Connected Party in respect of its Senior Players and Academy Players or any Connected Party of those Players;
the name or names of any Third Parties or Connected Parties that have provided payments or benefits in kind to Players or Connected Parties of the Players;
lists of related parties of the Club identified by the board of directors and of all transactions between the Club and those related parties to an International Auditing Standard; and
a statement as to whether the Club has or has not complied with the Senior and Academy Ceilings for the relevant Salary Cap Year.
Minutes in a prescribed form of the meeting of the board of directors at which the certificate is formally approved.
In so far as it has not already done so, full copies of all written contracts the Club has entered into with its Players and with any Company or other entity which provides or procures the provision of non-playing services by a Player to a Club;
Details of the residential addresses of all Players;
Details of the Club’s Group (as defined); and
In so far as reasonably practicable details of each body corporate in relation to which any director and/or shareholder of the Club is interested to a level in excess of 10% of equity share capital or voting power.
These obligations, allied to that of supplying to the Salary Cap Manager within 28 days of when they are entered into, full copies of all contracts and arrangements the Club enters into with any Player or any company or entity which agrees to provide or procure the provision of non-playing services by a Player, all documentation relating to loans between a Club and a Player, contracts with scouting agents, contracts evidencing payments to player agents, injury certificates and rugby league contracts in the event of employing a code convert, illustrate not only the breadth of the Regulations but the clear window the Salary Cap Manager will have into any Club’s salary structure and financial affairs.
As a matter of course, all Clubs are audited by nominated accountants from 1 September following the end of a Salary Cap year on 30th June. The scope of the audit will be at the accountants’ sole discretion and the Club has an obligation of co-operation and assistance. The audit is then supplied, provided it is reasonably possible, to the Salary Cap Manager by 31st January, so within an anticipated maximum period of 5 months.
Special requirements apply to the Promoted Club, which within 28 days of receiving confirmation of its promotion to the Premiership has to comply with the onerous requirements of Regulation 4.4 and supply all listed documentation. This will then be considered by the independent accountants, who will audit the information, and report to the Salary Cap Manager within a further 28 day period7.
The Salary Cap Manager is also obliged to monitor Club and Player activity and he can interview, at his sole discretion, a Player to discuss any aspect of that Player’s remuneration.
Essentially all and any information the Salary Cap Manager could conceivably want is to be provided either automatically pursuant to the operation of the Regulations, or, alternatively, upon his request.
A suspicion of a breach
Aside from what might be called administrative breaches, which are actually termed "other breaches" in the Regulations (and which are mentioned below) there are two principal routes pursuant to which a breach of the Regulations may ultimately be lain against a Club.
Firstly, and in circumstances where the Salary Cap Manager has suspicions but needs more evidence, the Regulations provide for what are called "Open Book Powers"8.
Essentially, if at any time the Salary Cap Manager "reasonably suspects" that a breach of the Regulations he may instruct nominated persons, who are usually accountants and/or solicitors, to carry out an ‘Investigatory Audit’.
The Club, unsurprisingly, is obliged to provide assistance and co-operation to those conducting the investigatory audit, but to maintain a degree of independence, the Salary Cap Manager is not entitled, at that stage, to access to what are called "Relevant Records" which will be seen by those conducting the Investigatory Audit, those records being "Contracts, financial records, bank records, tax returns and other tax records, insurance records, email records and telephone records" which the Salary Cap Manager considers are relevant to the suspected breach of the Cap (and which, presumably, he will identify in initiating an Investigatory Audit).
Equally unsurprisingly, the Salary Cap Manager is entitled to see copies of any "Relevant Records" which the investigators reasonably determine to be relevant to the suspected breach of the Regulations, namely when they report with their audit9.
In the event the Salary Cap Manager concludes that a breach has been identified, he can then proceed pursuant to the disciplinary process.
Secondly, the Salary Cap Manager can lay a charge against a Club, whether as a result of an investigatory audit or not, if he is of the view:
The Club has exceeded the ceiling applicable to the Senior Ceiling or the Academy Ceiling. Thus, in 2018/2019, if the Salary Cap Manager is of the view that the Club has spent more than the applicable Salary Cap for that Club, namely once all applicable credits are applied to the base level Salary Cap of £7m (and having regard to the "overrun tax"); or
The Club is guilty of a "Failure to Co-operate".
A breach of the ceiling is self – explanatory. A charge on that basis will assert that the Club has exceeded the particular ceiling either by a particular amount, or, as there is no requirement to state the exact sum (which may not be clear) by a sum of at least £x (namely the sum the Salary Cap Manager feels will be the minimum breach proven). Of course, given the terms of the "Overrun tax", if the Salary Cap Manager is of the view the Salary Cap base level, adjusted for the particular Club after application of the various credits, has been exceeded by a sum less than 5% of the base level (namely £350,000 for the 2018/19 season), then no breach has occurred. Instead an overrun tax will be applied.
A "failure to co-operate" arises if the Club, in the view of the Salary Cap Manager, does not provide the required level of co-operation and assistance to any Investigators that the Salary Cap Manager has appointed to undertake an "Investigatory Audit" (namely, as previously stated, an audit by independent persons where the Salary Cap Manager suspects a breach of the Regulations).
"Other Breaches" are dealt with by means of a fixed and escalating fine, so that 1 "other breach" will result in a fine of £100, increasing to £200 for a 2nd breach, £400 for a 3rd breach and £800 for a 4th and each subsequent breach. Examples of "other breaches" are given in Regulation 11.3(b) and include a failure to supply documentation to the Salary Cap Manager in the correct form or in a complete state and a failure to reply properly or timeously to any query raised by the Salary Cap Manager.
The Disciplinary Process
Any charge alleging a breach of the Ceiling or alleging a "failure to co-operate" is commenced by delivering a charge to the relevant Club and Sports Resolutions (who are tasked with appointing the Disciplinary Panel, which will comprise of 3 people).
The document which forms the charge must identify the Regulation alleged to have been breached, describe the nature of the alleged misconduct, provide a statement of the facts relied upon and include all documents or other evidence relied upon or referred to in the charge.
The Disciplinary Panel is to be appointed within 5 working days of receipt of the charge and the Club must serve a response on Sports Resolutions within 14 days of receipt of the charge which includes an admission or denial of the charge, a statement describing the reasons for and the circumstances of any denial and copies of all documents or other evidence relied upon or referred to in the response.
The Disciplinary Panel, which will be chaired by a solicitor or barrister, will determine all procedural and evidential matters, with a timetable being established within 3 days of the panel’s appointment, save that the Salary Cap Manager and the relevant Club can agree that the matter can be determined on paper without the need for a hearing, and a final decision must be made and communicated by the panel within 60 days of its appointment.
The burden is on the Salary Cap Manager to prove a breach on a balance of probabilities.
Regulation 13 provides that if a challenge is made to a decision of the Disciplinary Panel, it shall be made to Sports Resolutions for a final and binding arbitration in accordance with the Arbitration Act 1996 and Sports Resolution’s UK Arbitration Rules. Regulation 13.2 provides:
“Regulation 13.1 shall not operate as an appeal of a decision of the Disciplinary Panel or any other decision made pursuant to the Regulations and shall operate only as a forum and procedure for a challenge to the validity of such a decision under English law on the grounds of ultra vires (including error of law), irrationality or procedural unfairness, with the Tribunal exercising supervisory jurisdiction only.”
The sanctions that may be applied
The sanction to be applied is determined by the Disciplinary Panel which has concluded that a breach has occurred. This will ensure a welcome degree of independence in the sanctioning process.
Regulation 14.2 provides that in the event of it having found a breach:
“… the Disciplinary Panel shall determine the penalty to be imposed on the Club. In determining the appropriate penalty the Disciplinary Panel will apply the penalties set out in Regulation 14.3 – 14.5 below but the Disciplinary Panel shall be entitled to exercise its discretion to impose a penalty which is less than set out in Regulation 14.3-14.5 where, in the view of the Disciplinary Panel, such penalty would lead to the Club being unfairly punished or treated under the Regulations or would lead to a result not within the spirit and underlying purpose of the Regulations.”
This unusual combination of mandatory language (namely that the Panel “will” apply Regulations 14.3 – 14.5) combined with a discretion to apply a lesser sanction means, I think, that the expectation must be that the prescribed penalties will be the starting point for consideration and will be applied unless there is a good reason why they should not.
The prescribed sanctions for a breach of the Senior Ceiling are as follows:
Payment of all reasonable costs incurred by Premiership Rugby Limited in connection with the breach, which sum will be determined by the Disciplinary Panel;
A fine of £3 for every £1 the Senior Ceiling and/or Academy Ceiling is exceeded by over 5% (under which the overrun tax provisions are engaged);
A point deduction to a specified tariff. This only applies to breaches of the Senior Ceiling and starts with 5 points in the event of the Senior Ceiling being breached by more than the "permitted" 5%, increasing at bands of £50,000 up to a maximum points deduction of 35
[It is worth mentioning the Regulations specifically identify this tariff as the starting point with the Disciplinary Panel being free to reduce or increase the point deduction as they consider appropriate, taking into account certain specified factors, notwithstanding the initial injunction that the Panel “will” apply Regulations 14.3 to 14.5 or exercise their discretion to impose a lower sanction. Plainly, in terms of points deductions "lower" is to be read as "lower" or "higher" (as appropriate”)!].
If the Disciplinary Panel are of the view that the club recklessly or deliberately breached the Senior and/or Academy Ceiling, it can at its sole discretion in addition to the foregoing:
Impose any financial penalty on the Club; and
Decide that the Club will have its Senior Ceiling and/or Academy Ceiling (as appropriate) for the subsequent salary cap year reduced by an amount they deem appropriate.
The sanctions applicable in the event of a breach amounting to a "Failure to Co-Operate" are identified in Regulation 14.5. They are:
A warning as to future conduct;
A fine of up to £100,000; and/or
A deduction of up to 6 points, with the year of the application of that point deduction being prescribed. Essentially if a decision (including a challenge to the decision of the Disciplinary Panel) is reached before the final round of the Premiership season then the point deduction will have immediate effect, whilst if the decision is reached after the final round the point deduction will take effect in the following season.
Other notable aspects of the Regulations
A few other aspects of the Regulations are worth noting.
Firstly the Salary Cap Manager can serve a charge on a Club within 5 years of the end of the Salary Cap Year in which any breach arose10.
Therefore if there was a suspicion of breaches in the 2017-2018 season, the end of the Salary Cap Year was 30th June 2018 so a valid charge could still be laid at any time before 30th June 2023.
Secondly, the Regulations include a formal "Whistle Blowing" provision11 which provides that individuals are encouraged to approach the Salary Cap Manager with relevant information and that the identity of the whistle blower will not be disclosed, save with that whistle blowers’ prior approval.
Thirdly, the obligations on a Club are so extensive they extend to informing the Salary Cap Manager of “any potential loopholes, lacunae or errors in the Regulations”12 as well as any potential breaches they may become aware of.
However, it must be said that if a Club identifies a loophole and does not report it, there would appear to be a good argument it would not be a breach of the Regulations which fell into a category other than the residual category of "other breaches" resulting in a £100 fine (assuming that is the only breach), which commercially is likely to favour a decision to pursue and exploit the loophole.
Lastly, the Regulations include a formal "plea-bargaining" policy in respect of breaches of the Senior and/or Academy Ceiling and/or a "failure to co-operate"13. Sensibly, to save costs and in the interests of the sport as a whole, if identified criteria are met it may be possible if a Club wishes to admit its guilt to plea bargain, with the protection that an independent QC must approve any approved bargain (or recommend an alternative sanction).
I am unaware of any proven example of a breach of the Regulations in the English Premiership to date.
At the time I last wrote I referred to rumours of breaches by leading Clubs in the media. I note that in a subsequent pressrelease Premiership Rugby said:
“Over the last few months, there has been speculation, much of it significantly inaccurate, concerning investigations into Clubs. During that time, Premiership Rugby has not commented in view of the confidentiality obligations of the Regulations.
It is important to clarify that investigations into potential issues concerning Clubs’ annual spend happen regularly as part of the Certification and annual audit of each Club. The Salary Cap Manager addresses these issues with the Clubs as part of the ongoing work to support the operational management of the system. Confidentiality, therefore, remains appropriate and necessary.
Premiership Rugby can confirm that certain issues were pursued last season with some Clubs relating to access to information and to commercial contracts where there were differences of opinion as to the correct inclusion or not in the Salary Cap spend. The issues were not straightforward and were subject to differing legal opinion and consequent risk as to any judgment on the correct interpretation. Premiership Rugby and the Clubs have now resolved the issues identified and have entered into appropriate confidential settlements.
‘It’s important to stress that not only have there been no breaches but we regret that over the past six to nine months supporters have not had clarity during this time when it comes to certain issues being looked at on the Salary Cap’ said Premiership Rugby’s Chief Executive, Mark McCafferty.” 14
In my initial article I suggested, in answer to the rhetorical question of whether the Salary Cap was legal, perhaps somewhat glibly that until someone decides to the contrary the answer is yes.
I also commented, and remain of the view, that if a legal challenge is made the most important and fertile area for debate will be the level of the salary cap, as distinct from the principle of a salary cap itself and in this regard the increase in the Salary Cap to a base level of £7m, the ability of a Club to have two "excluded players" and the application of the various credits are all highly relevant, as are, in a completely different way, the very real financial concerns relating to Premiership Clubs, where some form of financial cost control has, I would suggest, to be a good thing in the context of increasing wages.
I note, in passing, that since my previous articles a further amendment to the Regulations has been to add, in Regulation 2.2, as an objective of the Regulations “enabling Clubs to compete in European Competitions.”
The European rugby competitions have now successfully been remodelled, but if the top English clubs cannot compete on that front because they perceive restrictions on funding prevent them from assembling the type of squads seen at the French powerhouses that may act as a catalyst for a challenge, as might the simple fact of a charge being laid against a Club alleging that it has breached the terms of the Regulations.
Furthermore the threat of players being tempted to France, whilst the salary cap remains at a higher level than in the English Premiership will remain15, albeit pragmatically tempered by the fact International players may face selection difficulties if moving to the Top 14.
The debate regarding the merits and demerits of Salary Cap’s generally will undoubtedly continue to rage. In the context of Rugby Union I remain of the view that the reasons for the introduction of the Regulations, identified on Premiership Rugby’s website and stated in the Regulations objectives section, remain valid and important arguments which justify the Salary Cap.
The superb level of competition year on year in the Premiership must owe something to the "level" playing field brought about by the Regulations, as distinct from allowing a few clubs to dominate.
Opponents of the cap will unquestionably argue that other sports manage without a salary cap. Against that I would suggest that not only does each and every sport have to be considered in isolation, but in any event the obvious comparator of football is hardly a good one. Financial Fair Play and limits on the numbers of players in a squad have the same effect as a Salary Cap. They simply achieve similar aims in a different way, which more comfortably co-locate with the administration of that sport.
The reality is that having regard to the fact salary caps are really only applicable to team sports, the other teams sports where there is no salary cap are historically sports where the level of finance is low.
The fact the Regulations are inherently restrictive mean they have the potential to hurt some individuals and clubs. Some players, who currently play in the English Premiership, will argue that they could earn more money if they were to play in France, but they wish to remain in England to ensure their selection possibilities for the national team remain open.
It may also be suggested that, despite wage inflation, the Salary Cap has a depressive effect on salaries overall, although realistically, given the way the Salary Cap is structured (such as providing for Excluded Players and thereby catering for the very best paid players), the difficulty in proving that an individual has actually lost out due to the Salary Cap and the cost to an individual of challenging the effect of the Cap relative to the anticipated gain, it is difficult to imagine any individual Player challenging either the principle or the level of the Salary Cap.
Clubs may argue that they are unduly restricted, as the Salary Cap prevents them from employing individuals they would otherwise seek to employ, although of course they have all agreed the current Regulations. Inherently however as the Regulations are Club facing, if a challenge to the legality of the Salary Cap is ever forthcoming it is most likely it will be from a Club and, most probably, it will be in the circumstance of that Club being alleged to have breached the Regulations.
Arguments as to the merits and legality of the cap aside, the foregoing paragraphs illustrate that the administration of the Salary Cap is a substantial undertaking, both for Premiership Rugby but also for the Clubs. The detail of the information that has to be regularly provided is substantial and invasive, although the rationale for its provision is clear. Equally the need for precision is clear given that in event of a breach the sanctions could be ruinous.
Furthermore, it is worth noting that pivotal to the operation of the Regulations is the Salary Cap Manager, who may well be one of the most important people in the English game. Yet I wonder how many people reading this know who he or she is?
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- Tags: Employment | Premiership Rugby | Premiership Rugby Salary Regulations 2018_19 | Regulation | Rugby Union | Salary Cap | United Kingdom (UK)
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