First published in the Irish Independent on Saturday 12 September 2020.
The world of soccer was set alight in recent weeks as Lionel Messi, widely recognised as one of the greatest footballers of all time, showed an intention to end his contract with FC Barcelona (Barcelona) prematurely. Messi joined Barcelona at age 13, soon to become Barcelona’s all-time top scorer and one of the world’s highest-paid athletes of all time.
Messi is bound by a staggering €700m release clause, commonly referred to as a “buy-out clause”, in his four-year contract extension with Barcelona, signed in 2017. However, a “free transfer” clause in Messi’s contract may have enabled him to transfer to a new club in the current transfer window, without triggering the multi-million clause.
Although Messi has since confirmed that he will be staying with Barcelona, this news highlighted to the world the importance of tightly drafted “free transfer” clauses and post-termination restrictions. In this note, we look at these two forms of clauses, their interaction and their legality from an employment law perspective. We also look at restrictive covenants for “top-talent” employees in Ireland and consider what Irish employers should be doing to bolster the enforceability of such clauses.
Buy-out clauses in employment law
Buy-out clauses are a type of penalty clause and oblige players to pay a release fee to their club in the event of a unilateral early termination of the employment relationship in exchange for the dissolution of their contract. The buy-out figure is characteristically high and is designed to disincentivise prospective clubs from poaching high-value players mid-contract. At the conclusion of a contract a player can usually transfer on a “Bosman”, with no requirement for the prospective club to fund the buy-out.
Buy-out clauses are permitted under article 13 of the FIFA Regulations on the Status and Transfer of Players (FIFA Regulations). FIFA Regulations allow for football contracts to be terminated unilaterally by the player in exchange for a compensation amount which is agreed in the contract. Spanish buy-out clauses are established under article 16 of the Spanish Special Labour Relationship of Players and have become standard practice for clubs. Recent examples include Neymar’s transfer from Barcelona to Paris Saint-Germain for €222m in 2017 and Kepa Arrizabalaga’s transfer from Athletic Club (Bilbao) to Chelsea in 2018 for €80m.
Buy-out clauses are a restraint of trade and generally unenforceable unless they are reasonable and in line with public interest. These buy-out clauses circumvent this by obtaining the employee’s prior consent to the consideration fee in exchange for termination. Such clauses are frequently challenged. The Court of Arbitration for Sport (CAS) has held that buy-out clauses do not attract any sporting sanction where they adhere to certain requirements. Indeed, such penalty clauses have been upheld against players, including Fran Merida who was required to pay over €3 million to Barcelona for breaching a clause in his pre-contract with the club which required him to sign a professional contract with Barcelona following the termination of his season as part of the Barcelona youth system.
Free transfer clauses
Free transfer clauses provide an option for players to be released from their club subject to qualifying conditions without triggering the buy-out fee. In Messi’s contract, this included where the player announced his intention to activate his termination before the end of season.
Messi had hoped to activate his free transfer clause by announcing his intention at the end of this season, which he claimed was extended from May to August due to COVID-19, without the requirement for his new club to advance the multi-million buy-out fee. Barcelona disagreed and Messi has reportedly confirmed that he will not go to court against Barcelona to secure the move.
Application to senior employee contracts
Although Messi and Neymar are employees at the highest echelons of the global sports industry, the discussion surrounding the above contractual clauses is relevant to non-sporting senior employment contracts.
Restrictive covenants, including non-compete clauses, are commonly incorporated into Irish senior employment contracts. Like buy-out clauses, these restrictive covenants are frequently challenged. For example, Ryanair’s recent injunctive proceedings against its previous Chief Operations Officer. Ryanair claimed that the ex-COO had insight into Ryanair’s key business strategies and relationships and sought to prevent him from joining a competitor, in reliance on a 12-month non-compete clause. The High Court held that the scope of the restraint was too widely drafted, as it applied to any business in competition with Ryanair for air services, not just lost cost airlines, and was therefore void and unenforceable. This case highlights that unless these clauses are reasonably drafted, their enforceability can be called into question.
Guidance to employers
Challenges to athletes’ buy-out clauses are frequently attributable to disproportionate or ambiguously drafted clauses. Free transfer clauses need to be carefully drafted to ensure their enforceability by the player, whereas buy-out clauses need to be carefully drafted by clubs to ensure that their best talents are not poached mid-contract by their competitors.
To reduce the risk of an unenforceable restrictive covenant, employers should ensure such a covenant is balanced between the company’s business needs and the employee’s rights. Bespoke restrictive covenants, appropriate to the employee’s seniority, are essential. These clauses should be continually reviewed if the employee’s role changes and considered for inclusion in the contracts of newly promoted, top-talent employees.
Contributed by Therese Chambers