04.12.2024
Background
The decision by the Court of Justice of the European Union (“CJEU”) in FIFA v. Lassana Diarra (C-650/22)- pronounced on 4 October 2024, sent shockwaves through the world of football. The said CJEU decision has blown the whistle on certain aspects of FIFA’s Regulations on the Status and Transfer of Players (“FIFA RSTP”), holding them to be incompatible with EU law, and accordingly, it is imperative to understand the ruling and its implications.
The roots of this legal battle trace back to 2013 when Lassana Diarra, a former French international midfielder, signed with Russian club Lokomotiv Moscow, with the employment relationship originally set to culminate in 2017. The relationship soured quickly, leading to a complex dispute that would ultimately challenge the core of the FIFA RSTP.
Chronological Timeline
24 August 2014: Lokomotiv Moscow terminated Diarra’s contract, citing alleged breaches. The club filed a claim before FIFA’s Dispute Resolution Chamber (“DRC”), demanding EUR 20 million in compensation. The player filed a counter-claim, disputing the termination and alleging that Lokomotiv had failed to pay him in full.
February 2015: Diarra was offered a new contract by the Belgian Club Charleroi; however, this was contingent on upon obtaining a guarantee from FIFA and the Royal Belgian Union of Football Associations (“URBSFA”) that they would not be jointly and severally liable for any termination fees owed by the Player to Lokomotiv Moscow. Insofar as neither FIFA nor URBSFA provided this assurance, Charleroi did not sign Diarra and the deal fell through. Furthermore, the Russian Football Union (Lokomotiv’s National Association) refused the release of the Player’s International Transfer Certificate (“ITC”), on account of the ongoing proceedings before the FIFA DRC, which it was entitled to do in accordance with the FIFA RSTP, in particular Article 9.1 and Article 8.2.7, Annexe 3.
18 May 2015: FIFA DRC ultimately ordered Diarra to pay EUR 10.5 million to Lokomotiv Moscow in compensation in accordance with Article 17 of the FIFA RSTP. Diarra appealed to the CAS but was unsuccessful.
July 2015: Diarra commenced a new employment relationship with the French Club Olympique de Marseille.
December 2015: Diarra sued FIFA and URBSFA before the Commercial Court of Hainaut (Charleroi Division, Wallonia Region), seeking EUR 6 million in compensation for lost earnings due to his enforced inactivity.
19 January 2017: The Belgian Court found FIFA’s interpretation of Article 17.2, as applied by the URBSFA, to be incorrect, as it violated the principle of free movement of workers under Article 45 of the Treaty on the Functioning of the European Union (“TFEU”). The Court labelled the provisions in question as “pre-Bosmanian” and ordered FIFA and URBSFA to pay the player EUR 6 million in damages.
19 September 2022: FIFA appealed the above-mentioned decision to the Mons Court of Appeal, which referred the case to the CJEU.
30 April 2024: The CJEU First Advocate General, Maciej Szpunar, pronounced his “Opinion”, deeming the disputed provisions of the FIFA RSTP to constitute a restriction on competition in accordance with EU Law.
4 October 2024: The decision was finally pronounced by the CJEU.
Disputed FIFA Regulations
In this case, the 2014 FIFA RSTP was analysed; however, the authors would like to underscore that these provisions, as delineated hereunder, are also included in the current applicable edition of the FIFA RSTP, i.e., October 2024 Edition.
In cases of early termination without just cause, Article 17.1 of the FIFA RSTP holds the breaching party liable for compensation, determined by several criteria. Additionally, Article 17.2 states that if a player is required to pay compensation, both the player and their new club will be jointly and severally liable.
Beyond financial compensation, sporting sanctions are also imposed on both the player and the club found in breach of contract during the “protected period”, which is three full seasons or three years, whichever is shorter, for contracts signed before the player turns 28, and two seasons or two years, whichever is shorter, for contracts signed after the player turns 28. The new club, if any, is presumed to have induced the player to terminate the contract. If a player breaches the contract during the protected period, they face a four-month ban from official matches, extendable to six months in cases of aggravating circumstances, according to Article 17.3 of the FIFA RSTP. For clubs, Article 17.4 imposes a ban on registering new players, both domestically and internationally, for two consecutive transfer windows.
Regarding player transfers, Article 9 of the 2014 FIFA RSTP mandated that players can only be registered with a new association once the previous association issues an ITC. According to Annexe 3, Article 8.7 of the 2014 RSTP, the former association may withhold the ITC if there is a contractual dispute between the club and player over the contract’s expiration or mutual agreement on early termination (Annexe 3, Article 11.3(b) of the October 2024 Ed. of the FIFA RSTP).
Issue
In relation to the abovementioned disputed provisions of the FIFA RSTP, the key issue which the CJEU essentially delved into was whether these provisions which form a key aspect of the transfer system, violate Articles 45 (Freedom of Movement for Workers) and 101 (Restriction of Competition) of the TFEU.
Judgment
The CJEU reaffirmed its stance from the recent Super League Case [C-333/21] emphasizing that the rules of sports federations generally fall under EU law, unless they address purely non-economic matters with relevance solely to the sport itself, such as rules about foreign players in national teams or selection criteria for individual competitions. In casu, the CJEU confirmed that the FIFA RSTP falls within the scope of Articles 45 and 101, TFEU, as it directly affects economic activities, in tune with the reasoning laid down in the recent decisions in International Skating Union Case [C-124/21 P] & Royal Antwerp Football Club Case [C-680/21].
The CJEU found certain FIFA transfer rules, particularly those concerning compensation and sporting sanctions, incompatible with guarantee of free movement embodied in Article 45, TFEU. It was categorically held that these rules deter clubs from making offers to players from other Member States due to legal and financial uncertainties, hindering cross-border player mobility. In fortiori, the presumption of a new club’s inducement of a contractual breach, combined with severe sanctions was deemed excessive and disproportionate.
The CJEU essentially opined that certain aspects of the FIFA RSTP, notably joint liability for compensation and automatic sporting sanctions, constitute a restriction of competition under Article 101, TFEU. While it acknowledged FIFA’s role in ensuring fair play and competition, the Court emphasized that the restrictive nature of the rules, which cover the entire EU and extend throughout the duration of player contracts, effectively amounts to a non-poaching agreement between clubs, artificially limiting cross-border competition and restricting clubs’ ability to recruit players unilaterally.
The court underscored that the “traditional mechanisms of contract law”, covering the right to seek compensation for breaches or third-party inducement, are sufficient to safeguard contractual stability and regulate the transfer system effectively. Moreover, it was observed that while sporting sanctions may be permissible, they must be proportionate to the offense. The presumption of misconduct via inducement by a player’s new club is now decisively rejected.
What Next?
The case will now return to Belgium’s Court of Appeal for a final decision, with guidance from the CJEU’s ruling. Although the national court is not bound by the CJEU’s preliminary ruling, it is unlikely they will deviate from it, given their request for clarification in the first place.
On 14 October 2024, FIFA’s Chief Legal and Compliance Officer, Mr. Emilio García Silvero explained FIFA’s position with respect to the Diarra ruling, emphasizing that FIFA has already initiated global dialogue for suitable changes to be made to the disputed provisions.
It is of immense importance to take note of a recent FIFA Correspondence dated 25 November 2024, by virtue of which FIFA seems to have suspended, effectively and immediately, all disciplinary measures involving the disputed provisions ruled to be in breach of EU law by the CJEU.
The correspondence has been doing the rounds over social media platforms, but it seems that it is not yet officially published on the FIFA Website. That is not to say that this is not ground-breaking – it seems abundantly clear that all disciplinary measures against players, coaches, and clubs, regarding Article 17, Article 17.2, and Annexe 2 Article 6 of the FIFA RSTP, stand suspended as of 25 November 2024.
Potential Implications for Stakeholders
For players, they will have to still respect contracts and will have to pay compensation in case of breach without just cause. However, one difference here is that the calculation of compensation in such cases will be different. Players will now bear the financial burden of compensation themselves. Article 17.2 previously offered players security by ensuring their new club would cover compensation costs, which will no longer be the case with the removal of presumed joint liability. Therefore, although one of the objectives of the CJEU’s decision was the protection of players’ right of freedom of movement, its effects might backfire on the players themselves as they will no longer be “safeguarded” by the new club’s joint liability and will be solely responsible for compensating their former clubs, the failure of which could lead to further disciplinary sanctions imposed on them.
It is crucial to note that national law is going to play a key role in determining these aspects going forward; albeit Article 17.1 already mentions the application of national law for the calculation of compensation, it is rarely applied in practice. Furthermore, it is expected that the criteria for calculation of compensation will be more detailed, specific and transparent, depending on the particular circumstances of each individual case.
Moreover, while the CJEU’s decision on ITCs is a step forward in enabling players to transfer despite ongoing disputes with their previous clubs, FIFA already facilitates provisional transfers in such scenarios to safeguard players’ right to employment. As a result, the practical effect of invalidating Article 9.1 of the FIFA RSTP may be less significant than anticipated.
For clubs, they must also respect contracts, and compensation will apply if they induce breaches. However, without presumed joint liability, clubs losing players through termination may struggle to recover compensation if players cannot pay, not to mention that unilateral recruitment of players and cases of “poaching” will get a push. It can be expected that clubs will develop new strategies in the transfer market as the risk of joint liability will be considerably reduced. Furthermore, it is likely that clubs will revise and amend their contractual clauses, providing more details on how compensation should be paid in case of termination of contract without just cause.
An overall decline in transfer fees from potentially increased unilateral terminations could significantly impact FIFA’s Solidarity Mechanism and the revenues of smaller clubs reliant on developing young players for future transfers to bigger clubs.
Last but not the least, it is crucial to highlight that while the FIFA RSTP primarily governs cases with an international dimension, and FIFA’s suspension correspondence explicitly references the CJEU’s Diarra ruling, the impact may seem confined to cases involving EU law. However, amendments to FIFA provisions may influence national regulations that are synonymous to the disputed provisions, through a trickle-down effect. The extent of these changes will depend on FIFA’s revisions and the mandates for member associations to align their rules, and time will tell how this pans out.
This judgment marks a potential shift in the bargaining power from clubs to players, pushing stakeholders to adapt to a transfer system that aligns more with individual freedoms under EU law, while maintaining the fundamental principles of competitive balance and contractual stability. It may also pave the way for future challenges to other elements of FIFA’s regulatory structure.
Authored By: Gabriel Eguinoa, Associate & Aakash Batra, Junior Associate at 14 Sports Law
Edited By: Tarun
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