With the judgment of 4 October 2024, the Court of Justice put an end to the "unbreakable" nature of player contracts and the financial and sporting sanctions that FIFA attached to breaking them. This landmark ruling will undoubtedly have a major impact on the transfer landscape as we know it today.
The facts
On 20 August 2013, French football player Lassana Diarra moved from one Russian football club Anzhi Makhachkala to another Russian club Lokomotiv Moscow for a transfer fee of 20 million euros. The player signed a four-year contract with Lokomotiv Moscow.
After the player refused a pay cut and was also absent from training several times, Lokomotiv Moscow considered the employment contract formally terminated due to the player's alleged breach of contract.
Besides the termination for breach of contract, Lokomotiv Moscow claimed €20 million in damages from the FIFA Dispute Resolution Chamber (FIFA DRC), this under Article 17 of the FIFA Regulations on the Status and Transfer of Players (FIFA RSTP). Indeed, this article stipulates that in the case of a player's breach of contract, the following sanctions can be imposed on:
- the player itself: compensation and suspension; and
- the new employer-club: joint and several liability to pay compensation imposed on the player and a transfer ban.
Moreover, there was even a presumption (albeit rebuttable) under which the new employer-club is presumed to have induced the player to commit the breach of contract.
Both the FIFA DRC at first instance and the Court of Arbitration for Sport (CAS) on appeal ruled against the player and sentenced him to €10.5 million in damages and 15 months' suspension.
While the above procedure was pending, the player negotiated with several clubs, of which Belgium's Sporting Charleroi was the most concrete. In the end, however, Charleroi also shied away for fear of possible financial and sporting sanctions from FIFA.
Finally, due to the pending proceedings between the player and Lokomotiv Moscow, the Russian federation also refused to release the International Transfer Certificate (ITC). Until such ITC is issued, the federation of the new club simply cannot even register the player under Article 9 of the FIFA RSTP. For this reason too, the player's transfer could not go ahead.
The player challenged the CAS arbitration decision on 9 December 2015 before the then Hainaut Commercial Court, which ordered FIFA and KBVB to pay €6 million. FIFA appealed this verdict to the Mons Court of Appeal.
In the appeal proceedings before the Bergen Court of Appeal, the player argued that the previous FIFA rules would violate Articles 45 TFEU (free movement of workers) and 101 TFEU (prohibition of cartels and anti-competitive behaviour). In doing so, he explained that a footballer, like any other worker in the European Union, should be able to resign without risking financial and/or sporting sanctions himself or his new employer. The appeal court then referred a preliminary question to the Court of Justice, which has now been answered.
Court of Justice judgment (C-650/22) of 4 October 2024
- Contrary to free movement of workers (Article 45 TFEU)
The Court found that Articles 17 and 9 of the FIFA RSTP do impede the free movement of workers as understood in Article 45 TFEU. However, this interference can be justified as long as it pursues a legitimate aim and does not go beyond what is necessary to achieve that legitimate aim.
The Court partly vindicated FIFA on this issue, accepting that 1) maintaining the contractual stability and stability of teams of professional football clubs and 2) maintaining the integrity, regularity and smooth running of inter-club football competitions are legitimate objectives that could justify a restriction.
However, the court ruled that the rules went beyond what was necessary and therefore decided that the provisions did violate the free movement of workers.
- Contrary to European competition law (Article 101 TFEU)
Second, the Court examined whether the rules have the aim of preventing, restricting or distorting competition ("restriction by object"), or that they have such consequences ("restriction by effect").
If investigations show that the rules have an anti-competitive purpose, there is no need to examine their effects on competition and they constitute a violation of European competition law in any case. Only if it cannot be assumed that the provisions have such an anticompetitive purpose should the effects be examined at a second stage.
The court noted that in today's inter-professional football, players should be considered essential "resources" and it is necessary for clubs to be able to attract such essential resources in order to compete. However, because FIFA imposes such heavy penalties on players who unilaterally break their contracts and on the new employer-club, a contract in football is virtually "unbreakable" and access to such essential resources is completely foreclosed.
Indeed, the failure to issue the ITC as well as the risk of fines and transfer bans prevent clubs from signing (free) players who have terminated their employment contracts with another club. Consequently, these rules effectively amount to non-poaching agreements between clubs resulting in a general, absolute and permanent ban on recruitment of already enrolled players.
The Court concludes that the FIFA rules are, by their very nature, highly detrimental to European competition by denying clubs access to the resources essential to their success, namely top-level players. In those circumstances, those rules must be regarded as a restriction by object because their purpose is to prevent competition.
Consequently, the court did not need to further examine the consequences and possible justifications.
The implications of the ruling
- Consequences for players
Henceforth, a player will be able to more easily terminate his employment contract with his old club to join another club as a free agent, without either of them risking financial or sporting sanctions.
However, a player will still have to respect applicable national labour laws when terminating his/her employment contract. Thus, in Belgium, they will still be obliged to pay a (limited) termination fee in accordance with the Belgian Employment Contracts Act of 3 July 1978. However, this amount will be many times lower than the transfer fees paid by clubs before the Court's ruling, which will free up extra budget at clubs and consequently allow players to obtain higher wages.
Finally, given the elimination of the new employer-club's joint and several liability, the player will in principle be liable to pay the termination fee alone. In practice, this will probably be taken into account in salary negotiations with the new employer-club.
- Impact on clubs
Clubs will no longer run the risk of a transfer ban and will merely have to take into account the previously limited termination fees that players will be liable to pay upon termination of their employment contracts. In this sense, the ruling may put an end to the sky-high transfer fees as we knew them until today.
Mainly top European clubs will benefit from the Court's ruling. For clubs from the so-called training leagues, such as Portugal, the Netherlands and Belgium, on the other hand, the ruling is a bad thing. This is because the business model of the Belgian clubs, for example, is to train or attract young players cheaply and then sell them on to clubs from the big 5-top competitions. Because big foreign clubs can now acquire young talents more easily and for much less money, Belgian clubs will see their economic model lost and be even less able to compete with top European clubs.
- Implications for legal practice
The ECJ ruling prohibits FIFA from applying Article 17 of the FIFA RSTP any more within the European Union, which will represent a real power shift in favour of players and top European clubs.
The immediate effect of the Court's judgment will have significant implications for pending disputes in which clubs claim damages under Article 17 of the FIFA RSTP. However, aggrieved clubs might consider pursuing compensation claims against FIFA.
As for pending disputes that were already under consideration by the competent court, the court's judgment of 4 October 2024 could be used by the parties as a new document to reopen the debates.
For now, it is unclear to what extent the ruling will have an impact outside the European Union. In any case, the Court of Justice forces FIFA to quickly sit around the drawing board to thoroughly reform the current transfer system for all member leagues.
If you have any questions regarding this judgment or its application to your current and future agreements or disputes, VSAdvocaten will be happy to assist you.
