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Football on furlough?31st March 2020 Sports Law
In response to the COVID-19 pandemic, the Football Association (FA), the English Football League (EFL) and the Premier League have suspended all football leagues under their control at and above National League level up to, and including, the Premier League. This is the position as it stands currently and we understand that these leagues will remain suspended until 30 April 2020 (at the very earliest). For the leagues below National League level, there has been an outright cancellation. All results have been expunged and there will be no promotion or relegation of clubs within these lower tiers. This is unprecedented intercession and for football clubs across all levels of the football pyramid the direct and long term financial consequences of such action is of deep concern. We understand that a letter signed by more than 60 non-league clubs has been sent to the FA challenging this decision. Whilst certain leagues are currently suspended, such suspension periods may be extended. Similarly the progress of the cup competitions domestically and in Europe are currently suspended. Stephen Taylor Heath (Head of Sports Law) has written a blog on the legal and practical issues that must be considered in trying to finish the season which can be found here. The prospect of voiding this season in those divisions is becoming an increasingly likely prospect and the Union of European Football Associations (UEFA) is shortly to convene a meeting of its members which could be decisive in this regard.
Whilst the revenue streams of football clubs are varied and include broadcast, sponsorship and match day revenue, the clubs lower down the league system rely increasingly on weekly gate income to fund salaries. It is these clubs that have felt the immediate financial impact the most. There are already reports that salaries have gone unpaid at lower league levels and non-playing members of staff have been put on notice of redundancy at various football clubs. The problem for clubs (and the security for players) is that a professional player is normally employed on a standard fixed term contract that does not contain notice provisions.
This situation is mirrored globally, with many leagues across the world taking a robust interventionist policy in their response to the pandemic. At the highest stage of the footballing spectrum, there are reports that some of the biggest clubs in the world, clubs with huge and varied revenue streams, consider a wage bill reduction to be required. FC Barcelona is a recent and prominent example of this. Laudably it is considered that the players at the top end can bear a salary reduction/deferral in order to release funds to pay backroom and support staff of such clubs.
Options to consider – consent is key
Whilst the economic difficulties faced by football clubs will vary markedly across the divisions, there are numerous options which may be considered by football clubs when structuring measures to secure financial stability. These options may include wage deferrals, temporary pay reductions and contract suspensions.
The key point to stress when considering such options is that unless there is an agreed contractual mechanism to take any such action (which is unlikely when considering footballers on standard fixed term contracts) employee consent is fundamental. Any agreement reached with employees should also be documented in writing. The misconception is that the COVID-19 epidemic entitles clubs to unilaterally suspend contract obligations where neither the player nor the club can perform the contract. In doing so, the concept of force majeure may be (incorrectly) identified. Although there is no definition of force majeure under English law it is generally considered to mean something out of the control of the parties to the contract. However it is important to note that under English law, if the contract is silent on force majeure and does not contain a specific force majeure clause (and most standard fixed term football contracts will not), the law will not imply such a clause into the contract. As such, football clubs cannot rely on this as a means to setting aside a contract or getting out of paying salaries
Incidentally similar issues arise with commercial contracts with sponsors and the like as well as contracts for services. Our commercial and litigation teams have written a blog which can be found here on force majeure together with the doctrine of frustration and how these concepts can be applied to contracts during the current pandemic.
To defer, reduce or indeed withhold salary altogether (without consent) would (dependent on contractual terms) most likely constitute a fundamental breach of contract and an unlawful deduction of wages. To avoid costly employment tribunal claims (together with potential sanctions and penalties from the various football governing bodies) clubs should clearly refrain from taking such unilateral action. Advice should be taken from employment and sports law specialists in respect of this.
In this article we look in more detail at an additional option which it appears is now at the disposal of football clubs - the Coronavirus Job Retention Scheme.
The Coronavirus Job Retention Scheme (Scheme)
In summary, this Scheme involves the ‘furloughing’ of employees (placing them on a leave of absence) and enables employers to claim a grant from HMRC to cover 80% of certain wage costs (up to a cap of £2,500 per month per employee). Our employment team have provided a detailed summary setting out all we know so far on the Scheme which can be found here.
In terms of the specific relevance of this Scheme to the football industry, there are a few points which we consider to be pertinent, as follows:
(1) given the financial thresholds of this Scheme, it may provide more of a financial relief to lower league football clubs with smaller wage bills per employee compared to deferral of a percentage of players/staff wages;
(2) as per government guidance, football clubs should get the agreement of all employees that they wish to place on furlough. We can draft suitable agreements between the club and the staff and have done so for several clubs. The Scheme remains subject to existing employment law obligations and therefore, if the employees do not agree to being placed on furlough then there would be a risk of an unlawful deduction of wages claim and / or that the employees resign and claim constructive dismissal and / or breach of contract. In addition, for players on fixed term contracts, unless there is specific provision in the contract which would enable the employer football club to end the contract early, then the football club cannot purport to end this contract early (by way of redundancy or otherwise) and therefore the employee is entitled to full payment under the terms of the contract (unless a compromise is agreed);
(3) there is no indication to the contrary that this Scheme does not apply to employees on fixed term contracts (which is the standard form of contract for football players). As such, although football clubs should take specialist advice on eligibility and how to make claims under the Scheme it does appear to be an available option;
(4) the Scheme provides a system of reimbursement (up to the relevant thresholds) so on a literal interpretation of this we understand that the football clubs have to continue to pay their employees (unless they obtain their consent to a wage deferral) and then reclaim the money. Football clubs are not empowered to withhold wages without consent and then only pay wages upon receipt under the Scheme. Clear guidance on this from the government and certainly from the football governing bodies would be useful as it is understood that a number of clubs may be withholding wages without consent. Whilst it is hoped that the scheme will be fully operational before the end of April 2020 (and reimbursements can be backdated to 1 March 2020) having to continue to pay employees until reimbursements can be claimed may cause significant issues for some clubs. Especially for clubs that have lost their main (or, indeed, only) source of revenue when the various leagues were suspended or cancelled and cannot call on other reserves or financial support, from owners, for example. In such cases football clubs may need to look for alternative sources of funding, such as short term bank loans to plug the gap, and in this regard the government have also announced a series of grants and loans which may be of assistance. For further information on these additional measures please refer to our summary on these support proposals which can be found here. In addition (or in conjunction with the assessment of other funding support proposals) football clubs may look to negotiate with players to agree a deferment or temporary reduction of wages. As stated above, to withhold salary outright without consent (aside from causing significant hardship for employees) is a breach of contract and an unlawful deduction of wages;
(5) if employer football clubs do decide to top wages up for employees on furlough to 100% (over and above the 80% or £2500 (as applicable) threshold to be reimbursed under the Scheme) then the government guidance is clear in that it will not refund employers for this sum (together with other related contributions including National Insurance Contributions) so such additional costs will fall on the football clubs. From an employment law perspective, withholding 20% of an employee’s wages (whether or not they are placed on furlough) will still amount to an unlawful deduction of wages, unless there is employee consent. However, it is hoped that employees will, on reasonable reflection, consent to this given that the alternative may be that they go unpaid (for fixed term employees) and / or dependent on employment terms may face redundancy or unpaid leave. This employee consent is one of the matters to be dealt with in the furlough agreement between the club and the employee;
(6) for football clubs with 20 or more employees who it is proposed be placed on furlough, the government has stated that collective consultation processes should be followed. Our employment team’s recent blog (which can be found here) summarises these processes. If collective consultation obligations are relevant then we suggest urgent legal advice is taken; and
(7) for some lower league football teams, where employees may have a secondary form of employment, government guidance states that such employees can be furloughed for each job. Each job is separate and the relevant caps apply to each job (so there isn’t an aggregate cap which captures both sources of income).
Specific guidance for football clubs and further issues for consideration
We also understand that the Premier League, the EFL and the Professional Footballers Association are in discussions regarding the Scheme and how it would work in practice for football clubs. We await the outcome of these discussions and any guidance which follows.
A crucial factor for clubs to consider in furloughing staff is that the staff cannot carry out any work during the furlough period. In the case of a professional footballer, not carrying out any work would almost certainly mean that the player cannot train in a team context and be coached. Given the current lockdown that is not possible anyway and players are training at home in isolation. If the government orders in that regard are relaxed in future weeks and training becomes possible, clubs will have to consider whether they need the players to resume training (to get the players’ performance levels up) in anticipation of the season restarting. If the clubs consider it prudent for players to resume training in advance of the formal continuation of any of the currently suspended leagues then the relevant players would no longer be eligible for the Scheme. This may be a decision that clubs need to assess at some point so that they can be in the best possible position to fulfil their remaining fixtures.
Whilst the FA’s decision (to suspend and / or cancel various leagues) is not a popular one (from a sporting point of view) should football clubs know that they do not need to prepare for resumption of the season, this would provide greater certainty when considering the issues raised above.
The situation is rather different at the top of the football pyramid, however, with the interests of so many stakeholders (as well as governing bodies) to take into account. Hence the idea of salary sacrifice/ deferral for the higher league football players would seem the best option at this time to enable these football clubs to pay their staff and have flexibility to resume training as and when required.
The other employment issues looming are that certain players will be out of contract from 30 June, the transfer window is due to open and several leagues will potentially remain unfinished at that stage. Understandably UEFA is to hold crises talks with its 55 members tomorrow (1 April 2020) to consider these issues. Agents and players are already threatening legal action if the goalposts are moved on potentially lucrative summer moves. Equally clubs would be concerned if they were required to keep players (that they would otherwise have released) beyond the expiry dates on their fixed term contracts. Another critical issue that it is hoped can be considered is the risk to football players either resuming training or competing in resumed leagues when this may potentially invalidate their career ending insurance.
Clearly the COVID-19 pandemic has raised a tumultuous array of questions and uncertainty in the context of the football industry. The situation is evolving rapidly and we hope to see clearer guidance emerge from the government and the various football governing bodies as and when decisions are made on fundamental issues.
If you need advice or have any queries about the contents of this article please contact the writers whose details are as follows: Stephen Taylor Heath (Head of Sports Law) (direct dial: 0161 838 2773) and Sara Bluston (Corporate Associate) (direct dial: 0161 828 1986).
This note is correct as of 31 March 2020.
This note is for general guidance only and should not be used for any other purpose. It does not constitute, and should not be relied upon, as legal advice.