The COVID-19 pandemic has caused mayhem in the world of sport. An earthquake hit when top leagues suspended competitions or cut them short. Then the tensions only kept rising as one major tournament after another was cancelled. The climax was reached when the Tokyo Olympic Games had to be postponed. As a result, the industry has incurred multi-billion-dollar losses. And it is uncertain when the situation can be expected to improve.
Sports lawyers around the world are now racking their brains over the effects of this crisis on player contracts. These contracts are normally concluded for one or more seasons. Are clubs allowed to demand renegotiation and adjustments of player contracts or to terminate them because the season was suspended or cut short? Or did the contracts expire automatically, by operation of law, because they became impossible to perform?
In sport, answering these questions will be particularly interesting because of the inherently universal and autonomous character of sport and sports law.
Frustration of contracts and the fair distribution of risks
The laws in different countries apply various doctrines to situations where because of external, unforeseen circumstances for which neither of the parties is responsible, a contract becomes impossible to perform, or only possible to perform in a very different way than originally contemplated by the parties. In common-law countries this is dealt with by the doctrine of “frustration,” whereas in civil-law jurisdictions, concepts such as rebus sic stantibus (extraordinary change in circumstances) and impossibility of performance due to force majeure may apply.
The overall goal of these doctrines is the same worldwide: to mitigate the rigour of the law’s insistence on literal performance of promises, when extraordinary circumstances make it unconscionable. The aim is to distribute fairly the impact of the frustrating fortuitous event on the parties’ contractual relationship. But fair distribution sometimes means that this impact must be shouldered exclusively or predominantly by one of the parties.
The principle behind this is universally valid: risks go hand-in-hand with rewards. The bigger the party’s command over and entitlement to possible benefits of the economic activity governed by the contract, the more that party should bear the associated risks and shield the other party from them, and the more strictly it should be held to its promises to the other party even when fortuitous events negatively impact the contract and the utility of the other party’s performance.
That is why in most jurisdictions concepts of impossibility of performance, rebus sic stantibus or frustration either cannot be invoked or are particularly difficult for an employer to rely on against an employee without some sort of failure or fault on the employee’s part. Even when this is allowed, the employer cannot merely allege that the employee’s performance became impossible or futile for reasons beyond the parties’ control, but must also prove that reasonable remedial adjustments could not be made. The employee is generally entitled to the promised pay as long as he or she remains ready to perform, regardless of whether performance would be of any commercial utility to the employer under the circumstances. Even when the employee’s performance becomes superfluous for the employer due to a fortuitous event, the employer can only terminate the contract in accordance with its terms.
This is not a welfare-state exception to the principle of freedom of contract, but a recognition of the very essence of the parties’ contractual bargain, a simple ramification of the fact that the employee receives wages while the employer pursues profits. In fortuitous beneficial circumstances, the employer’s profits surge but the employee’s wages remain the same. This should also hold in the opposite conditions. An employee agrees to “cap” his or her share in the wealth generated by his or her work, in exchange for financial stability for the duration of the contract. Depriving an employee of this protection would violate his or her human right to just and favourable conditions of work or, indeed, his or her property rights stemming from the contract, as it would repudiate the very economic sense of the parties’ agreement (the right to peaceful enjoyment of possessions).
Fair distribution of risks in player contracts
In the world of sport, the clarity of the employer/employee relationship is somewhat blurred. Some players are global celebrities and individual economic superpowers. They can negotiate on par with major clubs and the most powerful leagues and federations, and cash in profits comparable to those of listed companies. These players are not only able to shoulder pay cuts from clubs, but are also showing social responsibility akin to that of big corporations, donating millions to the fight against the pandemic and its consequences.
The situation of the vast majority of professional players, however, is akin to that of employees, especially in less-developed sports markets and worse-governed disciplines. These players’ individual bargaining positions towards the clubs and federations are weak, and they earn just enough from their work to support themselves and their families. The answer to the question whether clubs can invoke frustration or impossibility of performance against such players in the current circumstances, and with what effect, must reflect this analogy.
The right to share fairly in the economic activity and wealth which players help to generate, recognised in Art. 7 of the Universal Declaration of Player Rights, also means the right to be protected, at least for the duration of the contract, against undue economic risks and industry losses in the event of a recession. This should be true at least in the case of players whose situation is indeed most akin to that of typical employees. Sports law is perfectly capable of fulfilling this, given its autonomy and the significance played in it by the principle of fair play and equity.
The danger in less-developed sports markets
Unfortunately, the conduct of clubs and federations in many countries flies in the face of these principles, especially in countries where sport is not particularly well governed.
With a few noble exceptions, clubs in those countries are using the situation to shift the economic burden of the pandemic onto the players. Contracts are terminated without compensation. Players are forced to accept disproportionate and arbitrary pay cuts or acquiesce to termination without compensation by threats not to pay wages that were due long before the pandemic. Players’ representative organisations are excluded from the discussions of regulatory measures needed to respond to the pandemic and its aftermath. To make the situation even more fraught, those measures, decided without players’ involvement or due regard for their rights, are often adopted with explicit or tacit support of the state and might ultimately have the effect of protecting the state and state-owned companies, which are the main sponsors of sport in less-developed sports markets.
It remains to be seen if these sponsors withdraw or limit their support and whether the clubs have the independence and sufficiently binding contracts in place to pick fights with the sponsors, which are often national-champion enterprises and the apple of the government’s eye. Unfortunately, it is possible that if it comes to that, to survive, the clubs will rather shift the economic burden of the situation onto the weakest stakeholders by depriving players of their pay.
Players who are better off will pursue claims. But the great majority of them cannot afford to, either for financial reasons or for fear of retaliation. Ultimately, therefore, they will pay the price. There are various reasons for this.
First, in most disciplines players must pursue claims against clubs in mandatory arbitration. The sports arbitration courts often operate under the auspices of national sports federations, which are essentially associations of clubs (i.e. employers). This creates at least a perceived problem with their independence. Furthermore, arbitration means costs. Even where players do not have to pay arbitration fees, they are not normally entitled to legal aid when pursuing claims for unpaid wages in arbitration. They also face the prospect of adverse costs. On top of that, arbitration is a private procedure and does not normally allow claimants to pursue class or representative actions, which could decrease the individual cost and increase the players’ protection against retaliation.
Even where players can pursue claims in the state courts, their legal status in those countries is vague, and they are often deprived of procedural benefits and protections normally available to employees or even to the self-employed (e.g. exemption from court fees or at least a reduction, the right to be represented by an NGO, etc).
And players can rarely count on non-judicial recourse in countries with less-developed sports markets. In those countries, governments are often closely intertwined with the federations and are not always eager to intervene on behalf of players against clubs or federations. Even intergovernmental human rights agencies in developed countries which have had booming sports markets, such as the Swiss National Contact Point for the OECD Guidelines for Multinational Enterprises, may not consider ensuring the right of players in less-developed sports markets to just and favourable conditions of work to be an important-enough issue.
In many countries the impact of the pandemic on the sports sector will be channelled to those who most deserve to be protected from it: the lowest-paid players.
How the sports justice system responds to this problem will determine the future of sports law and player rights. It may well settle the question whether sport will be able to bounce back and be an engine for sustainable economic growth after the pandemic, or will be a source of social injustice and a new wave of cases in the European Court of Human Rights.
Stanisław Drozd, adwokat, Sports Law practice, Dispute Resolution & Arbitration practice, Wardyński & Partners