The impact of Covid-19: Pay cuts in sport

The impact of the Covid-19 pandemic on the sports industry worldwide has been considerable. The issue of reductions in remuneration makes for an interesting study of applicable laws, collective bargaining in sport and the ramifications of pay cuts being imposed on sportspeople. Whilst there are far more important matters than sporting events right now, this is a prominent global industry and many people find expression of their identity in sport. The industry has been turned upside down, with competition suspended indefinitely or cancelled. The public may have little sympathy for superstars earning large sums. However, many professional sportspeople have effectively been laid off and their jobs are under threat. Increasing player power at the top of the sporting world and the primacy of broadcasting revenue make for fascinating dynamics, with the world in varying forms of lockdown.

Reducing pay in terms of South African law

In terms of the South African common law, an employee has an obligation to render the agreed services to their employer and the employer has a reciprocal obligation to remunerate the employee for being willing and able to work. Non-payment or underpayment of remuneration ordinarily amounts to a unilateral change to terms and conditions of employment and a material breach of these inherent contractual obligations. In response, amongst other forms of recourse, the employee has an election to either cancel the employment contract or uphold and enforce it.

Employment contracts or collective agreements may provide for short time, temporary lay-offs and reduced remuneration and parties can otherwise agree to such arrangements and reduced pay.

There have been various, differing views published in South Africa recently on whether employers are obliged to pay employees during periods of forced temporary closure of businesses. These arguments are based on the coinciding considerations of the “no work no pay” principle, force majeure contractual clauses, the common law doctrine of supervening impossibility of performance and on vis maior and casus fortuitous (i.e. unforeseen events, beyond the parties’ control), concepts which form part of the common law.

Our courts have never pronounced on the lawfulness of an employer’s reliance on these principles in circumstances such as these. However, this issue seems to have effectively become academic in the case of affected employers who are registered with the Unemployment Insurance Fund (UIF) and compliant with their obligations in this regard. This is in light of the latest amendments to the Covid-19 Temporary Employee/Employer Relief Scheme (C19 TERS) at the time of publication, in terms of which it is obligatory for employers who have partially or completely closed operations as a result of the pandemic to apply for relief in terms of C19 TERS, for the benefit of employees who have lost income or have been required to take annual leave. A practical implication of these amendments appears to be that such employers can rely on C19 TERS to decide not to pay their employees, regardless of the financial impact of the pandemic on their business.

Sporting institutions may have income protection insurance to mitigate losses arising from unforeseen events such as Covid-19. Certain of them may be able to rely on force majeure clauses in agreements, which could be activated if a season is suspended or cancelled.

South Africa

It has been reported that AmaZulu FC will be paying reduced salaries to their players in April 2020. Aside from AmaZulu, it appears that players in the ABSA Premiership have continued to receive their salaries during the national lockdown, although certain clubs have started to consult their players on the possibility of pay cuts. Acting Premier Soccer League (PSL) CEO, Mato Madlala, told TimesLIVE that clubs in the PSL and those in the GladAfrica Championship, the second tier of South African football, had received their monthly grants from the PSL in March 2020 (R2-million and R500 000, respectively), but that the PSL executive would need to decide what happens in future months. In the championship, Royal Eagles FC have reportedly failed to pay their players in full for March, Cape Umoya United told Kickoff that they are cutting players’ salaries by 50% initially with the intention of covering the full salaries, if possible, and there have been reports of other championship clubs not paying their players in full.

As things stand, the end of the PSL season has been pushed back from 9 May to 30 June 2020, which is generally the annual date after which player contracts expire. Issues concerning the extension of contracts beyond their expiry dates and fixed dates for player registration and national transfer windows will need to be resolved if seasons are extended.

The South African Football Players Union (SAFPU) expressed its concerns to the Daily Maverick that some clubs may not be compliant with their obligations in respect of the UIF, which would leave players unable to claim benefits. As a result, SAFPU are seeking that consideration be given to relaxing provisions relating to UIF benefits, for the benefit of footballers.

FIFA has released guidelines on regulatory and legal issues related to Covid-19, which were developed in consultation with numerous stakeholders in the game. The guidelines state that unilateral changes to terms and conditions of employment – which would include unilateral reductions in pay – will be recognised where they are made in accordance with national laws or a collective agreement. The guidelines state that where clubs and employees cannot reach agreement and where no such national laws or collective agreements apply, FIFA’s Dispute Resolution Chamber (DRC) and Players’ Status Committee (PSC) will recognise such unilateral changes where they were made in good faith and are “reasonable and proportionate”. Reasonableness will be determined on a case-by-case assessment, which may include considering the financial position of clubs and whether they attempted to reach agreement on changes.

In terms of article 14 of FIFA’s Regulations on the Status and Transfer of Players (RSTP), a footballer may terminate their employment contract where they have “just cause” to do so, without the club receiving any compensation. Any “abusive conduct” by a club, which aims at forcing the player to terminate, or change the terms of, the contract would constitute just cause.

Article 14bis of the RSTP deals with the termination of contracts with just cause for outstanding salaries. It provides that, unless a collective agreement provides otherwise, a footballer may unilaterally terminate their contract where a club has unlawfully failed to pay the player for a period of at least two months. There is a procedure which players must follow to put the club in default. Prior to the introduction of this provision, in mid-2018, the precedent set by FIFA and the Court of Arbitration for Sport (CAS) was that three months of non-payment was generally considered just cause for termination.

In addition, the Bureau of the FIFA Council has “recognised that the disruption to football caused by COVID-19 was a case of force majeure”. However, it should be noted that CAS jurisprudence requires that force majeure must be narrowly interpreted.

To establish the precise rights of players in the premiership and championship in response to unilaterally imposed reductions in pay, one would have to consider, in conjunction, the 2019 collective bargaining agreement between SAFPU and the PSL, players’ specific contracts, any applicable league and governing body rules and regulations and South African law, including C19 TERS. The PSL’s dispute resolution chamber would be the forum for any disputes between premiership and championship players and their clubs regarding pay cuts, unless in certain instances the FIFA structures have jurisdiction. One would expect that the collective agreement, player contracts and/or any rules and regulations contain terms dealing with the same issues as the aforementioned RSTP provisions. Only where FIFA structures have jurisdiction or the parties otherwise agree to it, will articles 14 and 14bis of the RSTP be directly applicable.

Craig Ray of the Daily Maverick reported that the sustainability of local football and rugby is closely dependent on the hundreds of millions of rand which they receive annually from SuperSport for broadcast rights to domestic and international competition. The longer competition remains suspended, the higher the risks and debt will pile up, but the long-standing, interdependent nature of the relationships between the sporting bodies and the broadcaster seems to lend itself towards mutually palatable resolutions. According to Ray, South African cricket is less exposed to SuperSport’s position, because its income primarily comes from international broadcast deals.

On 10 April 2020, it was announced through MyPlayers – as the representative of the more than 700 professional rugby players in South Africa, both men and women – that the players have voted for collective representation in talks with SA Rugby and other stakeholders regarding cost saving measures in response to Covid-19. At the time, it had been made known that the stakeholders had, in principle, jointly formulated a cost saving plan. SA Rugby Mag referred to a Rapport newspaper report stating that players could have their salaries reduced by up to 40% and that MyPlayers CEO, Eugene Henning, said that the intention was to use a sliding scale based on tax tables to determine individual reductions. Subsequent to this, however, Sport24 referenced a later article by Rapport stating that MyPlayers was seeking that a clause be included in the agreement in terms of which players and coaches would have the option of cancelling their contracts, if they were to receive an offer to join another club. Unsurprisingly, there was reported resistance to the inclusion of such a clause in any agreement, due to the fear of losing players to foreign clubs. The agents of Bulls player Johnny Kotze have since indicated in a statement that salary cuts have now been implemented and that players have a 21-day window “to pursue overseas deals”. The effects of such a clause could be far-reaching. According to Sport24, this window remains open until 14 May 2020 and pay cuts may be as high as 44% for high earners.

The conclusion of an agreement on pay cuts would continue the recent history of fruitful collaborative efforts between the players and their employers, which include the ground-breaking new contracting model, agreed to in 2019. However, the potential fallout from an agreement on pay cuts and the related contractual clause remains to be seen.

Acting Cricket South Africa (CSA) CEO, Jacques Faul, has said that, contrary to the trend in other sporting codes, they have not been badly enough affected by Covid-19 that salary reductions will need to be implemented for the 2020/21 season. This news is welcome considering the turmoil which has enveloped CSA recently, with the organisation missing out on significant sponsorship funding, the resignation of a number of CSA board members and the suspension of the CEO, Thabang Moroe, pending a forensic investigation. Faul said that whilst the position is that players’ remuneration for this season will be unaffected, except for the possible loss of international match fees and win bonuses, the situation regarding next season is uncertain and would need to be assessed going forward.

International

The leadership of the English Premier League have facilitated negotiations on pay cuts for players, but it appears that a collective resolution has been unsuccessful. Discussions are now taking place on a club-by-club basis. Players at certain clubs have agreed to wage cuts or deferrals. No clubs in the Premier League have placed, or attempted to place, players on furlough, the UK’s national job retention scheme. The power which players possess is a significant factor in these negotiations and an important dynamic is the possibility of players having grounds to terminate their contracts in the case of non-payment, without clubs receiving compensation. They are extremely valuable assets for clubs, in terms of their on-field performance, their monetary value in the form of transfer fees and their commercial value, including the use of their image rights.

According to the Athletic, since the Canadian Premier League – the national soccer league in only its second season – announced its unilateral decision to implement 25% wage deferrals on 13 April, a players’ union has been promptly formed. This decision was taken without seeking the players’ input and has revived efforts to form a union and have it formally recognised.

Women’s football globally is in a particularly precarious position, including from the perspective of players’ employment law rights. This is discussed in some detail in a paper published by FIFPro, the global federation of players’ unions.

Clubs across English rugby’s Gallagher Premiership have presented their players with a proposal of 25% pay cuts, with the Rugby Players Association indicating that some clubs have simply imposed reductions unilaterally, without the required consultation. All rugby below the premiership has been cancelled and the premiership season, suspended indefinitely. It has also been reported that clubs are considering putting their squads on furlough, which would result in players being able to claim the maximum amount of £2 500 per month before tax. Rugby Pass estimated in 2019 that the average annual salary of a Premiership player is £120 000.

Contrary to the English situation, the Welsh Rugby Players’ Association and Welsh rugby’s governing body have agreed that the players of all four Welsh professional teams will take a pay cut of 25% for a period of three months, subject to players receiving certain minimum amounts.

Interestingly, the standard Scottish Professional Football League players’ contract contains a schedule which provides that contracts are suspended in the event of the league being suspended, unless “the club is exempted from such suspension or the club otherwise determines”. This open-ended clause is understood to cover the current situation and provides clubs with significant bargaining power in seeking to reach agreement on pay cuts.

In the United States, the current collective agreement between the National Basketball Association and the players’ union, the National Basketball Players Association, contains a force majeure clause that provides specifically for epidemics. The clause states that for every game which is cancelled due to such an event, players will receive 1.08% less of their remuneration for the entire season. The season has been suspended indefinitely. ESPN reported that against this background, the league and the players’ union have agreed that beginning in May, 25% of players’ salaries will be held in escrow (i.e. held in trust), with conditional repayment depending on the number of games which are ultimately cancelled. The agreement allows for the league to enforce the force majeure clause and for reductions to be gradually implemented during the current season and into the 2020/21 season. If no further games are played, each player will lose approximately one quarter of their total salaries for the season.

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