Validity of Unilateral Extension Clauses(UEC) in Football Contracts

By Tosu Jesujoba

INTRODUCTION

As the 2021/22 football season comes to an end, football clubs and players will be actively busy trying to make transfer deals amongst a range of other activities. Football clubs are expected to strengthen their teams ahead of the new season. In the same vein, the contracts of some players will officially come to an end, from Manchester United’s Paul Pogba to Liverpool’s Divock Origi and lots more will see their contracts run out or might be unilaterally extended by their football clubs.

The right of a player and/or a club to extend an employment contract for a set period as stipulated by the parties in the employment contract is known as the Unilateral Extension Clause (hereinafter referred to as ‘UEC’). A reciprocal extension clause allows both the player and the club to extend the employment contract for a defined period, while a unilateral extension option allows only one of the parties to prolong the employment contract[1]

Unilateral extension, unlike reciprocal extension, does not require both parties to agree to the clause being activated. In the daily practice of international professional football, unilateral extension options are frequently in the club’s favour. In international football, unilateral extension options are quite troublesome. The DRC[2] believes that the terms have a debatable validity and are not valid because they restrict the player’s freedom significantly. The conditions drawn from jurisprudence under which this clause can be considered valid will be detailed and brought to the attention of the readers as the paper unfolds.

THE CONCEPT OF UEC IN FOOTBALL CONTRACTS

Unilateral extension clauses (UEC) are contractual clauses that give one party to a contract the exclusive right to extend the employment relationship with the other party.

After the Bosman case in 1995[3], the European Court of Justice ruled that a club’s payment of transfer compensation to a player who had ceased his contractual relationship with his former club was not authorized and violated the European Union’s free movement of people, From that point on, clubs had to avoid situations where their professional football players’ contracts were coming to an end and they were free to depart. As a result, the use of the unilateral extension option in favour of the clubs has significantly increased.

A typical example is Chelsea’s Azpilicueta, ‘The Blues’ skipper signed his last four-year contract in December 2018 which was due to expire on 30th June 2022; Included in that deal was a clause that would extend the 32-year-old’s deal should he reach a certain number of appearances in the final year.

The clause, which was first revealed by GOAL earlier in the month, was reached just before the international break with Azpilicueta having made 35 appearances this season. As a result of this, Chelsea Football Club extended its contract to prevent the skipper from leaving for free, despite interest from Barcelona.[4]

An example of a UE clause is: “(a) Whether or not the Operator has made, or is entitled to make, a claim for an extension of time under this Clause 14, the State may, in its absolute discretion at any time by written notice to the Operator, unilaterally extend the Date for Completion.”[5]

UECs are commonly utilized in young player contracts in the United Kingdom, even in the Premier League, but notably in leagues below the Premier League. It is worth noting that, like in others countries, standard contracts have been negotiated between the league(s) and the players’ association in England, and the majority of these standard contracts do not include UECs as normal clauses. Certain clubs, however, insist on putting them in, which may be in breach of the country’s collective bargaining agreement.

Many of these UECs offer little or no compensation increases, favouring clubs substantially. While one would wonder why players accept contracts with UECs that favour clubs so substantially, given the extremely competitive nature of professional football, it is often the case that these young players have very limited (or nearly no) bargaining leverage.

Some players may view the UEC option year(s) as a source of potential future revenue, which is understandable in such a volatile industry. In reality, if the athlete performs well and the UEC is activated, he will most likely be underpaid throughout the option years. If he performs poorly (or is injured), the club is unlikely to activate the UEC, and he will miss out on the additional years of revenue from the option years. As a result, it appears that the only way a player would be satisfied with a club triggering a UEC is if his worth does not fluctuate at all between the initial contract and the option year (s). Hence, it’s tough to envisage UECs having a substantial upside for players (especially young ones).

If however, a player performs better than expected, a club may decide to offer him a new contract with better terms (rather than triggering the UEC in the old contract), but this is a rare occurrence. The decision is made at the club’s sole discretion and may be motivated by a desire to increase the player’s transfer value rather than remunerate him fairly (albeit leading to the same outcome)[6].

WHAT ARE THE BENEFITS OF UEC TO THE FOOTBALL PLAYERS?

Usually, there are little or no benefits for the players. Does the football club then hold all the cards? not really. A good agent will make sure that the 12-month option includes a sizeable pay rise for his client to redress the imbalance and make the club think twice.

FIFA RSTP[7] Commentary n. 3 to article 17 RSTP: “The parties may, however, stipulate in the contract the amount that the player shall pay to the club as compensation to unilaterally terminate the contract (a so-called buyout clause). The advantage of this clause is that the parties mutually agree on the amount at the very beginning and fix this in the contract. By paying this amount to the club, the player is entitled to unilaterally terminate the employment contract. With this buyout clause, the parties agree to allow the player to cancel the contract at any moment and without a valid reason, i.e. also during the protected period, and as such, no sporting sanctions may be imposed on the player as a result of the premature termination”.

The aforementioned assists players who do not wish for their contract to be extended, so they can trigger a buy-out clause, however for this to be binding and effective, both parties must have entered the clause into the contract and agree that the said clause be relied upon. An example of this occurred when Neymar Jr’s legal representatives in 2017 made the payment of 222 million euros in the player’s name to Barcelona concerning the unilateral termination of the contract that united both parties.

More so, in the case of Al Gharafa & Bresciano v. Al Nasr & FIFA[8], Omar Ongaro posited that: “If, however, the parties agree on a “buy-out clause”, then a right is conferred to the counter-party to prematurely terminate the contractual relation at any time against the payment of a fixed sum stipulated in the pertinent contract. The party that chooses to early terminate the contract by paying the agreed amount is utilizing a contractual right and does not need to have a valid reason for putting an end to the contract. This requires the party concerned to be ready to pay the agreed sum without any reservation or objection at all. A further consequence is that the party is simply utilizing his contract.

If the player’s value does not increase (this is not so much of an advantage nor is it a loss) as a result of poor form or injury, a triggered UEC in his contract might be an opportunity for him to prove himself.

WHAT ARE THE BENEFITS OF UEC TO THE FOOTBALL CLUB?

A unilateral extension clause favours a club more often than not, this is because a player may grant the club the exclusive right to extend their relationship based on the latter’s sole discretion after signing an employment agreement for a specific period.

It allows the club to be more flexible when renegotiating player contracts and helps to safeguard its assets. If the football club and the player’s representation are unable to reach an agreement, as was the case with Manchester United’s Paul Pogba, the additional year is activated to keep the player at Old Trafford for the current season.

It allows the club a degree of flexibility when it comes to renegotiating players’ contracts and helps to protect their assets. If the football club is unable to agree to terms with the player’s representatives as was the case with Manchester United’s Paul Pogba, they activated the additional 12 months to keep the player at Old Trafford for the just-concluded season.

Clubs get additional time to negotiate while also preventing the player from becoming a free agent. If the intention is to sell the player in the future, triggering the provision in his contract increases his value and preserves the club’s asset because any team interested in acquiring him knows that he would be a free agent for another year. It increases the club’s chances of receiving a transfer fee for the player greatly.

DISADVANTAGES OF UEC IN FOOTBALL CONTRACTS[9]

1. The very nature of UECs has proven divisive because, as previously stated, they are almost always biased in favour of clubs.
2. The legality and enforceability of UECs differ by jurisdiction, and the situation is far from settled. A thorough examination of several jurisdictions would be carried out.
3. Because the FIFA Regulations on the Status and Transfer of Players (RSTP) are silent on the legality of UECs on an international level, we must rely on CAS[10] precedent for guidance. While there has been some CAS jurisprudence on this topic. It’s worth noting that CAS panels are not bound by earlier rulings (there is no principle of stare decisis), therefore in practice, the validity of UECs is very much determined on a case-by-case basis.

VALIDITY OF UECs IN FOOTBALL CONTRACTS

As demonstrated in the case of Fenerbahçe v. Appiah[11], a unilateral extension clause in a club’s favour was deemed illegal by the CAS.

However, Professor Wolfgang Portmann’s legal opinion, which was requested by the FIFA Director of Legal Services in 2007, has been frequently cited as evidence of the legitimacy of a unilateral extension clause in a football club’s favour to extend a player’s contract. The Portmann Criteria were first used in the award of TAS 2005/A/983, 984 when the panel specifically referred to them in determining the applicability of national legislation to the case[12]. The following are the elements that must constitute a valid Unilateral Extension Clause;

1. The length of the maximum possible duration of the employment relationship is not excessive[13].
2. The renewal option must be exercised within an acceptable deadline before the expiry of the current employment.
3. The player is not at the mercy of the club regarding the content of the employment contract[14].
4. The salary reward arising from the option right is defined in the original contract.
5. The option will be clearly established and emphasised in the original contract so that the player is conscious of it at the moment of signing the contract.

According to Prof. Portmann, failure to comply with each of those five elements will result in a violation of public policy through an excessive commitment from the player to the club[15], thus deeming the unilateral contract extension clause to be invalid ab initio.

Since the validity of UEC varies in different jurisdictions the following are the position of some jurisdictions on the validity of UEC;

1. SPAIN: The Royal Decree 1006/1985 is the primary source of law governing professional athlete employment arrangements. In terms of contract duration, article 6 states that (i) sportsmen contracts are always fixed-term contracts, and (ii) contract extensions, which must also be definite, can be achieved through additional agreements between the parties when the contract is about to expire. Article 14 further states that “the contract may be extended by mutual agreement between the Club and the Footballer, in the terms stipulated in the second paragraph of article 6 of Royal Decree 1006/1985.” As a result of the foregoing, extension options in Spain must be agreed upon with the player[16].
2. ITALY: Article 2(2) of the CBA[17] states that “option agreements are permitted both in favour of the Club and the Player, on the dual condition that a specific consideration is provided in favour of the party who grants the option and that the limit of the overall duration of the Contract, such overall duration consisting of the sum of the duration provided plus any extension represented by the option […], does not exceed the maximum duration provided by law”. The “specific consideration” of the English version is translated from “corrispettivo specifico” which means that, aside from the five-year ceiling, the condition for the UEO[18] to be valid is an increase in the salary of the player.
3. GERMANY: According to a first ruling of the Labour Court of Ulm, some UEOs are considered null and void. It concerned a one-year agreement (valid from 1 January 2007 to the end of season 2007/2008) between the club and the player, which contained a UEO giving the club the right to extend the contract for one more year. The Court held the option invalid[19].

Nonetheless, a few years after the decision of the Labour Court of Ulm, the German Federal Labour Court held (implicitly) another UEO clause as valid[20].The Court dealt with the option only incidentally, as the case mainly revolved around the validity of the resolution agreement signed by the parties.

REMEDIES FIFA AND CAS SHOULD CONSIDER CURBING UEC-RELATED DISPUTES[21]

To create and establish a valid unilateral extension clause, it seems to be of the utmost importance to meet at least the five criteria as mentioned and laid down in the DRC decision of 12 January 2007 and the CAS decision in the ‘Bueno & Rodriguez case’.

Although, the DRC does not refer to the criteria anymore in later cases and CAS in its case of 31 January 2007 between Boca Juniors and Genua gives us more doubts with regards to the value awarded to the criteria. Also, the case before CAS of 7 June 2010, between the player Stephen Appiah and the Turkish club Fenerbahce Spor Kulubu, shows us that the validity and enforceability of a unilateral extension option cannot be accepted, according to CAS in this case.

Nonetheless, a blanket pronouncement of invalidity is unlikely under any circumstances. Unilateral extensions are widely used in professional football around the world, and finding them invalid under any circumstances would have major ramifications. However, we recommend adding a sixth, seventh, and eighth criterion to the list to be sure and boost the odds of validity.

To begin with, although this cannot be inferred from CAS and DRC rulings, it is recommended that the extended duration be proportional to the main contract. A one-year main contract with a four-year extension option, for example, falls within FIFA Regulations’ five-year maximum.

Secondly, it would be advisable to limit the number of extension options to one, and also players should receive a significant increase in salary due to the extension. Furthermore, a club should explicitly mention the extension option in a contract by making the player sign the clause concerned, in addition to the player’s contract.

Thirdly, establishing a buy-out clause.

CONCLUSION

To summarize, if all of Portmann’s conditions (as well as the additional ones outlined in this article) are met, the extension option is not guaranteed to be valid. A declaration of validity appears to be reliant on another criterion, which is difficult to articulate but boils down to the notion that the relevant circumstances of a particular case must always be decisive: Has the player agreed to a previous extension? Did the player express explicit agreement with the option’s consequences (in writing, vocally, or may it be inferred from his stance)? What was the player’s reaction to the club’s decision to extend his contract? Did the player continue to participate in official matches and train with his team after the extension? Did the club only invoke the option to establish that it can then claim higher compensation? In short: apart from the aforementioned criteria, all relevant circumstances of a specific case should point towards the validity of the unilateral extension, to establish a valid clause.

Tosu is a Law Student of Lagos State University (LASU)
Jesujoba01@gmail.com

Footnotes

[1] Felipe Pestana (2016); The validity of a unilateral extension clause in favour of the football club

[2] Dispute Resolution Chamber (DRC)

[3]  Case C-415/93, ‘Union royale belge des societes de football association ASBL v. Jean-Marc Bosman Royal Club liegois SA v. Jean-Marc Bosman.

[4] Nizaar Kinsella (2022); Why have Chelsea been able to extend Azpilicueta’s contract despite sanctions

https://www.goal.com/en-us/news/why-have-chelsea-been-able-to-extend-azpilicueta-s-contract/blt292a765981a676b0

[5] Law Insinder (2013); Unilateral contract Sample Clauses

https://www.lawinsider.com/clause/unilateral-contract

[6] Tiran Gunawardena (Monday, 13 June 2022); Unilateral Extension Options In Football Contracts: Are They Valid And Enforceable?

[7] Fédération Internationale de Football Association (FIFA)regulations on the status and transfer of players.

[8] CAS 2013/A/3411

[9] Tiran Gunawardena (Monday, 13 June 2022); Unilateral Extension Options In Football Contracts: Are They Valid And Enforceable?

[10] Court of Arbitration for Sport

[11] CAS 2009/A/1856, 1857

[12] Felipe Pestana (2016); The validity of a unilateral extension clause in favour of the football club

[13] CAS Panels have defined “excessive” as any duration longer than the maximum term of 5 years as set forth by the FIFA RSTP in its article 18.2, as seen in each of the cases to be analysed in chapter 3 (TAS 2005/A/983 & 984, CAS 2005/A/973 and CAS 2013/A/3260).

[14] In applying this criterion, CAS has suggested that the main aspect to be assessed is whether the extension option of the contract is tied to a relevant increase in the player’s salary (TAS 2005/A/983 & 984 par. 77) and that the clause does not give the club “unequal bargaining power” with “no apparent gain for the player” (CAS 2005/A/973, par. 21).

[15] CRESPO, Juan de Dios: Contractual Stability in Football in the European Sports Law and Policy Bulletin Issue I-2011, p. 340

[16] Saverio Spera (2017); The Validity of Unilateral Extension Options in Football – Part 1: A European Legal Mess.

[17] Combined Bargaining Agreement

[18] The unilateral Extension Option

[19] ArbG Ulm, a judgment of 14 November 2008 – 3 Ca 244/08.

[20] BAG, a judgment of 25 April 2013, 8 AZR 453/12.

[21]Frans de Weger and Thijs Kroese; The Unilateral Extension Option Through The Eyes Of FIFA DRC And CAS https://www.thefreelibrary.com/The+unilateral+extension+option+through+the+eyes+of+FIFA+DRC+and+CAS.-a0352250403

Source: DNLLegaland Style