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 landscape of football transfers 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.
In addition to the termination for breach of contract, Lokomotiv Moscow claimed €20 million in damages from the FIFA Dispute Resolution Chamber (FIFA DRC) under Article 17 of the FIFA Regulations on the Status and Transfer of Players (FIFA RSTP). Namely, this article stipulates that in the event of a player’s breach of contract, the following sanctions may be imposed on:
- the player himself: compensation and suspension; and
- the new employer-club: joint and several liability to pay the 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 incited 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 ordered him to pay €10.5 million in damages and 15 months’ suspension.
While the above-mentioned proceedings were pending, the player negotiated with several clubs, of which Belgium’s Sporting Charleroi was the most concrete. In the end, however, Charleroi also backed down out of 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 that reason too, the player’s transfer could not go through.
On 9 December 2015, the player challenged the CAS’ arbitration decision before the former Commercial Court of Hainaut, which ordered FIFA and KBVB to pay €6 million in compensation. FIFA appealed this judgment to the Mons Court of Appeal.
In the appeal before the Mons Court of Appeal, the player argued that the previous FIFA rules would be contrary to Articles 45 TFEU (free movement of workers) and 101 TFEU (prohibition of anti-competitive agreements or arrangements). 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
1. Contrary to free movement of workers (Article 45 TFEU)
The Court held that Articles 17 and 9 of the FIFA RSTP restrict the free movement of workers as understood in Article 45 TFEU. However, this infringement can be justified as long as it pursues a legitimate aim and does not go beyond what is necessary to achieve that legitimate aim.
In this regard, the Court partly vindicated FIFA by accepting that 1) the preservation of the contractual stability and stability of teams of professional football clubs and 2) the preservation of the integrity, regularity and smooth running of inter-club football competitions are legitimate objectives that could justify a restriction.
However, the Court found that the rules went beyond what was necessary and therefore decided that the provisions did constitute a restriction on the free movement of workers.
2. Contrary to European competition law (Article 101 TFEU)
Second, the Court examined whether the rules have the object of preventing, restricting or distorting competition (‘restriction by object’) or whether they have such an effect on European competition (‘restriction by effect’).
If such an examination shows that the rules have an anti-competitive object, it is not necessary 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 object should the effects be examined at a second stage.
The Court found that in today’s inter-professional football, players should be regarded as 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.
In fact, the non-issuance of the ITC as well as the risk of fines and transfer bans prevent clubs from contracting (free) players who have terminated their employment contracts with another club. Consequently, these rules effectively amount to non-poaching agreements between clubs that result in a general, absolute and permanent prohibition on the recruitment of players who are already registered with another club.
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 aim is to prevent competition.
Consequently, the Court did not need to examine the effects and possible justifications further.
The implications of the Judgment
1. The implications for football players
Henceforth, a player will be able to more easily terminate his/her employment contract with his/her 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. In Belgium, for example, 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 unlock extra budget at clubs and consequently allow players to obtain higher wages.
Finally, given the elimination of the joint and several liability of the new employer-club, the player will in principle be solely liable to pay the termination fee. In practice, this will probably be taken into account in salary negotiations with the new employer-club.
2. The implications for football clubs
Clubs will no longer run the risk of a transfer ban and will merely have to take into account the rather limited termination fees that players will have 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 so-called training leagues, such as Portugal, the Netherlands and Belgium, on the other hand, the ruling will be detrimental. This is because the business model of Belgian clubs, for example, consists of training or attracting young players at a low cost and then reselling them at a high profit to clubs from the big 5 top leagues. Because big foreign clubs can now acquire the 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.
3. The implications for legal practice
The Court’s judgment prohibits FIFA from still applying Article 17 of the FIFA RSTP within the European Union, which will represent a true power shift in favour of players and top European clubs.
The immediate and direct effect of the Court’s judgment will have significant implications for pending disputes in which clubs are claiming damages under Article 17 of the FIFA RSTP. However, aggrieved clubs might consider pursuing damage claims against FIFA in order to obtain compensation.
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 piece in the proceedings to reopen the debates.
For now, it is unclear to what extent the judgment will also have an impact outside the European Union. In any case, the CJEU 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.
