The DIARRA CASE: What does the judgement of de Court of Justice of the EU entail and what are the (possible) consequences of it for the (European) football world?

Introduction

On 4 October 2024, the Court of Justice of the European Union (EU) handed down a judgment in the long-running case between FIFA (accompanied by the Belgian Football Association (RBFA) and the Belgian professional club Sporting Charleroi) as plaintiff(s) on the one hand and the professional player Lassana Diarra as the defendant on the other.

The central question was whether the European legal rules intended to promote the free movement of workers (Articles 45 and 101 of the Treaty on the Functioning of the European Union (TFEU)) preclude the application by FIFA, the national associations and the clubs, of the provisions contained in Article 17 of the FIFA Regulations on the Status and Transfer of Players (RSTP),  which provisions oblige a player and a new employer (club) jointly and severally to pay compensation (referred to in football as a “transfer fee”) to an old employer (club) if the player unilaterally terminates his employment contract with the old club.

This article 17 of the RSTP actually forms the legal ground on the basis of which the current transfer fees between clubs are now generally negotiated and whereby the public is often amazed every transfer window by the transfer fees of tens of millions of euros that are agreed and settled between clubs for the transfer of a player from club A to club B.  But apart from that, and this is what this judgment is mainly about, the examples of players who are blocked by their employer because Club A is of the opinion that Club B didn’t offer a sufficient transfer fee for the transfer of the player. This whole game of supply and demand between clubs is often unpredictable and opaque. The Court of Justice of the EU now also has an opinion on this.

In the judgment, the Court of Justice ruled that this Article 17 of the RSTP is contrary to the aforementioned European legal rules that are intended to promote the free movement of workers. But what’s next?

This article will firstly explain what exactly was going on in this case between the parties, which ultimately led to this judgment. Subsequently, the (possible) consequences of this judgement for the football world will be discussed.

The Diarra case, what are the facts?

On 20 August 2013, Lassana Diarra (born 10 March 1985) transferred from Russian football club Anzhi Makhachkala to the other Russian club Lokomotiv Moscow. In addition, a transfer fee was paid by Lokomotiv Moscow to Anzhi Makhachkala. The player signed a four-year contract with Lokomotiv Moscow.

After the player refused a pay cut at Lokomotiv Moscow and was also absent from training several times in that context, Lokomotiv Moscow formally considered the employment contract to be terminated by the player’s alleged breach of contract.

In addition to this termination due to breach of contract that left Diarra with a claim for unpaid wages, Lokomotiv Moscow also claimed damages of EUR 20 million from the player before the FIFA Dispute Resolution Chamber (FIFA DRC). This on the basis of Article 17 RSTP, paragraph 1. This article stipulates that in the event of a player’s breach of contract, the following sanctions may be imposed:

• To the player: financial compensation and suspension, and
• To the player’s new club: joint and several liability for the payment of the financial compensation imposed on the player and a transfer ban (Article 17 RSTP, paragraphs 2 and 4).

In addition, there is a presumption of proof laid down in paragraph 4 on the basis of which the new club is presumed to have incited the player to commit the breach of contract, unless the new club proves otherwise.

While Diarra was fighting before FIFA DRC over the contract he had signed with Lokomotiv Moscow on 20 August 2013 and the EUR 20 million in damages claimed from him, Mr Diarra started looking for a new club.

However, according to Diarra, that search was seriously hampered by the risk that the new club would run of being ordered jointly and severally with him to pay any compensation due to Lokomotiv Moscow, on the basis of Article 17(2) of the RSTP.

Mr Diarra stated that, although several clubs were interested in him, he had only received one offer, namely that of Sporting Charleroi, which sent him a letter of appointment on 19 February 2015 containing two cumulative conditions precedent:

• By 30 March 2015 at the latest, Diarra should be regularly registered with Sporting Charleroi and be considered eligible to play in the first team in all official competitions organised by RBFA, UEFA and FIFA, and;
• Within the same period, it would be necessary to obtain written and unconditional confirmation that Sporting Charleroi could not be held jointly and severally liable for the payment of any damages (in particular those resulting from the termination of the contract) that Diarra might be liable to Lokomotiv Moscow.

By letters of 20 February and 5 March 2015, the respective legal counsels for Diarra and Sporting Charleroi asked both FIFA and RBFA to confirm that Diarra could be registered in accordance with the regulations and regarded as eligible to play in the first team of Sporting Charleroi and that Articles 17.2 and 17.4 of the RSTP would not be applied to Sporting Charleroi.

By letter of 23 February 2015, FIFA replied that only its decision-making body, and not its governing body, had the power to apply the provisions of the RSTP. RBFA, for its part, announced on 6 March 2015 that, in accordance with FIFA rules, Diarra  could not be registered until his former club Lokomotiv Moscow had issued an International Transfer Certificate (ITC). The Russian Federation refused to hand over the ITC to a new club/federation pending the dispute between the player and the club. With that, the transfer to Sporting Charleroi was off the table for Diarra.

By decision of 18 May 2015, FIFA DRC upheld Lokomotiv Moscow’s claim in part by setting the amount of damages payable by Diarra at EUR 10.5 million. FIFA DRC also decided that Article 17.2 of the RSTP would not be applied in the future in respect of Diarra.

That decision was upheld by the Court of Arbitration for Sports (CAS) on 27 May 2016, following an appeal by Diarra. Meanwhile, on 24 July 2015, Diarra had signed a contract with the club Olympique Marseille in France.

On 9 December 2015, Diarra brought an action against FIFA and RBFA before the tribunal de commerce du Hainaut (Commercial Court, Hainaut, Belgium), Charleroi division, seeking compensation for the damage in the form of a loss of revenue of EUR 6 million which he claimed to have suffered as a result of the error committed by those associations in applying the abovementioned provisions of Article 17 of the RSTP,  which, according to the player, are contrary to European Union law. Diarra held FIFA and RBFA liable for the damage suffered by him under Article 1382 of the Belgian Civil Code, which provides that ‘any act of a human being which causes damage to another person … the person through fault of the person responsible for the damage shall be obliged to make good it’.

By judgment of 19 January 2017, that court upheld, in principle, Diarra’s action and ordered FIFA and RBFA to pay Diarra a provisional sum (that is to say, an advance) of EUR 60.001,-.

FIFA appealed against that judgment to the Court of appeal de Mons, Belgium. RBFA also sought to have that judgment set aside.  In the appeal proceedings, the player argued that the previous FIFA rules as included in Article 17 of the RSTP would be in breach of Articles 45 TFEU (free movement of workers) and 101 TFEU (prohibition of cartels and anti-competitive behaviour). In doing so, Diarra explained that a footballer, like any other worker in the European Union, must be able to resign without running the risk of financial and/or sporting sanctions, either for himself or his new employer.

The appeal court found that it was not in a position to assess, in the current state of the case law of the Court of Justice of the EU, whether the relevant provisions in Article 17 of the RSTP are in line with EU law and then referred two preliminary questions to the Court of Justice as of 19 September 2022. Those two questions were worded as follows:

Are Articles 45 and 101 TFEU to be interpreted as precluding:

1. the principle that the player and the new club wishing to recruit him are jointly and severally liable for the payment of the compensation due to the club with which the contract was terminated without just cause, as provided for in Article 17.2 of FIFA’s RSTP, together with the sporting and financial penalties which may be imposed under Article 17.4 and Article 17.1 of those rules respectively?  and;
2. the possibility for the association to which the player’s former club is affiliated not to issue the International Transfer Certificate (ITC) required for the recruitment of the player by a new club in the event of a dispute between that former club and the player (Article 9.1 of FIFA RSTP and Article 8.2.7 of Annex 3 to those regulations)?

These two questions have now been answered in the judgment of the Court of Justice of 4 October 2024. The two answers are as follows:

Answer 1.
Article 45 TFEU (freedom of movement for workers) must be interpreted as precluding legislation adopted by an association governed by private law (FIFA) which is intended, inter alia, to regulate, organize and control football at global level, and which provides:

• first , that a professional player who is a party to a contract of employment and who is alleged to have terminated that contract without due cause, and the new club which recruits him after that termination, are jointly and severally liable for the payment of compensation due to the previous club for which that player worked, which must be determined on the basis of criteria which are sometimes imprecise or discretionary,  sometimes have no objective link with the employment relationship in question and are sometimes disproportionate;
• secondly, that if the professional player is hired during a protected period (the so-called “protected period” as provided for in the RSTP) under the employment contract that has been terminated, the new club will incur a sporting sanction consisting of a ban on registering new players for a certain period, unless the club can prove that it did not induce the player to terminate that contract,  and
• thirdly, that the existence of a dispute relating to that breach of contract prevents the national football association of which the former club is a member from issuing the International Transfer Certificate (ITC) necessary for the player to register with the new club, so that the player cannot participate in football competitions for the new club, unless it is established that those rules, as interpreted and applied in the territory of the European Union, do not go beyond what is necessary to achieve the objective of ensuring the regularity of interclub football competitions by maintaining a certain stability in membership of professional football clubs.

Answer 2.
Article 101 TFEU (prohibition of cartels and anti-competitive conduct) must be interpreted as meaning that such legislation (whereby football associations may therefore decide not to issue an ITC to the new association, thereby depriving the player of the opportunity to work for the new club under the new association) constitutes a decision to form an association of undertakings prohibited by Article 101(1) TFEU and which is intended to be used only for the purposes of An exemption under paragraph 3 of this Article may be granted if it is demonstrated by convincing arguments and evidence that all the conditions laid down for that purpose are met.

On the basis of these answers, the court of appeal in Mons must now rule on the action brought by Diarra there. In that sense, the case is still being prosecuted in Belgium and the claim(s) must be definitively decided.

The (possible) consequences of the Diarra judgment for the world of football

The Diarra Judgment (2024) is not a repetition of the Bosman Judgment (1995)

In the first place, it is also relevant to point out that this was a fundamentally different issue, and therefore a fundamentally different legal question, from that which arose in the Bosman judgment of 15 December 1995.

In the case of Diarra, it concerns the compensation to be paid to a club following the  unilateral termination of a contract without just cause and the joint and several liability of the new club for the payment of that compensation.

The Bosman case concerned the transfer, training or promotion fee which would be payable on the expiry of the contract which the player in question bound to a club. Prior to the Bosman judgment, you could not leave a club “on a free transfer” as of the end date of your contract, but then players could as of the end date. That led to the term “free transfer”. So if a player – for example – is at the end of his contract period on 30 June 2025, he will be “transfer-free” as of that date. That is what the Bosman judgment has done. As a general rule, therefore, following that judgment, clubs concluded employment contracts with players for a longer period than before, in order to prevent a player from having that transfer-free status.

Following the Diarra judgment, the question now arises as to what termination or transfer conditions FIFA can impose after a contract has been terminated unilaterally by the player without justifiable reason, and the new club hires him after that termination.

In any event, it is common ground that, according to the Court of Justice, Article 17 of the RSTP, which provides that the player and the new club are jointly and severally liable for the payment of a fee due to the previous club for which that player worked, ‘is a fee determined on the basis of criteria which are sometimes imprecise or discretionary,  and sometimes have no objective link with the employment relationship in question and are sometimes disproportionate‘, does not fall within the scope of European Union law. But what now?

Which termination or transfer conditions would not be contrary to EU law after the judgment?

First of all, this decision of the Court only applies to interim termination of employment contracts of players within the EU. It remains to be seen, for example, how the UK, which includes the financially and politically very powerful Premier League, and the rest of the countries/football associations outside the EU will deal with this ruling, but they are not formally  bound by it, as long as FIFA does not prescribe other mandatory rules that apply worldwide. However, experience shows that FIFA also made an adjustment to the worldwide transfer system in the past – after the Bosman case – so it is expected that this will also happen now.

Secondly, the parties can of course always arrange the conditions of departure in the event of an early termination in a contract  in advance with a so-called termination arrangement/transfer clause that is included in the employment contract.

Even at the time of the (intended) termination itself, parties who have not arranged it in advance in the contract with each other can continue to agree on the transfer conditions with the player/the new club at that time. After all, in the vast majority of cases, this is already the case today. The clubs and the player negotiate with each other about the termination or transfer conditions and the new club pays this compensation on behalf of the player, being the so-called “transfer fee”. This is also expressed in the last sentence of Article 17(2) of the RSTP and is therefore in itself an excellent provision that can be maintained:

‘The amount may be contractually agreed or agreed between the parties‘.

The fact is that the provision in Article 17(1) of the RSTP that supported the determination of the amount of the transfer fees in the current form as we know it today, on the basis of the Diarra judgment of the Court of Justice, may no longer form the basis for the amount of the compensation. It states:

‘Where a contract is terminated without just cause, the following provisions shall apply:

1. In all cases, the party who has terminated the contract is obliged to pay damages. Without prejudice to the provisions relating to training allowances set out in Article 20 and Annex 4, and unless otherwise provided for in the contract, the calculation of compensation for breach of contract shall take into account the law in force in the country concerned, the specific nature of the sport and other objective criteria. Those criteria include, inter alia, the player’s salary and other benefits under the current and/or new contract, the remaining duration of the contract, up to a maximum of five years, the fees paid and the costs incurred by the old club (amortised over the term of the contract), and whether the contract has been terminated within the protected period.”

According to the Court of Justice, it is precisely these criteria, which I have indicated in bold above, that are ‘imprecise or discretionary, and sometimes have no objective connection with the employment relationship in question and are sometimes disproportionate‘.

In addition, the Court has ruled that the possible sanctions for players in the event of unilateral early termination, such as suspensions, transfer bans and, for the new clubs, transfer bans, are also in conflict with EU law. This means that players and new clubs no longer have to fear these (sporting) sanctions in the event of a unilateral interim termination – if the parties have not (agreed) with each other about the transfer conditions.

Players and clubs must therefore seek to in the first instance national labour legislation in the field of early unilateral termination of fixed-term employment contracts or a so-called collective agreement provided for in Article 152 TFEU.  However, a severance payment that a player has to pay to his employer on the basis of national labour law is normally a fraction of the damages/transfer fees that currently had to be paid by a player/new club to the previous employer on the basis of the current Article 17 RSTP – and thus the current transfer system.

It is therefore expected that the amount of the transfer fees (read: the severance pay that the player – or at least the new club on behalf of the player – will (have to) pay to the employer) will in principle (have to) decrease, which will in principle make it easier for players to change employers. This judgment can therefore also have (positive) consequences for players with a current – or possibly even a previous – conflict with the employer about a departure, because it is not excluded that a player who is/is prevented from leaving, on the basis of Article 17 RSTP/on the basis of unreasonable transfer conditions, can successfully – just like Diarra – file a claim for damages against his (former) employer and/or FIFA/the national association.

If FIFA will be able to come up with criteria that, contrary to the Court’s findings, are precise, non-discretionary, and completely objective in relation to the employment relationship, then a new Article 17 of the RSTP will be able to stand the test of EU law. This could include a provision that is in line with most national EU laws and/or a collective EU-agreement (article 152 TFEU). A provision that looks in particular at the residual value and the remaining duration of the employment contract. For example, a player with one year left on his contract and an annual salary of EUR 1 million could be bought out for the same (transfer) amount of EUR 1 million, with it being conceivable that a certain objective multiplier would be added to this amount, based on things such as age or position.

The consequence of this for clubs will be that a player who earns EUR 50,000,– per year cannot/may no longer be transferred for millions of euros. Clubs can therefore count on (significantly) lower income from transfer fees, and that will certainly be the case for the “educational countries” such as the Netherlands, Portugal, Belgium and the Scandinavian countries, which will lead to the consequence that the financial gap with the larger leagues – which was somewhat levelled by transfer income – will probably become even bigger financially.

The top leagues can continue to ask relatively high buyout fees in the future with their high player salaries, which they can probably continue to pay through TV fees and other (sponsor) income, (after all, a player who earns EUR 7 million and still has two (2) years of contract still costs EUR 14 million in this theoretical example), while the clubs from the smaller leagues that pay EUR 100,000,– wages for a player, in that example can ask for a maximum of EUR 200,000,– transfer fee. At first glance, the differences between small leagues and large leagues seem to be widening and that does not seem to be in the interest of football in general, which benefits from a broad qualitative basis for competition.

The ruling could also potentially put pressure on the salaries of the players – especially in smaller leagues – now that the smaller clubs – which are supposedly largely dependent on annual transfer income – will see this transfer income drop significantly. That has to be absorbed somewhere in the budget by those clubs, and the most obvious item is the salary costs.

Conclusion

With the Diarra judgment, the Court of Justice of the EU has once again set the football world, or at least FIFA/UEFA – just as it did after the Bosman judgment in 1995 – to work on precise, objectively determinable and less disproportionate provisions, which – in line with EU law – facilitate and clarify the changing of employers for players.

Although it is not yet immediately clear which provisions FIFA should/will come up with for this – hopefully in good consultation with (social) partners within football – it is to be expected that more alignment will be sought with national legislation in EU countries or a collective agreement as stipulated in Article 152 TFEU.  in the event of unilateral termination of a fixed-term employment relationship by an employee.

Complications for FIFA are:

• the different legal systems in the EU itself, but also in the continents beyond, for those countries that are in principle not even bound by EU law at all – and therefore not by the judgment – and;
• the major economic impact that this mandatory change will potentially have on football clubs (and therefore also on players);

We will of course continue to keep a close eye on the developments in the coming period, and of course also await the outcome of the continuation of the Diarra case in Belgium, but that things (must) change in the world of football, that is certain.

If you, as a player, intermediary or BVO, have questions related to this judgment or to other developments in football/in your (former) employment relationship, don’t hesitate to contact:
Mr. Joes Blakborn: attorney-at-law, specialist in sports law and employment law at Van Diepen van der Kroef Advocaten www.vandiepen.com; [email protected]; +31 (0)20 574 74 74

October 2024