The practical implications of the CJEU’s judgment in Lassana Diarra vs FIFA

On 4 October 2024, the European Court of Justice (CJEU) delivered a landmark judgment  in the case of Lassana Diarra, a former professional and French international footballer, against the International Federation of Association Football (FIFA) and Royal Belgian Football Association (URBSFA)(Case C-650/22). The ruling has potentially significant implications for FIFA’s transfer regulations and the broader landscape of sports law within and beyond the European Union (EU). This article aims to explore the practical fallout and impact of this judgment on professional clubs and players. It also provides a look ahead to the regulatory framework that could be introduced to govern football transfers in the future.

Summary

Article 17, which has been a cornerstone of FIFA’s Regulations on the Status and Transfer of Players (RSTP) for over 20 years will need to be amended, and FIFA is already conducting a public consultation on this matter. 

This article is detailed as the various issues are quite complex.

However, some key takeaways are:

• The  CJEU provides an abstract analysis of the compliance of various provisions of the RSTP with EU law. It is now for the Belgian court to apply this to the particular facts of the Diarra case. 
• The concept of compensation due to the innocent party for unilateral breaches of contract and the possibility of joint liability for new clubs is not contrary to EU law. 
• The crux of the criticism of the CJEU was in respect of the automatic nature of these principles and the limited flexibility in their application to the specifics of each case, as well as the lack of weight given to national laws. 
• FIFA's approach has traditionally been to maintain a harmonised approach to the regulation of the game. However, the CJEU's ruling suggests a shift towards greater consideration of national laws. Article 17 (1) of the FIFA RSTP refers to national law for calculating compensation, but in practice, this has rarely been applied. Could this mean that a player employed by a Spanish club, for example, could face very different consequences to a player employed in England?
• If a new club signs a player who has unilaterally terminated their contract with a former club (and this breach is during the so-called “Protected Period” – a specific timeframe during which a player’s contract is safeguarded from unilateral termination by the club), the presumption of inducement of the breach by the new club and the restrictions around the release of the player’s ITC, are considered incompatible with EU law.
• New rules under the RSTP which deal with the consequences of unilateral breach of contract should be objective, clear, transparent, and predictable. Interestingly, predictability of compensation paid by players to clubs in these scenarios has generally been something resisted by club representatives, given the perceived risk that this may encourage unilateral breaches by players.
• Contrary to traditional sporting regulations that aimed to prevent unilateral recruitment (eg, “tapping up” or “poaching”) of players, the CJEU has stated that the outright prohibition of this practice under the RSTP is contrary to EU law. This shift places more emphasis on the contractual relationship (and drafting of bespoke clauses) between players and clubs to deal with these scenarios, rather than on overarching regulations precluding this behaviour. 
• The CJEU intimates that contractual stability should be protected within certain time constraints, possibly within a single season or competition period, which may lead to a weakening of the concept of what has to date been considered the sacrosanct “Protected Period” of a player’s contract.
• This is another judgment, following on from those of ESL, ISU, and Royal Antwerp, which may embolden stakeholders. It is arguable that there are several other areas of the RSTP which may fall foul of EU law, and that previously firmly held concepts in sport may well be subject to legal challenges. Those involved in international disputes should give additional thought to the potential impact of EU law on those cases. 

Background of the Diarra case

Lassana Diarra signed a four-year contract with Russian club Lokomotiv Moscow on 20 August 2013. Due to a dispute over his performance and the club reducing his salary, Diarra chose to leave the club prior to the expiry of his contract. Lokomotiv Moscow asserted that Diarra was in repudiatory breach of his contract, entitling them to terminate it, which they did formally on August 22, 2014. Lokomotiv Moscow subsequently sued Diarra before FIFA’s Dispute Resolution Chamber (DRC) as they sought €20m in damages for breach of contract. Diarra counterclaimed for unpaid wages and compensation for the remaining contract term, contending that Lokomotiv Moscow had terminated his contract “without just cause” (ie, without a sufficient and acceptable right or reason to do so). The DRC found against Diarra and ordered him to pay €10.5m in damages to Lokomotiv Moscow. Diarra then unsuccessfully appealed this decision at the Court of Arbitration for Sport (CAS), who confirmed the DRC’s decision in 2016. 

Diarra was challenging the RSTP, particularly its rules on financial compensation and the sporting sanctions that could be imposed on players and clubs in cases of early contract termination “without just cause” during the so-called “Protected Period”. The challenge stemmed primarily from the difficulties Diarra faced in finding a new club after leaving Lokomotiv Moscow, due to the potential liability for compensation that may be owed to Lokomotiv Moscow by a new club, in accordance with Article 17 (2) RSTP. Article 17 (2) RSTP states that if a player is required to pay compensation for a breach of contract “without just cause”, both he and his new club are “jointly and severally liable” to pay such compensation. 

In 2015, Sporting Charleroi (a Belgian club) offered Diarra a playing contract, but this was on two conditions. First, Diarra would need to be registered with the Belgian Football Association (URBSFA), of which an International Transfer Certificate (ITC) would be required for Diarra to play in Charleroi’s first team and take part in official football competitions. Second, Charleroi sought written and unconditional confirmation that it would be exempted from being held as jointly and severally liable for the payment of any compensation claims being made against Diarra by Lokomotiv Moscow. FIFA and URBSFA refused to provide the necessary assurances to Charleroi, which would have enabled the club to sign Diarra, citing that there was ongoing litigation on the matter.

Diarra commenced proceedings against FIFA and URBSFA before a Belgian commercial court, seeking €6m for the lost earnings caused by the two associations’ decisions, which ultimately prevented him from joining Sporting Charleroi, and on the basis that the contested RSTP provisions are contrary to EU law. The Belgian court upheld Diarra’s claims and ordered FIFA and the Belgian FA to compensate him for the harm caused. FIFA and URBSFA appealed the decision to the Belgian Court of Appeal which subsequently sought guidance from the CJEU before reaching a decision.

The Belgian Court of Appeal requested a preliminary ruling from the CJEU on whether the contested RSTP provisions were consistent with articles 45 (Free Movement of Workers) and 101 (Prohibition of Anti-Competitive Agreements) of the Treaty on the Functioning of the European Union (TFEU). The CJEU was asked to consider, in essence, whether the refusal to grant the ITC to Charleroi (owing to the ongoing contractual dispute) restricted Diarra’s right to freedom of movement within the EU, as it effectively forces a new club to pay the player’s old club the claimed compensation before the ITC is granted, despite the player not being bound by contract. And secondly, whether the obligations regarding joint and several liability that could be placed on Charleroi, in combination with the potential for financial and sporting sanctions, restricted Charleroi’s ability to compete.

Key findings of the CJEU

FIFA argued that its rules are necessary to “ensure the regularity of sporting competitions”, but the CJEU deemed this to be insufficient, stating that the rules “go beyond what is necessary to achieve that objective”, and that the contested RSTP provisions are contrary to EU law. The CJEU did accept that whilst the objectives of maintaining contractual stability and the integrity of sporting competitions are legitimate, the provisions go beyond what is necessary to achieve these objectives and are therefore unjustifiable and disproportionate. The CJEU ruled that FIFA’s regulations on financial compensation and additional sporting sanctions, violated the EU right of free movement for workers and the prohibition on anti-competitive agreements.

The CJEU noted that: 

"the rules in question are such as to impede the free movement of professional footballers wishing to develop their activity by going to work for a new club. […] Those rules impose considerable legal risks, unforeseeable and potentially very high financial risks as well as major sporting risks on those players and clubs wishing to employ them which, taken together, are such as to impede international transfers of those players. […] Although certain restrictions on the free movement of professional players may be justified by overriding reasons in the public interest consisting in ensuring the regularity of interclub football competitions, by maintaining a certain degree of stability in the player rosters of professional football clubs, in the present case the rules in question nevertheless seem […] in a number of respects, to go beyond what is necessary to pursue that objective."

Article 17 - Wording

The CJEU found that various contested RSTP provisions, could combine to impede a player’s ability to move freely between clubs in different EU member states. The CJEU was critical of the factors laid down in the RSTP for calculating the level of compensation, noting that it is general and imprecise regarding factors such as the “specificities of sport” and termination “without just cause”. Further, the remuneration the player earns at their new club (which has no correlation to the contract terminated), is unnecessary for the stated objective, neither does it give clarity regarding liability in the event of unilateral termination. This is because it leads to clubs and individuals being subjected to the discretionary calculation of compensation, which is unpredictable and difficult to control, whilst enabling compensation payments to be set at high and dissuasive levels. 

Joint and several liability

Regarding holding a new club jointly and severally liable, the CJEU noted that this cannot be said to be necessary to ensure the regularity of club competitions, especially when such liability is imposed without first establishing whether the new club was at fault for inciting such a breach. This is the same for instances where the rules allow for sporting sanctions to be imposed on the new club (during the protected period) where the onus is on the new club to prove that it did not induce the breach of contract, with the CJEU deeming this practice to also be unnecessary and disproportionate. In addition, the CJEU considered the ability of a former association to withhold the granting of an ITC due to ongoing contractual disputes to be unduly prohibitive on the players, despite FIFA’s mechanisms allowing for provisional ITCs to be granted in exceptional circumstances.

Restriction of Competition under Article 101 TFEU

Article 101(1) TFEU prohibits agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States, and which have as their object or effect the prevention, restriction or distortion of competition within the internal market. Where an agreement, decision or concerted practice is considered to have as its “object” the prevention, restriction or distortion of competition, it is unnecessary to consider its effects. An agreement which is prohibited under Article 101(1) TFEU may qualify for individual exemption under Article 101(3) TFEU, where (in broad terms) the economic benefits of the restriction(s) in question outweigh the adverse effect on competition.

Since the CJEU’s landmark judgment in the Meca-Medina case, it is well established that sporting rules can fall within the scope of EU competition law if they have an economic impact. To be exempt from prohibition under EU competition law, a sporting rule must be proportionate and necessary to achieve a legitimate objective (ie,  it must not go beyond what is necessary to achieve its purpose). These principles were applied in the recent European Super League case, in which the CJEU ruled (amongst other things) that rules requiring prior approval for new interclub football competitions, such as the European Super League, in the absence of transparent, objective, non-discriminatory and proportionate criteria, constitute a decision by an association of undertakings that has as its “object” the prevention of competition.

Consistent with the approach that it adopted in the European Super League case, in its Diarra judgment, the CJEU reaffirms that the rules of sports governing bodies and the conduct of associations which have adopted such rules, fall within the scope of Article 101 TFEU (and the prohibition on the abuse of dominance under Article 102 TFEU) where the conditions for the application of these provisions are met). The CJEU held that FIFA is an association of undertakings, and its rules constitute decisions which affect trade between Member States. The contested RSTP provisions were considered to have as their “object” the restriction and prevention of cross-border competition between football clubs within the meaning of Article 101(1) TFEU, and the CJEU indicated that exemption under Article 101(3) TFEU would be unlikely (although it will be for the Belgian Court of Appeal to ultimately deliver judgment in the case). 

The CJEU acknowledged that “the composition of teams is one of the essential parameters of competition” and, in the absence of the contested provisions, any professional football club would be free to compete by recruiting players already engaged by another club.  A restriction on the ability of clubs to compete in recruiting players was considered comparable to a “general, absolute and permanent” ban on the unilateral recruitment of players already signed to another club. The CJEU indicated that such a form of no-poach agreement between the clubs does not appear to be indispensable or necessary.
The CJEU’s preliminary ruling in the Diarra case therefore applies the established principles of competition law in the sporting context and, in doing so, reaffirms the need to balance achieving legitimate sporting objectives against the need to ensure that such rules do not unduly restrict competition.

Practical fallout for clubs and players

A practical consequence of the preliminary ruling is that FIFA will look to amend Article 17 RSTP, in consultation with its stakeholders. The wording of Article 17(1) of the RSTP, which determines who is owed compensation and how much this is likely to be in the event of a “unilateral” breach of contract, will also need to be changed, as the CJEU stated that “such compensation criteria seem more intended to protect the financial interests of clubs … than to ensure the supposed smooth running of sporting competitions”. This would, in theory, further promote the position of players, and could potentially lead to more player-friendly regulations in the future. We anticipate, following the CJEU’s comments, there will be more certainty regarding the amount of compensation awarded in the case of unilateral breaches of contract.  

Clubs will be expected to adapt to the revised RSTP when these are released, ensuring that they comply with EU law, as there is likely to be increased legal scrutiny of transfer agreements and potential challenges to existing contracts. Such adaptations may involve changes to contract terms, compensation clauses, and the process for resolving disputes. 

Furthermore, there may be a change in transfer strategy for certain clubs because in instances of breaches of contract “without just cause”, there is likely to be a change in the perception of the new club, from the current position where the new club is often perceived to have played a contributory role in inducing the termination of the contract, to a new view which presumes no fault or responsibility on the part of the new club, until and unless alternate information is revealed.

Long term, there is the possibility that the preliminary ruling could lead to reduced transfer fees for selling clubs who may have less leverage in their capacity to hold a player who is seeking to break from their contract. Also, smaller clubs who are dependent on developing and selling talent for large transfer fees may see a downturn in their revenues if their players are increasingly induced to breach their contracts and leave to larger clubs. Only time will tell regarding the long-term implications of this judgment.

The preliminary ruling presents various possible outcomes for professional football clubs and players. From a player’s point of view, it is possible that the ruling could lead to a further shift in the balance of power from clubs towards players, with players being better positioned to negotiate higher wages and more favourable employment rights on their own terms. Moreover, there could also be increased player mobility within the EU, as the ruling may allow players greater freedom to terminate their contracts early and move to pursue lucrative transfer opportunities at other European clubs, owing to a reduced fear of disproportionate financial penalties or sporting sanctions being imposed on them and their new clubs. The ruling also reflects a general trend towards increased player rights, as players may become more encouraged when taking decisions following disputes with their club. Although it should be noted that general contractual principles and the protections afforded under employment law may combine to act as a suitable deterrent to most players from breaching their contracts. 

It is likely that the preliminary ruling will lead clubs to amend their contracts by, for example, providing more detail around the financial compensation that will be required for early termination of a player’s contract without just cause and possibly removing the concept of joint liability for compensation payments. That said, until there is settled law on this topic, this case could potentially lead to increased litigation in the sector. There is also the possibility that players, clubs, and agents, might seek to claim damages in respect of any financial losses they may have incurred because of the old rules.

Impact on FIFA’s regulatory framework

The CJEU was critical of FIFA’s approach to the calculation of damages in Article 17(1) of the RSTP, due to the failure to give weight to the position under the national law applicable to the contract. FIFA’s approach to international football disputes has consistently been to create a coherent and cohesive body of case law, based on a harmonised global response, which does not depend on the often-disparate position of conflicting national laws of different jurisdictions. We anticipate that FIFA will maintain that if different laws applied to similar disputes in different countries, determining such international disputes by referencing divergent national laws would be detrimental to the uniformity of a transnational sport such as football. 

Whilst FIFA’s regulations underpinning the global governance of the football transfer system is still essential, it is likely that, following this judgment, it will need to be made less restrictive and the consequences for unilateral breaches of contract will need to be more predictable. 

The CJEU notes that, if shown to be justified and proportionate and governed according to transparent, objective, non-discriminatory and proportionate criteria, there may be grounds to introduce sanctions for the consequences of a unilateral breach of contract. The FIFA rules should be proportionate and necessary to achieve legitimate objectives, such as maintaining contractual stability and the integrity of competitions, but without unduly restricting players’ fundamental rights or competition within the EU.

Considering the three decisions of the CJEU in December 2023 in European Super League (ESL), International Skating Union (ISU), and Royal Antwerp Football Club, there appears to be growing momentum for future legal challenges to sports regulations that may conflict with EU law. FIFA regulates football globally across its 211 member associations, and on the face of it, these CJEU decisions only directly impact football in the 27 member states of the EU. However, the nature of the global football transfer market is likely to mean that any amendments to the RSTP will be uniform (ie, there is unlikely to be one set of rules for the EU/EEA and another for the rest of the world). 

This could lead to further reforms in the governance of sports within the EU. For example, the European Leagues’ umbrella body (which represents 39 leagues - including the Premier League - and 1,130 clubs across 33 countries), International Federation of Professional Footballers (FIFPRO) players' union, and Spain's LaLiga (which is not a member of the European Leagues but is joining the action) filed their joint complaint to the EU Commission against FIFA on 14 October 2024. The complaint relates to the international match calendar, including the expanded UEFA Champions League and the FIFA Club World Cup (CWC), and how there was allegedly a lack of proper consultation surrounding the expansion of the CWC. The complainants allege that FIFA has consistently refused to include national leagues and player unions in its consultation and decision-making processes. Moreover, they claim that the expanded 2025 CWC violates players’ rights under the EU Charter of Fundamental Rights and potentially breaches EU competition law.

Conclusion

The CJEU’s ruling fundamentally questions the balance that FIFA is seeking to strike between maintaining contractual stability within football, and the wider EU requirements that this is achieved in a manner which provides sufficient protection of players’ rights to move freely within the EU. 

The CJEU’s judgment in the Diarra case could mark a significant shift in the transfer rules for professional football and potentially the legal landscape of sports law. Article 17 of the RSTP, which governs the consequences of terminating a contract without just cause, is an important pillar of the foundation of the entire football transfer system. 

Article 17 RSTP currently mandates financial compensation and potential sporting sanctions for players who terminate their contracts prematurely. The CJEU’s decision necessitates a re-evaluation of these provisions to ensure they align with EU principles of freedom of movement and competition law. FIFA has already announced plans to open a global dialogue with key stakeholders to adapt Article 17 of the RSTP. This dialogue will likely result in amendments that balance contractual stability with players’ rights, likely reducing the automatic financial and sporting penalties for early contract termination.  The Diarra case could also possibly set a precedent and lead to changes in the transfer rules of other sports governing bodies.

At Mills & Reeve, we have a deep understanding of these regulatory changes and their implications. Our lawyers have either represented clients or heard cases in some of the most defining Article 17 RSTP cases to date (such as Diarra, De Sanctis, and Webster) as well as considering the conflicting approaches in Matuzalem, and dozens of other CAS cases.  

We are well-equipped to help our clients navigate this evolving legal and regulatory landscape, and our highly rated competition law experts work closely with our sports lawyers, providing a comprehensive understanding of the industry. This collaboration ensures that we can offer nuanced and effective advice, helping our clients stay ahead of regulatory changes whilst protecting their interests. 

The CJEU’s judgement in Diarra is not just a significant legal development, but it is a call to action for clubs and players to reassess their contractual strategies going forward. At Mills & Reeve, we can guide clients through these changes, ensuring compliance, and safeguarding your competitive edge in the dynamic world of sports law.

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