Essay on Rule K and Leeds United

In 1995 the European Court of Justice ruled on the Bosman case: this case concerned the restrictions placed upon players by EU Football Governing bodies and the ruling outlawed a transfer fee being paid when a player was at the end of his contract, thus recognising that football players had the same employment rights under the EU’s “freedom of movement of workers” fundamental principle.

This raises the question of why transfer fees are legally requested during the life of a player’s contract: Surely this transfer fee requirement is a restriction of the “freedom of movement” in itself?

There is a little known regulation in FIFA rulebook that goes some way to mitigating this restriction; namely, Article 17 of FIFA Transfer Regulations. This rule allows a player to cancel a contract after an initial protected period has elapsed; the player is then free to move to another club but the original club is due compensation (as opposed to a club to club negotiated transfer fee). The compensation due is not directly related to amounts paid as transfer fees and the Court of Arbitration in Sport (CAS) will decide the value based upon individual circumstances; it will however, use one year’s wages plus a portion of any original transfer fee as a starting point. The Webster and Matuzalum cases ruled upon by the CAS have set uneasy precedents within football.

During the protected period of Article 17 a player is bound to the contract and has no “freedom of movement” as enjoyed by other EU workers.

In light of such an obvious breach of an EU fundamental freedom why is FIFA allowed to continue with its transfer system? The simple answer is that the EU adopts a view that sport has a unique set of requirements covering employment and allows governing bodies a certain autonomy in setting employment rules that benefit the sport as a whole despite marginally eroding individual players’ rights. This exemption is known as “Specificity of Sport” and is a principle upheld by the European Court of Justice (ECJ).

The EU White Paper on Sport (reference 52007DC0391), dated 11th July 2007, stated under the heading “Specificity of Sport” (my highlighting):

It is clear then that whilst football enjoys a much-relaxed enforcement of the “freedom of movement” it is not exempt; it is only allowed this freedom because of the principle that “what is good for the game as a whole is good for the individuals employed within it”; should a FIFA rule, or a rule by any European governing body, fail to support this principle then the exemption will not be allowed.

In the Meca-Medina (C-519/04P, Meca-Medina and Majcen v Commission, ECR 2006, I-6991) case the ECJ ruled that restrictive practices allowed under the “specificity of sport” principle must be examined on a case by case basis to ensure they are “are legitimate, necessary and proportional to the objective pursued”.

Licensing Systems within Football

The World Players’ Union (FIFPro) and UEFA agreed in 2007 a Memorandum of Understanding which sought, in Annex 2, to define what both organisations understood by “Specificity of Sport”. In part 2 they agreed this specificity covered:

To many a layman these three statements seem fundamental to the rôle of a Sport’s Governing Body; however, they conflict with the fundamental “freedoms” under-pinning the EU. Put simply, rule (a) has implications for the “freedom of establishment”, rule (b) has implications for the “freedoms of establishment and movement of capital” and rule (c) impacts on “freedom of movement of services” and the Memorandum of Understanding sought to settle these conflicts by including them into the “Specificity of Sport”.

This Memorandum has largely been unchallenged and its success in such a challenge will rest upon its impartiality and intent. There are clearly many legitimate aims that can be lodged against these rules and they in general work to further the success of the sport so sit comfortably with the “Specificity of Sport”.

However, there are cases that seek to challenge or pour doubt on this principle; in 2012 the EU and UEFA released a joint statement supporting and approving the use of Financial Fair Play (FFP) regulations. Whilst this sits well with rule (b) under the notion of “Specificity of Sport” there are many who feel these regulations have stepped too far away from being “Sports’ Related” and fall more naturally under EU general law governing the four fundamental freedoms. Should FFP rules be deemed to be outside the “Specificity of Sport” then they fall under European Competition Law and will likely be ruled illegal and unenforceable. In 2015, QPR football club refused to pay a fine issued under FFP regulations and instigated a challenge claiming the rules were illegal; at the time of writing no resolution has been published.

A further complication to the FIFPro/UEFA Memorandum is the third rule it attempts to bring under the cloak of “Specificity of Sport”. As part of its rules on players’ agents the English Football Association (FA) used to operate a system of Licensed Agents and on 1st April 2015 they changed this to reflect the FIFA system of Registered Intermediaries.
The FA uses licensing or registration as a method of enforcing good governance within football (with the scope of this governance ranging from working with minors to protecting the short careers of players) and requires the licence or registration to ensure it can act under its own rules (and allow arbitration under its “Rule K”) without which it would have no jurisdiction over the participants. Should the license or registration be invalid then disputes and breaches by participants could only be resolved in open court, a procedure widely agreed to be more costly, time-consuming and unwieldy.

Since the 2007 Memorandum FIFPro has identified many problems with the way the football transfer system works and in 2015 issued a complaint to the EU covering some of their grievances. FIFPro have major concerns over the entire transfer system and believe that it now works against its members’ interests and EU competition laws and should be replaced with a system of compensation. Part of their grievances is the footballers’ agents system and they want that reformed as well.

A challenge to the system of regulating agents or intermediaries may come from an unlikely source: the recent verdict from the FA’s regulatory committee against Mr Cellino, owner of Leeds United, has now entered arbitration under the FA’s “Rule K” regulation. At this point in time the arbiters will look at whether the appeal panel came to its decision rationally, procedurally fairly and without bias; as such, the decision will not impact on the agents’ system. However, this arbitration may not be the end of the matter; Mr Cellino has vowed to take the case to the courts should he lose the arbitration and this could mean a challenge made in either the Uk courts or ECJ against the FA’s system of licensing or registering agents.

The FA’s “Rule K” specifically excludes sections 44, 45 and 69 of the Arbitration Act 1996 which prevents points of law being decided by a court as an integral part of the FA’s arbitration process. This exclusion leaves the possibility for an aggrieved party to continue the case in open court rather than be bound by the FA’s rule K.10(b) that the “Rule K” decision is final and binding.

The ECJ has supported the EU in allowing football’s governing bodies to make many rules that do not relate specifically to the action of playing football on the grounds those rules benefit the game as a whole and any reduction in the employment rights of agents or intermediaries who are affected is legitimate and proportional and offset by other improvements. A challenge to the ECJ that the FA’s rules on licensing and registration are not legitimate or proportional, and never have been, and that agents should be governed by EU law alone will result in the FA rule being rescinded and charges against Mr Cellino being dropped.

Conclusion

Football as a sport within the EU has not adapted well to the challenges thrown up by EU law and legislators have previously chosen to “pass the buck” to governing bodies under the special exemption of “Specificity of Sport”. However, there are now many pressures on those governing bodies to reform and integrate their rules and procedures better with European Law which may see radical changes to the transfer system and funding thoughout the football pyramid.