Landmark Decision of the European Court of Justice on Football: Lassana Diarra Case

31.10.2024 Ece Özsü

Introduction

In the legal proceedings initiated by Lassana Diarra, who played football for several top clubs such as Chelsea, Real Madrid, and Arsenal, the European Court of Justice (“ECJ” or “The Court”) issued a landmark ruling (“the Decision”) on October 4, 2024. The ECJ examined whether FIFA’s transfer and contract rules comply with EU law. In its ruling, widely referred to as the ‘new Bosman ruling’ by the press, the Court held that certain FIFA transfer rules are incompatible with freedom of movement and European Union (“EU” or “Union”) law^[1].

Landmark Decision of the European Court of Justice on Football: Lassana Diarra Case

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Background of the Case

The Player, Lassana Diarra (“Diarra” or “the Player”) (residing in France) signed a four-year employment contract with Lokomotiv Moscow on 20.08.2013 which was terminated one year later by Lokomotiv Moscow on 22.08.2014 due to alleged misconduct of the player. The club claimed that Diarra breached the contract without any just cause and sought compensation of 20 million Euros before the FIFA Dispute Resolution Chamber (“DRC”). Diarra counterclaimed for unpaid salary and damages for early contract termination, however DRC decided that Diarra was responsible for paying compensation of 10.5 million Euros to Lokomotiv Moscow. This decision of DRC was appealed to the Court of Arbitration for Sport (“CAS”) by the Player, however CAS confirmed DRC’s decision on 27 May 2016.

After the termination of his contract, Diarra states that he faced challenges finding a new club, as any club signing him could be held jointly liable for compensation owed to Lokomotiv under FIFA’s transfer regulations. At the beginning of 2015, Diarra was offered an employment contract by a Belgian club, Sporting du Pays de Charleroi, however, this offer was conditional: (i) Diarra would be eligible to register and play in the club’s first team for all competitions organized by FIFA, UEFA, and the Belgian football association (“RFBA”), and (ii) Royal Charleroi would not owe any compensation to Lokomotiv Moscow. Ultimately, FIFA and the RFBA refused to assure the avoidance of joint liability, and Lokomotiv Moscow refused to issue the international transfer certificate (“ITC”). This way Diarra was blocked from transferring to Royal Charleroi. Later, he was registered with another French club in July 2015.

Ultimately Diarra initiated legal action against FIFA and RFBA in Belgian courts (Hainaut Commercial Court - Charleroi division) at the end of 2015. He argued that certain rules of the FIFA Regulations on the Status and Transfer of Players (“RSTP”) (2014 edition)^[2] hindered his employment and violated EU competition laws and free movement and claimed compensation of 6 million Euros for the damages he had incurred due to the misconduct of both associations.

In 2017, the court declared its jurisdiction over the case and found Diarra’s claim to be prima facie valid and decided to order FIFA and RFBA to jointly and severally pay Diarra a provisional sum. FIFA has appealed against this decision to the Mons Court of Appeal (Belgium), which found that Diarra’s claim was admissible and relevant to Belgian jurisdiction.

In the dispute, Player Diarra mainly argued that the rules of the RSTP, (particularly Article 9 and Article 17) restrict his freedom of movement and competition rules of the EU which violate Articles 45 and 101 of the Treaty on the Functioning of the European Union (“TFEU”). Meanwhile FIFA and RFBA argued that the RSTP rules serve the legitimate public interests of ensuring the stability of contractual relations and the continuity of team line-ups in professional football.

Eventually, Mons Court of Appeal (“Referring Court”) referred to the ECJ the questions on whether FIFA regulations, which require new clubs to share liability for a player’s breach/termination of contract and prevent the issuance of a transfer certificate in disputed cases, violate EU laws protecting freedom of movement for workers and competition.

The Rules of RSTP Examined by the ECJ

The Referring Court asked the ECJ, whether Articles 45 and 101 TFEU can prohibit the rules adopted by a private law association to regulate, organize, and oversee global football. With this regard, ECJ mainly examined the rules of FIFA RSTP 2014 under the section named ‘Maintenance of contractual stability between professionals and clubs’, some of which can be summarized as follows:

Solidary Responsibility for Compensation:

According to the main idea of RSTP, a contract between a player and a club may be terminated without any consequence (i.e. compensation, sporting sanction) only: (a) upon expiry of the term of the contract, (b) by mutual agreement (c) in case of just cause. Mainly the party in breach is liable to pay compensation (Article 17/1 of the RSTP). When an employment contract between a club and a player is terminated without just cause, the player and the new club that hires the player after the termination, are jointly responsible for paying compensation to the former club (Article 17/2 of the RSTP). The compensation is set out according to the principles outlined in RSTP.

Sanctions for Hiring During Protected Period:

If the player’s employment falls into the protected period^[3]under the contract that is terminated, the new club may face also sporting sanctions (i.e. ban on registering new players for a set period) (Article 17/4 of the RSTP). The ban can be avoided if the new club proves it did not encourage the player to breach the contract.

Block on ITC:

According to RSTP, a player may be registered to a new association once the new association obtains the ITC issued by the previous association (Article 9 of the RSTP). The previous association is not obliged to issue the ITC if there is a contractual dispute between the former club and the professional player over the termination of the contract. As a result, in case of a dispute between a club and a player the latter cannot be registered within the new association and participate in football competitions for the new club.

Introductory Comments of the ECJ

Before assessing the freedom of movement of workers and other legal considerations, in sum, ECJ noted the following:

Sports activities constitute an economic activity; therefore, the provisions of Union law apply to sports activities and its rules adopted by sports associations fall under TFEU. Only the rules which are adopted exclusively for non-economic reasons and address issues only related to sport itself, are considered outside the scope of economic activity and Union law. (i.e. rules concerning the exclusion of foreign players from national team competitions or the criteria for ranking athletes in individual competitions.) Similarly, the rules and conduct of sports associations are subject to the competition provisions of the TFEU when the conditions for their application are met.

The rules in question directly impact the work of players (i.e. the players’ employment contracts, and working conditions) and affect the players’ participation in competitions, which are central to their economic activity. In competitions involving professional football clubs have an economic nature, the composition of teams is an important factor in terms of competition. Therefore, rules concerning employment contracts or player transfers directly affect the economic conditions and competition between football clubs.

Thus, the rules in question fall within the scope of application of Articles 45 and 101 TFEU.

Freedom of Movement for Workers: Article 45 of TFEU

The ECJ first examined whether certain rules of RSTP prevents the freedom of movement for workers under Article 45 TFEU^[4].

ECJ notes that the provisions of the RSTP that hold both the player and the new club liable for compensation in the event of termination of the contract without just cause, and that determine the compensation amount, discourage other EU clubs from signing a player like Diarra, as the existence of these rules and the combination of them lead to face significant legal, unpredictable and potentially very high financial risks alongside the major sporting risks. Further, the rules that prevent the issuance of ITCs during a dispute also hinder the players’ ability to work in another EU state, restricting their freedom of movement. In its decision ECJ also emphasized the importance of workers’ rights, stating that professional players should be granted the same legal protections under EU law as any other employee.

The ECJ also stated that the non-state measures which limit the freedom of movement for workers may be acceptable if they (i) serve a legitimate public interest compatible with the TFEU, and (ii) comply with proportionality.

The ECJ, ultimately recognizes the regularity and integrity of competitions as a legitimate objective in the manner of public interest. However, the concerns regarding the principle of proportionality were emphasized.

ECJ noted that certain rules of the RSTP are overly restrictive. For example, in cases where a player terminates their contract without just cause, the criteria set by FIFA for determining the compensation payable to the former club impose a disproportionate burden, as they take into account the player’s salary in the new contract or the former club’s expenses on the player. Additionally, the automatic joint liability on the new club for an unspecific compensation, without considering the specific circumstances of each case, was deemed highly problematic. Furthermore, the assumption that the new club encouraged the player’s early termination, leading to sporting sanctions, was also found to be disproportionate.

Additionally, the rule that the former federation may withhold the issuance of an ITC in cases where there is a dispute between the former club and the player regarding the early termination of a contract was explicitly considered by the ECJ to violate the principle of proportionality. This general rule fails to consider the specific circumstances of individual cases, particularly the material facts surrounding the breach, the behavior of the player and the former club, and the role—if any—of the new club. This ban on the player’s registration and participation in competitions is, therefore, inherently excessive. The ECJ stated that these rules could hinder players’ freedom of movement by limiting their flexibility to change jobs during their careers.

In conclusion, the ECJ found that FIFA’s rules are restrictive to the extent that they could effectively end players' careers and that these rules are in violation of the EU’s fundamental principle of freedom of movement. The ECJ also noted that the final assessment of the proportionality of these regulations should be left to national courts; however, it stated that FIFA should review its disproportionate rules that restrict players’ freedom of movement.

Competition: Article 101 of TFEU

In the decision, the ECJ addressed Article 101^[5]of the TFEU in the context of the free movement of workers and restrictive agreements on competition. The ECJ examined whether FIFA’s rules on the termination of contracts and transfers of professional football players adversely affected competition in intra-European trade.

The ECJ first noted that Article 101 of the TFEU also applies to sports federations like FIFA and the decisions made by these federations. It observed that FIFA’s ability to make economically binding decisions for its members, including national football federations and professional football clubs, allows such federations to be considered “associations of undertakings.” Consequently, it is evident that the rules concerning player transfers and termination of contracts fall within the scope of Article 101 of the TFEU.

The ECJ found that FIFA’s requirement for players to meet certain conditions to work for another club, imposing significant financial obligations on new clubs, and subjecting the new club to sporting sanctions, restrict competition.

In the Decision, it is stated that, in the context of economic activities arising from the conduct of football and sport, it is legitimate for an association like FIFA to subject the organization and conduct of international competitions to common rules aimed at ensuring uniformity and coordination. It was also noted as legitimate, in particular, for the conditions under which professional football clubs form teams to participate in these competitions, as well as the conditions under which players participate in these competitions, to be determined through common rules and for sanction provisions to be introduced to ensure compliance with these rules.

However, the Court expressed that the unique characteristics of football and the economic market conditions, including the organization and commercialization of inter-club competitions, do not justify completely prohibiting or heavily restricting the possibility of hiring players unilaterally for cross-border competition. The ECJ noted that these rules, under the guise of “preventing aggressive recruitment practices,” actually represent non-compete (non-poaching) agreements between clubs, resulting in the artificial segmentation of national and local markets for the benefit of all clubs.

The ECJ also pointed out that “classic mechanisms of contract law, such as the right of a club to claim compensation in the event of contract termination by one of the players, even at the instigation of another club in violation of contract stipulations, are sufficient to ensure, on the one hand, the player’s continued presence in that club by the contract provisions, and on the other hand, to allow the hiring of the player between clubs at the end of the contract or if a financial agreement is made between the clubs.”

Considering the content of the transfer rules and the economic and legal context in which they exist, the ECJ concluded that, by their nature, these rules significantly restrict the ability of clubs to compete for access to top-level players and aim to prevent competition across the EU.

Conclusion

In conclusion, the ECJ found that the rules regarding compensation liability, sporting sanctions, and the avoidance of issuing the international transfer certificate as a result of termination of player contracts without just cause were violated both workers’ freedom of movement and EU competition rules. The finding that these rules are contrary to Articles 45 and 101 of the TFEU has resonated among organizations firstly FIFA, FIFPRO^[6] and the ECA^[7]. Indeed, on 14 October 2024, FIFA announced on its website its plan to initiate a global dialogue on Article 17 of the RSTP and stated that formal invitations would be sent to football stakeholders to comment on and propose ideas on this matter^[8] . Following the Decision of ECJ, it is expected that FIFA will be making essential changes to the rules governing the football transfer system.

References

For the decision see, https://eur-lex.europa.eu/legal-content/FR/TXT/HTML/?uri=CELEX:62022CJ0650
Since 2014, several changes have been made to the RSTP. The 2014 edition was subjected to the case initiated by Diarra.
RSTP defines the protected period as follows: a period of three entire seasons or three years, whichever comes first, following the entry into force of a contract, where such contract is concluded prior to the 28th birthday of the professional, or two entire seasons or two years, whichever comes first, following the entry into force of a contract, where such contract is concluded after the 28th birthday of the professional.
Article 45 TFEU prohibits measures, whether based on nationality or not, that disadvantage EU citizens seeking to work in a member state other than their own, by preventing or deterring them from leaving their home country.
Article 101 of the TFEU prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and prevent, restrict, or distort competition within the internal market.
For the press release of FIFPRO please see https://fifpro.org/en/supporting-players/obtaining-justice/governance-and-representation/fifpro-statement-decision-of-european-court-of-justice.
For the press release of ECA please see, https://www.ecaeurope.com/news-media-releases/eca-statement-on-the-court-of-justice-of-the-european-union-cjeu-judgement-concerning-lassana-diarra/
For the press release of FIFA please see. https://inside.fifa.com/legal/football-regulatory/news/fifa-to-open-global-dialogue-on-article-17-of-the-regulations-on-the-status-and-transfer-of-players

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