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Validity of Unilateral Extension Clauses

Updated: Nov 6

*Written by Deokinandan Sharma.







Introduction


Unilateral Extension Clauses (UECs) in player contracts are clauses which exclusively give either the player or the club an extension option for a certain period irrespective of there being a mutual agreement between both parties on that extension. Such an intriguing clause often brings up the issue of there being the legality of such clauses before the Court of Arbitration for Sports (CAS) as the same seems to challenge the foundational pillars of contract and mutual consent. The usage of these clauses has often been done by club officials solely in favour of gaining an undue advantage which seems to put the future and growth of the player in the dark. There has been a substantial rise in the use of these clauses after the ruling of the European Court of Justice in the Jean-Marc Bosman case[1] as there has been a void left in the regulations and rules involving the transfer of players which are put forth by the Federation Internationale de Football Association (FIFA). The usage of this clause has met with certain backlash as substantiated by the jurisprudence available through CAS and FIFA DRC judgements, though the general disputability of these clauses in different regions of the world still supports clubs to use these clauses giving them an undue advantage. Thus, this article would delve into the legal jurisprudence available on this subject, as there exist no regulations by FIFA. Further, the article would attempt to consider the legality of these clauses in various regions as the CAS considers the legality of UECs through the circumstances of the case. An overview of this subject would help in understanding the enforceability of UECs and the article would conclude with suggestions that could be incorporated by FIFA to eradicate the usage of these clauses.

Jean-Bosman Case[2]


The case that brought forth the birth of the concept of UECs was the ruling of the Court of Justice in the Bosman case. The court ruled that the payment of the training compensation by the club for a player who had ceased his contractual relationship with the former club, would not be authorised for the payment of transfer compensation. The Bosman lawsuit put an end to the then very contentious Regulation on the Transfer of Players, compelled FIFA to reconstruct its transfer regulations and line them with EU law, and finally led to the seizure of numerous unconstitutional transfer restrictions on footballers. In spite of the fact that legal certainty on UECs has not yet been obtained, FIFA through its regulations has chosen to remain mute on the topic rather than request a regulatory response. The Bosman case triggered the clubs to use clauses which would prevent the players to leave their clubs for free at the end of their contracts. [3] This undue advantage that the clubs undertake remains unchecked as the FIFA Regulations do not have any provisions which regulate or prohibit this practice and therefore their validity most often remains unchecked unless the FIFA Dispute Resolution Chamber (DRC) or the CAS assume judicial activism.

What is the Problem with UEC?


The very reason the use of UECs is controversial is that it is always in favour of the football club. In an industry which uses a ‘normal’ employment law context, it becomes difficult to fathom the fact that one party would have an undue advantage in a contractual relationship. Moreover, the investments that a football club makes in the training of a player and the factor that affect their market value makes the relationship between the club and the player unique to the extent that the players are considered intangible assets of the club. [4] Subsequently, the validity and enforceability of the UECs differ from one jurisdiction to the other. Since there lacks a definitive legal precedent or jurisprudence on this subject from CAS or FIFA RSTP what the judiciary bodies rely upon is the national law on contractual relations. The subsequent result was that there was a differing opinion from every state. For example, the usage of UECs might be allowed under the European Union because not much has changed between the ruling of the European Court from the Bosman ruling[5] to the Bernard Ruling[6]. Consequently, when we look at the available jurisprudence from Germany it can be noted that the validity of UECs is still a question. [7] Thus, the differences between one jurisdiction to another make it tough to get an answer on the validity of UECs from the lens of the international level.

Lastly, when it comes to the subject of the legal validity of UECs, CAS does not keep itself bound to prior jurisprudence, i.e., the principle of stare decisis and there has been evolving judicial activism with this respect to this principle as the disputes are determined on a case-to-case basis (the same has been outlined below). It is also pertinent to note that the CAS uses the Swiss Code to fill the lacuna that has been present in the FIFA RSTP as opposed to the law of contracts. [8]

What Jurisprudence do the judicial bodies use?


At the outset of the 21st century, the FIFA DRC faced numerous cases and in the midst of the chaos of the FIFA Director, Legal of Legal Services in 2007 requested a legal opinion from Professor Wolfgang Portman which came in the form of a report that became a precedent which has been subsequently used by the CAS and DRC.[9] However, it is pertinent to note that this report is not a strictly binding measure of checks and balances which is to be used by the judicial bodies. It is rather an indicative report to check the validity of a unilateral clause. The first use of this report came into perspective when CAS was faced with the dispute of the application of UEC in the Bueno, Rodriguez case. [10] In this case the UEC stated that the club had the option to extend the contract of the player for two years without any increase in the salary. Furthermore, if the player refused to sign the new contract, then the player would still be bound by contractual obligation, but the club would not pay his salary. The players signed for the club Paris Saint Germain as free agents after which the club Peñarol filed for compensation for the breach of contract before the DRC. The DRC ruled in favour of the players and being aggrieved by the same the club filed an application in the CAS. Placed reliance on the Portman criteria and stated that even though the UEC met with the criteria, denying the player salary on an instance of refusal was against the Swiss law and thus, upheld the DRC hearing. The Panel also noted that the Uruguayan system was inconsistent with Swiss labour law. Subsequently, in the Apollon Kalamarias FC case[11], the CAS noted that since the club only had 5 days of notice before extending the contract this gave the club an unfair and unequal bargaining power and all advantages arising from the UEC were towards the club as the clause did not include enhancement of player’s salary. The CAS held that such clauses that give the club an undue advantage are invalid.

An interesting case at hand was the Sotirios Kyrgiakos case[12], herein the club had agreed to increase the wages of the player and the bonuses as well, which meant that neither player nor the club had unequal bargaining power. However, the player considered the UEC invalid and joined a different club. The CAS held that by doing so the player escaped his obligation and that his actions were malafide, thus violating the principle of “pacta sunt servanda[13] while the UEC was held valid. The Portmann criteria were denied the application in the Club Atletico Boca Juniors case[14], and the CAS ruled that a person may not be required to perform a contract against their will. It is however pertinent to note that such an interesting turn of events occurred in a case where a minor player was involved. Two new pointers were added to the Portman criteria in the Maxi Lopez case[15], wherein the UEC was rather a promise, and it was ruled that even if it is a promise but does not give unequal bargaining power to any party it would be a valid clause. The two pointers that were added to the Portmann criteria were that the extension period should be proportional to the main contract and that the number of UECs should be limited to one. Lastly, in the Ascoli Calcio 1898 SPA case[16], wherein the CAS ruled that while considering any case of UEC two questions should be answered. The first question should be whether the total duration of the contractual relationship is reasonable and secondly, whether ensuring the terms and conditions of the employment are fair and reflect the rights of the player. Only if the two questions are answered in the affirmative then can the tribunal rule the UEC to be valid. [17]

Conclusion


It needs to be noted that while considering the applicability of UECs the CAS and relevant tribunals have considered the Portmann criteria even though it is not the determinative criteria but have used it as a rule of caution. It is also pertinent to note that for matters which are international in nature the CAS or relevant tribunal uses Swiss law so that there is a uniform and coherent worldwide character to ensure equality of treatment between all the addresses of such regulations. [18] However, given the uncertainty hovering around the subject of UECs, it has been an interesting stride taken by FIFA it has to date failed to produce any governing statute or notification on this subject. Even though there have been existing precedents wherein the Panels have used the Portmann criteria and the same should be considered by FIFA in either completely accepting UECs under strict parameters or rejecting them altogether. However, in the opinion of the author more often than in the cases referred to above the UECs have been used by the clubs to take unfair advantage or get an unfair bargaining power in the contractual relationship. What needs to be considered, as seen by the precedents above mentioned, is that even though cases involving UECs are done so on a case-by-case basis the panels should thoroughly check whether the unfair bargaining power given to the clubs prejudices the rights of the players or not. If the above is answered in the affirmative, then the UEC should be held invalid. The author lastly, also suggests that FIFA in collaboration with FIFPro should make amendments like has been done in the 2022 version[19], it should also call upon important stakeholders and put an end to the grey area that has been created by the precedents and absence of laws.












*The author is a law scholar from Jindal Global Law School, OP Jindal Global University, India.














(The image used here is for representative purposes only)








References:

[1] Union Royale Belge des Sociétés de Football Association ASBL v Jean-Marc Bosman (1995) C-415/93.

[2] Ibid n. 1.

[3] F. de Weger, The Jurisprudence of the FIFA Dispute Resolution Chamber, Asser Press, 2016, p. 164.

[4] UEFA Club Licensing and Financial Fair Play Regulations (2015 Edition), which, at ANNEX VI (B)(ix), includes players as intangible assets among the assets that need to be disclosed for balance sheet requirements and, at ANNEX VII (C)(1), sets out the minimum accounting requirement “for player registrations carried out as intangible fixed assets as set out in Articles 47, 48 and 52”.

[5] Ibid n. 1.

[6] Olympique Lyonnais SASP vs Olivier Bernard, Newcastle United FC (2010), C-325/08.

[7] The Validity of Unilateral Extension Options in Football – Part 1: A European Legal Mess. By Saverio Spera, Asser International Sports Law, available at: https://www.asser.nl/SportsLaw/Blog/post/the-validity-of-unilateral-extension-options-in-football-part-1-a-european-legal-mess-by-saverio-spera#_ftn5

[8] Felipe Amaral Pestana on “The Validity of Unilateral Extension Clause in favour of the Football Club”, available at: https://www.economistjurist.es/breaking/sportslaw-the-validity-of-a-unilateral-extension-clause-in-favour-of-the-football-club/#_ftn8

[9] PORTMANN, Wolfgang, Unilateral Option Clauses in footballers’ contracts of employment: An Assessment from the perspective of International Sports Arbitration, Sweet & Maxwell International Sports Law Review 2007, p. 6-16.

[10] TAS 2005/A/983, TAS 2005/A/984: Club Atlético Peñarol c. Carlos Heber Bueno Suarez, Cristian Rodriguez Barrotti & Paris Saint-Germain; Applicable law: FIFA Regulations and Swiss Law subsidiarily.

[11] CAS 2004/A/678 Apollon Kalamarias F.C. v. Davidson Oliveira Morais.

[12] Arbitration CAS 2005/A/973 Panathinaikos Football Club v. Sotirios Kyrgiakos.

[13] Ibid n. 12, Para 28.

[14] CAS 2006/A/1157 Club Atlético Boca Juniors v. Genoa Cricket and Football Club S.p.A.

[15] CAS 2013/A/3260 Grêmio Foot-ball Porto Alegrense v. Maximiliano Gastón López.

[16] CAS 2014/A/3852 Ascoli Calcio 1898 S.p.A v. Papa Waigo N’diaye & Al Wahda Sports and Cultural Club.

[17]Unilateral Extension Options in Football Contracts: Are They Valid & Enforceable?”, by Tiran Gunawardena, available at https://www.lawinsport.com/topics/item/unilateral-extension-options-in-football-contracts-are-they-valid-and-enforceable

[18] Ibid n. 10, Para 45.

[19] Regulation on the Status and Transfer of Players, March 2022 Edition, available at: https://digitalhub.fifa.com/m/1b47c74a7d44a9b5/original/Regulations-on-the-Status-and-Transfer-of-Players-March-2022.pdf