Introduction
After the interesting decisions handed down by the European Court of Justice (CJEU) last winter (the Superleague case – C-333/21, the International Skating Union case – C-124/21, and the Royal Antwerp Football Club case – C-680/21) on the sports regulations laid down by top sports governing bodies, the CJEU touched again on the field of sports in the recent Diarra case[1].
Background of the case
The pivotal point of litigation is the rule contained in the FIFA Regulations on the Status and Transfer of Players (FIFA RSTP) on the maintenance of contractual stability between professional players and clubs which regulate the conditions for termination of contracts between clubs and plyers.
Under the RSTP such contracts may be terminated without compensation or sporting sanctions only upon expiry of the term of contract, by mutual agreement, or where there is “just cause”. In the event of a player’s employment contract being terminated by the player without just cause, the party in breach shall pay compensation.
More specifically, as per article 17(1) and (2) of the RSTP applicable to the case:
“… the party in breach shall pay compensation. … unless otherwise provided for in the contract; compensation for the breach shall be calculated with due consideration for the law of the country concerned, the specificity of sport, and any other objective criteria. These criteria shall include, in particular, the remuneration and other benefits due to the player under the existing contract and/or the new contract, the time remaining on the existing contract up to a maximum of five years, the fees and expenses paid or incurred by the former club (amortized over the term of the contract) and whether the contractual breach falls within a protected period.
… If a professional is required to pay compensation, the professional and his new club shall be jointly and severally liable for its payment …”
Further, as per article 17(4) of the RSTP:
“In addition to the obligation to pay compensation, sporting sanctions shall be imposed on any club found to be in breach of contract or found to be inducing a breach of contract during the protected period. It shall be presumed, unless established to the contrary, that any club signing a professional who has terminated contract without just cause has induced that professional to commit a breach.”
Another FIFA RSTP rule allows the home federation not to issue an international transfer certificate (ITC) which is required for the transfer of a player between two clubs from different federations as long as there is an ongoing dispute between the player and their former club[2].
These rules were contested by the professional football player – French international and former Chelsea and Arsenal midfielder – Lassana Diarra. Diarra had signed a four-year contract with Russian club Lokomotiv Moscow back in 2013 but his contract was terminated by the club a year later for an alleged breach. Lokomotiv then applied to the FIFA Dispute Resolution Chamber for compensation. In April 2015, the player was ordered to pay €10 million by the FIFA Dispute Resolution Chamber due to breach of his contract without just cause. This decision was confirmed by the Court of Arbitration for Sport.
Diarra received an offer from Royal Charleroi Sporting Club in 2015 subject to the conditions that: (i) the player would be registered to play for Charleroi by 30 March 2015, which would require an issuance of an ITC by the Russian FA; and (ii) the Royal Belgian Football Association (“URBSFA”) and FIFA would expressly confirm that the club would not be held jointly and severally liable for any compensation. URBSFA and FIFA refused to provide a definitive answer.
Diarra sued FIFA and URBSFA in a Belgian court in Mons for damages and €6 million in loss of earnings, claiming that his move to Belgian club Charleroi was jeopardised because the latter was worried about having to pay compensation to Lokomotiv under FIFA rules.
The real purpose of such rules is to dissuade players from breaking their contracts and clubs from signing them, which allows players to be traded as “financial assets” between clubs.
The Belgian court then asked the CJEU for guidance and posed a preliminary question to the CJEU to determine whether articles 45 and 101 TFEU should be interpreted as precluding: “the principle that the player and the club wishing to employ him [or her] are jointly and severally liable in respect of the compensation due to the club whose contract with the player has been terminated without just cause, as stipulated in Article 17.2 of the RSTP, in conjunction with the sporting sanctions provided for in Article 17.4 of those regulations and the financial sanctions provided for in Article 17.1”; and “the ability of the association to which the player’s former club belongs not to deliver the [ITC] required if the player is to be employed by a new club, where there is a dispute between that former club and the player (Article 9.1 of the RSTP and Article 8.2.7 of Annexe 3 to the RSTP).”
In April 2024, Advocate General Szpunar issued the opinion that the FIFA rules amount to a clear (“by object”) restriction of competition. AG Szpunar concluded that “the FIFA rules governing contractual relations between players and clubs may prove to be contrary to the European rules on competition and freedom of movement of persons as they limit clubs’ ability to recruit players, necessarily affect competition between clubs on the market for the acquisition of professional players”, and proposed that the CJEU should hold that all the FIFA rules at issue, which in his view effectively prevented Diarra from finding a new employer, infringe the free movement of workers and constitute a restriction of competition by object, which cannot benefit from the exemption provided for in article 101.3 TFEU.
CJEU decision
In October 2024 the CJEU issued its long-awaited judgment in the Diarra case, the key findings of which can be summed up as follows.
- The rules of sports federations are generally subject to review under EU law (a finding which was made in several previous cases including the Superleague case[3]).
As per the CJEU, the RSTP have a direct impact not only on the work of players (ie, players’ professional economic activities) but also on the composition of teams for competitions (ie, the professional economic activities of clubs).
- Certain aspects of the FIFA RSTP are incompatible with article 45 TFEU guaranteeing freedom of movement
The court concluded that: (i) the rules for setting the amount of compensation owed by any player to their former club in the event of termination of an employment contract without just cause; (ii) the rule that any new club that signs such a player is jointly and severally liable for the payment of that compensation and (iii) the presumption of incitement to terminate the employment contract and the sanction of a ban on registering new players that are applicable to new clubs, have the effect of imposing on those clubs significant legal, financial, and sporting risks, which, taken together, are clearly to dissuade clubs from signing such players.
These rules further apply specifically in the event of cross-border movement of players, to the exclusion of any movement within a single state, and are thus likely to hinder the freedom of movement of workers.
Under the established case law, rules which hinder freedom of movement can be allowed, if it is established that their adoption pursues a legitimate objective of general interest compatible with that EU treaty and that they are proportionate, ie, that they are suitable for ensuring the achievement of that objective and do not go beyond what is necessary for that purpose.
Although the CJEU left the specific assessment of such exemption to the Belgian court which asked the preliminary question, it provided certain considerations.
As to the pursuit of a legitimate objective in the public interest, the CJEU stated that it is not apparent how the adoption or the implementation of the RSTP rules at issue might contribute to the protection of professional footballers and that maintaining a certain degree of stability in continuity in the players’ contracts, must be regarded not as constituting in itself a legitimate objective in the public interest, but as one of the means capable of contributing to the pursuit of a legitimate objective in the public interest, i.e., ensuring the regularity of football competitions.
As to the observance of the principle of proportionality, the CJEU notes that the compensation criteria set up by the RSTP appear to be intended more to protect the financial interests of clubs in the economic context specific to player transfers between them rather than to ensure the supposed smooth running of sporting competitions.
The CJEU also questions the rule which provides that, in addition to being jointly and severally liable for payment of such compensation, the new club is to be presumed, in the absence of proof to the contrary, to have induced that player to breach their contract without just cause and (where the player is signed during the protected period under the contract with their former club), the new club is for that reason to incur a sporting sanction consisting of a general ban on registering new players during two entire and consecutive registration periods.
As per the CJEU, such a sporting sanction, which the bodies competent to apply it do not have the power to adapt on a case-by-case basis according to specific criteria or circumstances, appears, in the light of its nature and its consequences, manifestly to bear no relation of proportionality to the breach attributed to the new club concerned.
The CJEU concludes that article 45 TFEU must be interpreted as precluding the above RSTP rules
unless it is established that those rules, as interpreted and applied on the territory of the European Union, do not go beyond what is necessary for the pursuit of the objective ensuring the regularity of interclub football competitions, while maintaining a certain degree of stability in the player rosters of the professional football clubs.
- Certain aspects of the FIFA RSTP are restrictions of competition by “object” and therefore incompatible with Article 101 TFEU
Although the CJEU held that sports associations are allowed to regulate, by means of common rules, the conditions for participation of clubs and players in competitions and ensure compliance with these rules by means of sanctions, it also held that such rule shall not restrict in a generalised and drastic manner the competition between professional football clubs established in different member States as regards the recruitment of players already engaged by a given club.
This is, however, the case of several RSTP rules, including the rule under which the new club is presumed to have incited the player to a breach of contract without just cause and therefore liable to a sporting sanction consisting of a general ban on registering new players (which also clearly appears to be devoid of any relationship of proportionality with the breach attributed to the new club concerned).
As per the CJEU, this rule ensures, in practice, that each club is certain, or virtually certain, that it will be able to keep its own players for as long as the contract or succession of contracts concluded with them has not reached its term or, before it does so, as long as it does not decide to part with them in the context of a termination accepted by the player or a negotiated transfer of the player to another club, in return for payment of a transfer fee by the latter club.
The CJEU also lacked proportionality in regards to the prohibition of the former association from issuing an ITC if the former club and the player have a contractual dispute linked to a lack of mutual agreement on premature termination of the employment contract, as it ignores the circumstances specific to each individual case.
A restriction on the ability of clubs to compete in recruiting the players was considered comparable to a general, absolute and permanent ban on the unilateral recruitment of a player already signed to another club. As per the CJEU, the rules correspond to non-poaching agreements between clubs which, in essence, result in artificially partitioning the national and local markets, to the benefit of all clubs. As such, they do not appear to be indispensable or necessary and constitute a clear restriction on competition.
The CJEU concludes that article 101 TFEU must be interpreted that the above RSTP rules constitute a decision by an association of undertakings which is prohibited by para 1 of that article and which cannot be exempted under para 3 of that article unless it is demonstrated, through convincing arguments and evidence, that all of the conditions required for that purpose are satisfied.
Impact of CJEU decision on FIFA, players, clubs (and their lawyers)
Although the CJEU judgment questioning FIFA’s current mechanism of enforcing player contracts via rules regarding registrations and the deterrent effect of the acquiring clubs being jointly and severally liable to pay compensation technically impacted only a very limited number of jurisdictions, it is unlikely that FIFA will set up a specific RSTP for EU member states only, as its long-term approach is to keep a coherent set of rules for the status and transfer of players across the entire football world.
From the players’ perspective, they will still be bound by their contracts with clubs and obliged to pay compensation in case of a breach. However, the rules under which such compensation shall be calculated will change as the CJEU specifically mentioned that current criteria such as the acquisition costs are not relevant, referring to the national law and legitimate aims of FIFA instead. On the other hand, the potential (financial) consequences of a breach will lie on the player only, as the joint liability (which in practice led to the payment of compensation to the former club by the new club) will be removed.
The players (and their agents and lawyers) will therefore need to assess the risks connected with a breach of contract more carefully.
For clubs, the fear of possible joint liability with the players in a dispute is over. On the other hand, depending on how FIFA will set up new rules for calculating the compensation, clubs may lose the players breaching the contracts without being fully indemnified for the acquisition costs incurred. This is probably why many commentators mention that the Diarra ruling will most likely change the balance of power between clubs and players in favour of the players, a trend which can be observed over the past few years. For the club lawyers, the ruling will probably lead to the necessity of including sophisticated compensation clauses in the players’ contracts.
It is interesting to note that the CJEU did not rule on sporting sanctions which will, from the perspectives of both the clubs and the players, still remain applicable for a breach of contract (for both parties).
In any case, FIFA now faces the very difficult task of finding a balance between maintaining contractual stability and the CJEU requirements on the RSTP rules governing unjustified breach of contracts which form a fundamental pillar of the entire football transfer system.
[1] Case C-650/22 – Lassana DIARRA/FIFPRO/UNFP v FIFA and URBSFA.
[2] Article 9(1) and Annex 3 of RSTP.
[3] C-333/21.
