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Unilateral termination of the sports employment contract, according to FIFA regulations

Contracts between a professional player and a club should be fixed-term contracts. Therefore, a sports employment contract will end when the negotiated term expires, after which both parties are considered free of any contractual obligation. In this case, the player will be considered a ‘free agent’ and will be free to sign a new professional contract. 

However, the parties may decide to terminate their contractual relationship before the expiry of the contract term by mutual agreement. This is usually the case in transfers, i.e. when there is a tripartite agreement between the employing club, the player under contract and the club interested in acquiring the athlete's federative rights. It is common that, when such an agreement is reached and a player is transferred before the end of his contract, the new club pays a transfer fee to the transferring club.

Although the transfer scenario attracts a great deal of media interest, one of the most controversial legal issues revolves around what happens if the parties terminate the contract before the previously stipulated deadline and without mutual agreement. Therefore, this article aims to unravel the hypotheses and consequences of the unilateral termination of the sports employment contract from the perspective of the FIFA Regulations.

II. Termination for just cause

a. Concept of just cause

It is obvious to assume that sports employment contracts must be respected (‘pacta sunt servanda’), however, it is also necessary to remember another equally important principle: that contracts can be terminated prematurely with just cause. 

In such cases, the party alleging just cause can terminate the contract without any penalty.  On the contrary, in most cases of unilateral premature termination with just cause, the counterparty, in breach of contract, will be obliged to pay compensation and will be subject to sporting sanctions.

The FIFA Regulations on the Status and Transfer of Players (‘RETJ’ or ‘Regulations’) do not provide a definition or a definite list of what would generally be considered as just cause, so that each case must be assessed individually in light of the specific circumstances. For this reason, CAS case law started to refer to Swiss law principles to establish the concept of just cause. 

Thus, it has been understood that in order to assess the justification for unilateral termination of the contract for just cause, the following circumstances must be assessed: (i) whether there is a sufficiently serious breach of contractual obligations by one of the parties - and a breach is considered sufficiently serious when there are objective circumstances that make it unreasonable to expect the employment relationship between the parties to continue due to breach of trust; and (ii) whether the action for termination of the contract was used as a last resort.

b. Need for prior notice

Due to the understanding that termination should be used only as a last resort, it was established that a party can only invoke just cause to terminate an employment contract if it has previously warned the other party of its unacceptable conduct. In this regard, CAS noted that the requirement to give notice of default is intended to ensure that the defaulting party has the opportunity to perform its obligations (CAS 2016/A/4884 FC Ural Sverdlovsk v. Toto Tamuz).

In a 2010 CAS decision, throughout the term of the contract, a player repeatedly returned late to the club after periods of leave, whereby the club cited this behaviour as a reason to terminate the contract with just cause. However, the club had never challenged the player's habit of reporting late to the club. 

Therefore, CAS considered that the club was not entitled to terminate the contract with just cause because it had not previously complained about the player's behaviour and had therefore abruptly changed its position (CAS 2010/A/2049 Al Nasr Sports Club v. F. M.).

In other words, it must be shown that, prior to the decision to terminate for cause, less severe sanctions available to the club, such as warnings, fines, temporary suspensions, temporary relegations for the reserve team, were exhausted beforehand and were ineffective.

Only a breach of a certain gravity justifies termination of a contract without notice (CAS 2014/A/3684 Leandro da Silva v. Sport Lisboa e Benfica and CAS 2014/A/3693 Sport Lisboa e Benfica v. Leandro da Silva). In this regard, a 2014 CAS decision confirmed that the cancellation of a player's registration to participate in a national championship gives the player the right to unilaterally terminate his contract with just cause, without the need to send a notice of default to the club (CAS 2014/A/3643 Club Promotora del Pachuca de C.V. v. Facundo Gabriel Coria and FIFA).

c. Hypotheses of just cause

With regard to cases of just cause, the parties may decide to include in the contract a list of what they consider to be just cause for the early termination of their contractual relationship. However, FIFA and CAS may examine the specific circumstances of the case in question and conclude that the behaviour in question does not in fact constitute just cause, even if it is explicitly listed in the contract.

The limits of the validity of such clauses are exceeded when the stipulation becomes authoritative, i.e. the conditions under which a contract is terminated are unilaterally influenced by the party wishing to terminate the contract. 

In this regard, CAS confirmed that poor sporting performance cannot be considered a just cause for a club to unilaterally terminate, even if it is included in the contract signed between a professional player and his club as a hypothesis of just cause. This is because the concept of ‘underperformance’ is a subjective concept, and a clause authorising a club to terminate a contract for ‘continued underperformance’ would constitute an unacceptable disparity between the termination rights of the player and the club (CAS 2016/A/4846 Amazulu FC v. Jacob Nambandi and FIFA & National Soccer League).

The most common reason for a professional player to terminate a contract with a club for just cause is non-payment of wages. Due to the recurrent practice of clubs not making payments on time, FIFA introduced Article 14 bis of the RETJ in 2018 as a reaction to the persistent failure of clubs to meet their financial commitments.

The first requirement for triggering article 14 bis is that a club unlawfully fails to pay a player two monthly salary instalments or the proportional amount corresponding to two months' salary, in the case of contracts where the player's salary is not paid on a monthly basis. The non-payment of other remuneration, such as a bonus, can also be considered as a demonstration that the club's non-compliance was significant enough to justify an ultima ratio measure (DRC decision of 9 June 2022, Chindris).  It should be noted that, according to the principle of the burden of proof, it is up to the club to demonstrate that it has fulfilled its financial obligations towards a player.

In addition, as a general rule, the player must have given notice to the club, i.e. the club must have been informed of the breach of its contractual obligations and given a period of at least 15 days to fulfil them in full. However, the obligation to send a notice is not absolute, as there are circumstances in which such action is not necessary. For example, when it is clear that the other party does not intend to fulfil its contractual obligations or if termination without notice follows from a contractual clause (CAS 2017/A/5242 Esteghlal Football Club v. Pero Pejic; CAS 2017/A/5465 Békéscsaba 1912 Futball v. George Koroudjiev).

In addition to non-payment of wages, some of the hypotheses of just cause established by case law are the following:

1. absence of player registration: case law establishes that a player generally has just cause to terminate his contract when his registration is cancelled or the athlete is not registered to play for his clube in national championships (CAS 2018/A/5771 Al Warka FC v. Gaston Maximiliano Sangoy and FIFA/CAS 2018/A/5772 Gaston Maximiliano Sangoy v. Al Warka FC). 

Visa and work permit: As stated above, it is the responsibility of the club to obtain these documents in a timely manner. As a result, a player will generally be considered to have just cause to terminate his contract if the necessary licences are not available in a timely manner (DRC Decision of 18 May 2022, Jobe). 

Players who leave without permission or fail to return after the authorised leave: Before terminating a contract in these circumstances, the club must request the player's return to the club and set a reasonable deadline for compliance. If the player does not contact his employer for an extended period of time, the club may assume in good faith that the athlete is no longer interested in keeping his position (CAS 2016/A/4408 Raja Club Athletic de Casablanca v. Baniyas Football Sports Club & Ismail Benlamalem.). 

d. Abusive behaviour

Abusive conduct will also give the other party the right to terminate the contract for cause. Such conduct is intended to force the other party to terminate or modify the terms of the contract, so the burden of proof is on the party alleging the existence of abusive conduct. 

Some classic examples of abusive conduct include: (a) a club deciding to separate a player from the rest of the team or having the player train alone for an extended period of time, (b) a club restricting access to the time available for the player to use medical and physiotherapy services, and (c) sudden elimination of non-financial contractual benefits (e.g., accommodation and use of motor vehicles).

As regards the extent to which players have to train alone, it should be noted that, in principle, since football is a team sport, a player should train with his team (CAS 2011/A/2428, I. v. CJSC FC Krylia Sovetov). However, this decision may be justified on exceptional occasions: if a player needs to recover from an injury or needs to improve his fitness, for example. In a 2013 ruling, it was established that an exclusion from team training for more than one month would give the player the right to terminate his contract with just cause (CAS 2014/A/3643 Club Promotora del Pachuca de C.V. v. Facundo Gabriel Coria and FIFA).

The conduct of a player can also be qualified as abusive. An example is the situation of a player who refuses to train or participate in matches, presenting unfounded justifications for his behaviour.

Finally, it is worth noting that CAS has also recently pointed out that, depending on the circumstances, just cause may be the result of a situation to which both parties have contributed equally and therefore no payment will be required from either party (CAS 2020/A/7030 and 7051 Sporting Clube de Portugal v. Ruben Tiago Rodrigues Ribeiro & Al Ain FC & FIFA).

III. Termination without just cause or with just cause by the other party to the contract

a. Buy-out clauses

So-called ‘termination’ or ‘buy-out’ clauses give the player the right to terminate the contract prematurely in return for the payment of a predetermined stipulated amount. The agreed value is usually well above the market value of the player (CAS 2007/A/1358 FC Pyunik Yerevan v. L., AFC Rapid Bucharesti and FIFA). 

In these clauses, the parties do not establish an amount of compensation to be paid for a breach, but agree in advance on the terms of a ‘mutual termination’. Therefore, a unilateral termination without just cause through a termination clause cannot trigger financial or sporting sanctions, as it does not constitute a breach of contract. 

Therefore, one of the parties can terminate the contract by simply notifying the other party and paying it the previously stipulated amount (CAS 2013/A/3411 Al Gharafa & Bresciano v. Al Nasr & FIFA). In other words, the party who opts to terminate a contract early - normally the player - ‘buys his way out of the contract’ and is thus making use of a contractual right and does not need a reason to exercise it.

However, the possibility of inserting such a clause in sports employment contracts is not foreseen in the legislation of all countries. Thus, it is worth noting the national legislation of two countries, Spain and Brazil, which allow this type of agreement.

In the Spanish legal system, the sole paragraph of Article 16 of Royal Decree 1006/1985 provides that the player may terminate the employment contract of his own free will upon payment of compensation to the employing club:

‘Article 16. Effects of the termination of the contract by the athlete's will.

One.-The termination of the contract by the professional sportsperson, without a cause attributable to the club, will entitle the latter, where appropriate, to compensation which, in the absence of an agreement in this respect, will be made by the Labour Jurisdiction according to the circumstances of the sporting order, the damage caused to the entity, the causes of the breach and the elements that the judge considers to be considered (...)‘ (...)’.

Although the player is responsible for paying the compensation to the club, in practice, it is common for the club interested in acquiring the athlete's federative rights to assume the financial burden of this payment. Thus, if the player is interested in signing a contract with a new club willing to pay the amount of the compensation, the interested club transfers the amount set out in the contract to the athlete so that the player pays the employer club and is thus contractually free to sign with his new club. 

For this reason, as laid down in Article 16 and CAS case law, the club to which the player is transferred after unilateral termination on the basis of a termination clause has subsidiary liability for the payment of the amount of compensation due to the former employer. 

In the case of Spanish elite clubs, the amount of the compensation must be paid to La Liga, which, upon receipt of the corresponding amount, will proceed to the cancellation of the player's registration with his former club.

Although similar to the Spanish legislation, the Brazilian legislation has its own characteristics. Article 86 of the General Sports Law provides for the payment of the sports indemnity clause, if the player is transferred to another club during the term of the contract:

‘Article 86. The professional sportsperson may maintain an employment relationship with an organisation dedicated to the practice of sport, with remuneration agreed in a special sports employment contract in writing, for a fixed term, the duration of which may not be less than 3 (three) months nor more than 5 (five) years, signed with the respective sports organisation, which must include:  Compulsory:

I - Sports indemnity clause, due exclusively to the employing sports organisation to which the Athlete is linked, in the following cases:

(a) transfer of the athlete to another organisation, national or foreign, during the term of the special sports employment contract;

b) the Athlete's return to professional activities in another sports organisation within 30 (thirty) months; (...)’.

As has been pointed out, the aforementioned compensation clause must be compulsorily provided for in employment contracts and has different limitations in the case of national transfers - a maximum limit of 2,000 (two thousand) times the average value of the player's contractual salary - and international transfers, for which there is no value limit. 

However, the major distinction between the Brazilian and Spanish legislation is that, unlike article 16 of the Royal Decree 1006/1985, § 2 of article 86 of the General Law on Sport establishes that the new club and the player are jointly and severally liable for the payment of the sports compensation clause. 

Therefore, if a club is willing to pay the indemnity clause of a player under contract, it can pay directly to the employing club, without the need to pass the amount on to the athlete, as in Spain.

The DRC has recently clarified that, in case of breach of contract, the termination clause will not be treated as a liquidated damages clause by analogy and cannot be applied to the calculation of the compensation due for breach of contract (DRC decision of 8 December 2022, Reyes Ureña).

This is because the liquidated damages clause has a different legal nature, not being a contractual right, but rather a previously stipulated indemnity for the breach of the same by one of the parties. In other words, the parties agree to estimate in advance the damages that may arise if the contract is prematurely terminated.

b. Liquidated damages clauses

In the event that one of the parties terminates a contract without cause or seriously breaches its contractual obligations to such an extent that the other party, club or player, has just cause to terminate the contract, the defaulting party must pay compensation. In this case, the first element to be considered in the light of Article 17 (1) of the EULA is whether there are contractual clauses that stipulate in advance the amount to be paid by the party in breach of contract.

A clause stipulating a predefined amount of compensation payable in case of unilateral, premature and unlawful termination is called a liquidated damages clause (CAS 2017/A/5242 Esteghlal Football Club v. Pero Pejic; CAS 2016/A/4826 Nilmar Honorato da Silva v. El Jaish FC and FIFA).

The principles of reciprocity and proportionality play an important role in relation to liquidated damages clauses. If the amount stipulated in the contract appears disproportionate, particularly when compared to the player's contractual remuneration, CAS generally decides that the compensation payable can be adjusted to a reasonable and appropriate level. 

In an illustrative case of lack of reciprocity, the CAS was asked to assess a clause according to which the club would be entitled to the full value of the contract in case of a player's breach of contract, whereas, if the club breached the contract, the player would only be entitled to the remainder of his salary for the current season, which is why the clause was adjusted (CAS 2016/A/4605 Al-Arabi Sports Club Co. for Football v. Matthew Spiranovic).

On the other hand, as a general rule, any clause stipulating that the compensation payable shall correspond to the remaining value of the contract should generally be considered proportionate (CAS 2015/A/3999 & 4000 Diego de Souza v. Al Ittihad; CAS 2018/A/6017 FC Lugano SA v. FC Internazionale Milano S.p.A).

In some countries, it is a legal requirement that a liquidated damages clause is included in contracts between professional players and clubs. It is possible to cite again the Brazilian legislation, given that article 86 of subsection II and article 90 of the General Law of Sport provide that the sports compensatory clause, due by the club against the player in case of contractual violation, must be included in the sports employment contract.

It should also be noted that, in addition to establishing the compulsory nature of the compensatory clause, Brazilian legislation establishes a limit value, 400 (four hundred) times the value of the player's monthly salary, and a minimum value, the total monthly salaries to which the athlete would be entitled until the end of the contract, which must be observed during the negotiation process.

c. Compensation for breach of contract

The FIFA Football Tribunal follows the understanding that there is no obligation to apply the law of the country of the parties involved, in order to ensure equal treatment of all parties involved in a dispute before international bodies and to ensure legal certainty in the application of the Regulations due to the diversity of national laws.

Therefore, in case the parties have not incorporated any specific provision on the compensation due in case of early termination of the contract, the compensation for breach of contract will be calculated on the basis of Article 17 of the EUTR.

The Regulation provides that compensation for termination of a contract without cause must also be calculated taking into account ‘any other objective criteria’ and provides a list of such objective criteria. CAS case law has confirmed that this list is not exhaustive and that other objective factors, such as the loss of a potential transfer fee and the cost of replacing a player, may be taken into account, provided that there is a causal link between the breach and the claimed loss (CAS 2019/A/6463 and 6464 Saman Ghoddos v. SD Huesca & Östersunds FC & Amiens Amiens). SD Huesca & Östersunds FC & Amiens Sporting Club & FIFA, Östersunds FK Elitfotboll AB v. SD Huesca & FIFA & Saman Ghoddos & Amiens Sporting Club).

In order to define the compensation due in case of breach of contract, the CAS has referred to the principle of positive interest, which aims at placing the injured party in the situation he would have been in had the breach of contract not occurred (CAS 2020/A/6770 Sabah Football Association v. Igor Cerina, CAS 2020/A/7231 Nejmeh Club v. Issaka Abudu Diarra.). Where the injured party is a player, this generally means compensating the athlete with the amount corresponding to what he would have earned until the normal end of the term of the terminated contract.

However, the application of this principle is more complex when calculating the compensation to be paid by players to clubs, as there may be additional financial elements to be taken into account when assessing the compensation due to a club in case of breach of contract. This makes the calculation of the compensation to clubs relatively more ‘case-dependent’.

d. Compensation due by the player to the club

The DRC assumes that the residual value of the contract is a reliable basis for establishing the economic value of the player's services to the club. However, it is understood that, if the player has signed with a new club after the termination, the remuneration agreed in the new contract is likely to better reflect the current value attributed to the player's services than the terminated contract. Thus, on the basis of these two objective criteria, DRC assesses the economic value of the player's services at the time when the contract is terminated prematurely. 

This line was established by the ‘Matuzalem’ case, where the CAS held that both the remuneration due under the terms of the terminated contract and the remuneration set out in the player's new contract should be taken into account when assessing the amount of compensation due. 

It was argued that the latter contract could provide an indication not only of the value the new club attributed to the player’s services, but also of the market value of its services. Still, the residual value of the prematurely terminated contract was also taken into account, as it was considered an expense saved by the player’s club. The residual value of the terminated contract was therefore deducted from the compensation awarded to the club.

Although this method has been used repeatedly, the CAS has stressed that each case should be treated on its own merits. (CAS 2017/A/4935 FC Shakhtar Donetsk v. Olexander Vladimir Zinchenko, FC Ufa and FIFA) and that each panel will be free to find the appropriate method for the circumstances in question, always applying Article 17 of the CLRA.

Therefore, in principle, the compensation to be paid by the player to his former club will be calculated on the basis of the remuneration due to the player under his previous contract and his new contract during the remaining period of the contract which was prematurely terminated, but the specific circumstances of the case may require a different methodology to be applied.

e. Compensation due by the club to the player

In cases where the club violates the employment contract, resulting in premature termination, It is first necessary to verify whether there is a clause for the settlement of damages provided for in the contract or whether there is a collective agreement negotiated between the employer and employee representatives which sets out the financial compensation to be paid. If no provision is made for the compensation to be paid, the amount shall be determined in accordance with article 17 of the EJPR.

According to the DRC case law, when a player cannot find a new job after the early termination of his previous contract, the player is entitled to compensation equal to the residual value of the contract that was terminated prematurely (Decision of the DRC of 6 December 2018, No. 12180908-ES). When a player is able to find new employment after default and premature termination of his previous contract, the compensation due to the player should be calculated on the basis of the residual value of the contract that was terminated early, less the value of any new contract for the period during which the terminated contract would have been in effect. This procedure is known as "mitigated compensation" and aims to avoid unjust enrichment of the athlete and calculation of fair compensation for damages caused by the club. Finally, there may be special circumstances that cause the DRC to decide to impose an "additional compensation" up to a maximum of six (monthly) salary payments. This occurs when there is damage that exceeds only the economic aspect, such as cases where the athlete is deprived of his passport by the club or was forced to train only for a relevant period of time, resulting in moral or sporting damages.

Conclusion

The concept of just cause, while an important tool in addressing serious contractual violations, is subject to a high degree of judicial discretion, The establishment or otherwise of a valid just cause will depend directly on factors such as the gravity of the breach according to international court case law, the evidence presented and the existence of sanctions prior to breach of contract.

Also, the use of termination and damages clauses offers some flexibility for clubs and players to negotiate unilateral termination scenarios, but they have limitations, depending on each country’s national law, and a completely different legal nature, since the first is a contractual right and does not give rise to penalties, the second provides for financial compensation in case of breach of contract.

Finally, in the absence of explicit contractual clauses, the calculation of compensation for breach of contract is based on a case-by-case analysis guided by article 17 of the CLRA. Although the FIFA Rules provide a general framework for these calculations, ultimately there is considerable discretion for evaluation bodies to use as a basis for the calculation, inter alia, the remaining value of the contract not fulfilled and the wages agreed upon in any new contract signed by the player after termination.