FIFPro – the world players’ union – wound up a 3 day meeting of its Strategy Committee and Board this week resolving to achieve complete and mutual respect for player contracts among many challenges facing professional football and its players throughout the world, including Australia.
The meeting was attended by Professional Footballers Australia (PFA) Chief Executive Brendan Schwab – who sits on the FIFPro Board as the players’ representative of Asia and Oceania.

Of great concern is the issue of contract security, with clubs in a number of countries failing to fully respect player contracts, both legally and financially.  On the flipside, players face uncertain yet substantial financial liabilities to their club should they unilaterally terminate their contract outside of the protected period and in the circumstances contemplated by the FIFA Regulations for the Status and Transfer of Players (RSTP).  And should a player breach his contract, he potentially faces a compensation bill which is much greater than had the breach been committed by the club.

The Problem of Contract Security

Schwab informed FIFPro that contract security is also a major concern in Australia.

“Respect for a player contract is not just about money, it goes to the good governance of the A-League and the competition’s ability to compete in the global labour market,” Schwab said.  “The sport needs to make a stand to protect all creditors of the game, not only players, and in so doing it will let players know that, whilst the A-League may not provide the highest remuneration in Asia, it provides a stable and professional opportunity in a nation that boasts an outstanding lifestyle and quality of play.”

In the 6 seasons of the A-League, players have lost their contracts or their entitlements due to changes in the ownership and legal structure of their club on 4 occasions – North Queensland Fury (2010), Newcastle Jets (2010), Adelaide United (2009) and New Zealand Knights (2007).  Additionally, the PFA is presently assisting players following the recent exclusion of the Fury from the A-League.

In 3 of the 4 instances, the clubs have continued to play in the A-League through a different legal entity free of the club’s debts and contractual obligations, despite having assumed the same status of the club in the eyes of the fans and the football authorities.

So far, the PFA has been unsuccessful in preserving player contracts and entitlements from the legal restructuring of clubs following a change of ownership, despite negotiating partial compensation payments for a number of the Fury players in 2010 and Knights players in 2007.

In 2010, the PFA, on behalf of former Fury marquee player, Robbie Fowler, and Central Coast Mariners defensive midfielder, Rostyn Griffiths, formerly with Adelaide United, launched legal proceedings before the National Dispute Resolution Chamber (NDRC) established by the A-League Collective Bargaining Agreement.  The legal action aimed to bind the new legal entity to the player contracts of the previous one, and asked the NDRC to follow the policy of the FIFA Dispute Resolution Chamber (DRC).

In one case, the FIFA DRC rejected a claim by a club that it was not bound to a player contract because it was a different legal entity following the restructuring of the club due to bankruptcy.  The FIFA DRC stated in that case, which describes the relevant football club as “Y”:

“− “Y” entered into bankruptcy proceedings shortly after the player left Y,
− Y2 has reinstated Y and taken the place of the latter in the national football competition,
− should Y2 be considered a completely different entity, which cannot be held liable for the actions of Y, it should normally have started its activities in the lowest division of the Y championship,
− therefore, Y2 and Y must be considered one and the same party in the present dispute…”

This approach – which defines the employer by reference simply to the football club as seen by the public – has been rejected by the NDRC in Australia.  In Rostyn Griffiths’ case, the NDRC adopted a starkly different policy:

“There are also good reasons why the governing authorities of the sport would not wish to make this assumption of player contractual obligations an automatic rule. Such a rule would have significant implications for purchasers of assets and licence transferees in circumstances, for example, where the selling entity was debt-laden and (Football Federation Australia) FFA seeking to install a new licence holder while maintaining the identity of an existing club within a region for the benefit of the competition and club fans.  One suspects that an automatic rule would be a significant disincentive to the process in situations such as these.” (Emphasis added)

The PFA’s appeal of this decision on behalf of Rostyn was jointly heard with Robbie’s case.  The NDRC simply found that the players were not parties to contracts with the currently licensed legal entity, and their claims lay with the previous entities, despite them being unable to meet their obligations to the players.  The PFA’s case for Fowler continues, with the PFA arguing in the alternative that FFA became Fowler’s direct employer when it took control of the club’s financial and management affairs.

The approach of the NDRC – fully advocated by FFA – shows scant regard for the interests of creditors, and is at odds with the regulatory scheme of leading football nations.  On one interpretation, it encourages the practice of “Phoenixing”, where a company trades itself into insolvency, only to restructure and re-emerge through another legal entity having avoided its obligations to its creditors including former employees.  By way of comparison, English football mandates the picking up of player contracts and entitlements, and imposes heavy sporting sanctions on a club which enters administration.  These sanctions – which start with the deduction of 10 competition points – are designed to penalise clubs that trade beyond their means.  Meeting obligations to creditors including players is also a central plank of the UEFA Financial Fair Play regulations established by UEFA President Michel Platini that will govern the licensing of clubs in UEFA competitions including the Champions League.

The Need for a Balanced Approach to Contract Termination

Also of relevance to Australian players – both at home and abroad – is the need to achieve a greater balance and certainty in the financial consequences of a contract being terminated.

It is an all too common situation in the world of football for a club to terminate a player contract without just cause.  The PFA conducts many cases for Australian players – especially those overseas – who are forced to seek compensation before the FIFA DRC because their contract was unlawfully terminated.  In most instances, this legal fight takes a number of years but, once successful, sees FIFA take strong action with the imposition of sporting sanctions such as the deduction of points and relegation if the DRC’s rulings are ignored.

Yet, the compensation payable depends greatly on whether the contract is terminated by the club or the player.  If the club wrongfully terminates the contract, the maximum compensation payable by the club is the residual value of the contract less any mitigation by the player.  If the player terminates – even outside the so called protected period and in the timeframe contemplated by the FIFA RSTP – the compensation payable by the player is both uncertain and nearly always much greater.  Under decisions of the Court of Arbitration for Sport (CAS) – which FIFPro believes fail to apply European law – the compensation can, in effect, be the transfer market value of the player, an amount much greater than the residual value of the contract.  FIFPro believes the only correct decision of the CAS on this point is the famous Webster case, which treated clubs and players equally.  However, the CAS has subsequently failed to follow its own decision in Webster.

Despite this uncertainty and its dramatic financial impact on players, FFA has sought to abolish the right of players to negotiate the value of their transfer into their A-League playing contracts and for their new club to be jointly and severally liable for that amount, as expressly provided for in the FIFA RSTP.

Schwab informed FIFPro of the PFA’s successful fight to preserve the right of a player to negotiate a “buyout” clause into his contract, despite FFA’s efforts.  Such a clause provides vital economic certainty to players who seek to plan their careers and strive to play at the highest level in world football.  By seeking to abolish them, FFA exposed players to the risk of substantial yet unquantified damages should they seek to exercise their legal right to terminate their contract.

“Much is made about the economic problems of the A-League at present,” Schwab said.

“The facts remain that Australian national team and A-League players together take home less than 30% of combined FFA and club revenue, an incredibly low percentage by world standards.  With the collectively bargained salary cap, FFA and the clubs can plan their businesses with the security that their major area of expenditure is tightly managed.

“It is therefore surprising and disappointing for FFA to seek to impose regulations that can have a dramatic and adverse economic impact on players, or for the risks of the poor trading performances of FFA or the clubs to be borne by players and other creditors.  This brings into question the very governance of the A-League and its ability to attract players to maximise the competition’s on-field quality, which is at an all time high,” Schwab added.