The Lassana Diarra case: A New Chapter for FIFA’s Transfer Regulations?

As previewed in our recent blog post, the Court of Justice of the European Union (“CJEU”) has delivered a landmark judgment concerning FIFA’s international player transfer regulations. This decision could significantly impact the landscape of professional football transfers by addressing the compatibility of FIFA’s rules with EU laws on free movement of workers and cartel prohibition. In this blog, we recap the facts of the case, consider the CJEU's findings and outline the potential implications of the ruling.

Background

The Contested FIFA Regulations

FIFA's Regulations on the Status and Transfer of Players (“RSTP”) state that:

• players who terminate their contracts without just cause are liable to pay compensation to their former clubs;
  
• new clubs that sign such players are jointly and severally liable for the compensation, and face a ban on registering new players for two consecutive transfer periods unless they can prove that they did not induce the player to terminate their contract; and
  
• an International Transfer Certificate ("ITC"), which a player needs from their former football association to lawfully transfer to a new club, cannot be issued if there is an ongoing contractual dispute between the player and their former club (together the “Contested FIFA Regulations”)

Lassana Diarra's Case

In 2013, Lassana Diarra signed a four-year contract with Lokomotiv Moscow. Due to a reduction in his salary, he decided to leave the club prior to the expiry of his contract. In response, the Russian club formally terminated his contract and brought the case to FIFA's Dispute Resolution Chamber (“DRC”), alleging that Diarra had breached the RSTP by terminating his contract "without just cause". Diarra filed a counterclaim in the DRC for unpaid wages and compensation equivalent to what he would have earned had the contract been fulfilled in full.

Diarra subsequently received an offer from the Belgian club Sporting Charleroi. However, the club withdrew their offer after FIFA and the Belgian FA (Union Royale Belge des Sociétés de Football-Association ASBL) refused to clear his registration in line with the Contested FIFA Regulations. Sporting Charleroi cited concerns that (i) the Belgian FA would not clear Diarra to register and play in any official competition, and (ii) they would be held liable for the compensation claimed by Lokomotiv Moscow.

In 2015, the DRC upheld Lokomotiv Moscow's claims, ordering Diarra to pay €10.5m in damages. Diarra launched legal action against FIFA and the Belgian FA before the local commercial court, seeking €6m in compensation for the loss incurred due to the two associations’ decisions. The local court ruled in favour of Diarra and directed FIFA and the Belgian FA to compensate him.

The judgment was appealed to the Court of Appeal of Mons, which referred the case to the CJEU seeking clarity on whether the Contested FIFA Regulations infringe (i) the EU cartel prohibition, i.e. the prohibition of agreements, decisions by associations of undertakings and practices which have as their object or effect the restriction of competition within the EU; and/or (ii) the EU right to freedom of movement for workers within the EU.    

The CJEU’s Findings

Restriction 1: Freedom of Movement

The CJEU confirmed that the Contested FIFA Regulations restrict the freedom of movement of workers because: 

• the regulations impose severe financial penalties and restrictions on the registration of players, which deter clubs from hiring players who have prematurely ended their contracts; and 

• the requirement to withhold ITCs during contract disputes significantly restricts player mobility and career progression by ‘depriving their possible engagement by a club established in [another] Member State of the essential sporting and economic interest’.

Restriction 2: Cartel Prohibition

The CJEU found that the Contested FIFA Regulations do, by their very objective, restrict competition and infringe the cartel prohibition. According to the CJEU, the Contested FIFA Regulations, as rules adopted by FIFA as an association of undertakings, hinder the recruitment by its members, the football clubs, through imposing a significant risk of having to pay an unpredictable amount of compensation and the potential for being banned from registering new players. The CJEU concluded that this impedes competitive dynamics in the market as ‘the composition of teams is one of the essential parameters of competition’ and that the effects of the rules which fix the composition of teams are similar to no poach agreements.

Justifications and Proportionality

While the CJEU acknowledged that the purported objective of the Contested FIFA Regulations: to maintain contractual stability of playing staff and ensure the regularity of inter-club football competitions is a legitimate objective, it questioned whether the approach is necessary and proportional given that it amounts to a ‘general, absolute and permanent interdiction’ of unilateral recruitment of players who are already under contract. For example, the automatic presumption that the new club induced the player to breach their contract without first considering the specific circumstances of the individual case, and the consequent risk of sanction, was deemed by the CJEU, generally, to be a disproportionate means of achieving the legitimate objective. 

The CJEU did, however, hold that the referring court in Mons must determine in the specific case whether these regulations, in practice, ‘go beyond what is necessary to pursue the objective of ensuring the regularity of interclub football competitions by maintaining…stability in the membership of…clubs’, taking into account individual circumstances such as the factual context in which the breach occurred, the respective conduct of the player and the former club and the role played by the new club. The CJEU did not provide guidance as to what would constitute regulations proportionate to the legitimate objective.

Potential Consequences

In light of the CJEU’s findings, the Contested FIFA Regulations will likely be found by the referring court to be in breach of EU law. Given this likely legal implication, FIFA will come under pressure to revise the Contested FIFA Regulations, thereby eliminating the mandatory compensation payments for players terminating contracts without just cause, putting an end to joint liability for new clubs and the restriction on ITC transfers to new clubs where there is a contract.

Such rule changes could result in the following implications: 

• Increased Mobility: Players are likely to terminate their contracts early more frequently, seeking better opportunities without the looming threat of excessive financial penalties or registration bans.

• Strategic Shifts for Clubs: Clubs may adopt more aggressive recruitment strategies, relying on civil remedies for breach of contract instead of FIFA regulations, potentially leading to increased litigation.  
• Empowerment of Players: The balance of power could tilt towards players, allowing them to negotiate higher wages and more favourable employment terms due to their enhanced mobility.
• Transfer Fees: Transfer fees could fall now that the selling club has less leverage to hold players to their contracts and freely negotiate transfer fees. Smaller clubs whose business models depend on developing and selling talent for large transfer fees and have less pull to induce players to leave their contracts could be disadvantaged as a result. 

The extent to which these consequences occur will likely depend on the degree to which protections under general contract and employment laws are afforded to clubs and players in relevant jurisdictions, such as the threat of damages claims or actions under torts such as inducement of a breach of contract or unlawful interference and the use of (lawful) non-compete clauses, potentially serving as sufficient deterrents.

FIFA has confirmed that it will open a global dialogue with key stakeholders ‘to determine what conclusions must be drawn from the decision and which changes are most appropriate to make to [the Contested Regulations]’. Indeed, this judgment will necessitate significant tightening of the Contested FIFA Regulations and stakeholders may need to review their enforcement options, with appropriate legal advice, to deter early termination of player contracts and preserve contractual stability. In the short term, the absence of a clear regulatory framework may lead to further litigation, and stakeholders should therefore consider efficient dispute resolution mechanisms.  However, it is unlikely, as some have speculated, that this judgment will become a Bosman 2.0 and lead to a radical revolution of the landscape of player transfers.