The state of South African rugby: Labour relations, Covid-19 and the new model for player contracts (Part 1)

The South African rugby landscape has changed significantly in a year. In response to Covid-19, Super Rugby in its ordinary format is suspended, test matches are postponed indefinitely and pay cuts and domestic competitions are the order of the day in Sanzaar. In mid-2019, a ground-breaking new model for player contracts, which introduced a salary cap, was agreed to and has since come into force. The primary aim of the new contracting model is to improve the effectiveness of the system, by ensuring financial prudence and better managing the retention and development of talent in South Africa. The situation surrounding the Covid-19-related collective agreement on pay cuts, concluded in April 2020, has grown more nuanced and fascinating from a legal perspective, in the aftermath of the opening and closing of the termination window. This was a 21-day period within which players were able to terminate their contracts to join foreign clubs.

This most recent collective agreement continues the recent history of fruitful collaborative efforts between the three primary players in the local industry, being SA Rugby and the collective representatives of the professional players and the various unions. The ability of the parties to pull in the same direction, which resulted in the new contracting model and the April collective agreement, is proving to be a valuable, and potentially pivotal, protective mechanism in managing the exodus of players overseas and the financial impact of Covid-19.

Adding to the state of flux, there have been extensive talks – endorsed by World Rugby – on the formation of a global calendar and there is sustained speculation that South Africa may leave Super Rugby to compete in the northern hemisphere. Ultimate Rugby reported that according to Rapport, the South African Super Rugby franchises could join an expanded PRO14 competition from as early as 2021. At the same time, there are calls from Australia and New Zealand to reformat Super Rugby to exclude South Africa. Furthermore, the ownership structures in global rugby are undergoing fundamental change, with private equity firm CVC gaining an increasing foothold in northern hemisphere rugby and SA Rugby CEO Jurie Roux currently engaging with private equity on possible partnerships.

The impact of Covid-19 and the collective agreement on pay cuts

SA Rugby, the national governing body, funds professional rugby in South Africa through payments made to the 14 unions from the considerable revenue generated through broadcast rights agreements, as explained by the Daily Maverick. In April 2020, following engagements in the multiparty Industry Covid-19 Committee (Covcom), SA Rugby announced the Industry Financial Impact Plan, in terms of which R700 million to R1 billion (also reported as R1.2 billion) would be cut from its budget over the period until the end of the year. This is the result of matches not being played, which causes significant decreases in the primary forms of income through lost broadcast revenue and sponsorship penalties.

In April, a collective agreement was concluded that resulted in pay cuts being implemented in the South African rugby industry from the end of May. We made reference to this agreement in our previous article. From the perspective of MyPlayers, collective bargaining was necessary to protect their members from having to negotiate individually on salary reductions and the termination of contracts. MyPlayers is the commercial arm of the South African Rugby Players Association (SARPA), the trade union representing professional players in the country. Eugene Henning, CEO of MyPlayers, said that collective bargaining was attractive in this situation, because the unforeseen events are not anybody’s fault. The parties to the agreement are SA Rugby, Sports Employees Unite (SEU) as the trade union representing non-playing employees in the industry, the South African Rugby Employers’ Organisation (SAREO) and MyPlayers.

Craig Ray, for the Daily Maverick, reported on the details of the agreement. Salary reductions, as opposed to deferments, will be applied to employees across the entire industry. This applies to everyone from senior management at SA Rugby and at the unions, to workers employed by those organisations. Equal salary reductions, proportionate to income, are calculated on a sliding scale with a maximum cut of 43% and are subject to employees earning below R240 000 a year being exempt from pay cuts. This would contribute 12.5% to the total forecast budget cuts of R1 billion if no rugby is played this year. The salary reductions will apply until 31 December 2020, subject to revision by the Covcom should rugby return this year.

Included in the agreement was the controversial clause in terms of which players had a 21-day window – from 24 April to 14 May 2020 – within which they were entitled to cancel their contracts with immediate effect to take up opportunities with overseas clubs, without unions receiving any compensation. According to SARugbymag – who have described the clause as allowing overseas moves, impliedly excluding moves to other South African teams – it is believed that this clause was proposed during meetings with the player agents. Importantly, the agreement also provided that the unions were prohibited from offering discretionary salary increases or bonuses, with unions disallowed from entering into negotiations or making counter-offers to players during the window. Henning explained that they could not allow this, in the interests of equal treatment. Underlying the inclusion of this clause is the principle in the law of contract in terms of which an employee may cancel their contract of employment in response to a material breach of contract by their employer, such as the unilateral implementation of a pay cut.

The players had negotiated for a 60-day window, but settled on 21 days. Henning told the Daily Maverick that this clause – the likes of which has not appeared in any agreements of this nature in the other major rugby playing nations – was included, because of the European transfer window being open. Agreement would reportedly not have been reached if the players had insisted on a longer window and they were told that the agreement would ensure the greatest level of job security during the pandemic.

Speaking to SARugbymag, Henning acknowledged the risk of marquee players leaving the country, noting that it would not be possible to ensure both that these players would not leave and to reduce the industry’s cost base. The likelihood of players going overseas becomes even more pronounced at the end of the four-year world cup cycle. However, clubs in Europe and the United Kingdom have been hit hard by the economic slowdown, decreasing their spending power. There are indications that the manner in which big-name foreign players are recruited, especially in France, may be subject to change, particularly in light of Covid-19. On the other hand, as was reported by rugby.com.au, salaries in the Japanese game have been largely unaffected by the pandemic, making the Top League a particularly attractive prospect at the current time.

Aside from being evidence of broadly aligned interests and of a healthy, constructive collective bargaining relationship in the industry, the inclusion of the termination clause in the agreement seems to show how much of a corner the unions and SA Rugby were backed into, needing to reduce the burden on their payroll in light of drastically reduced income. The unions would, however, have viewed the reduced spending power of foreign clubs as mitigating the risk of losing players. The players, too, would have been wary of being able to arrange a suitable move overseas at the particular time and in such a short window. The resultant agreement, including this clause, struck a balance between the interests of the parties.

In Australia, where professional rugby is in a state of serious disrepair, pay cuts were implemented by Rugby Australia, seemingly without a collective agreement, resulting in highly-regarded players leaving the country in acrimony. The agreement reached in South Africa prevented this kind of turmoil and uncertainty and may have resulted in less players leaving than would otherwise have been the case.

In the ordinary course of events, early termination of contracts would only take place in the case of a player being dismissed for a “fair reason”, such as misconduct, where either party is guilty of a material breach of contract or where the parties agree to part ways prior to the expiry date of a fixed-term contract, which may involve the payment of compensation, effectively a transfer fee. The current collective bargaining agreement (CBA) between the players and their employers, entered into in January 2020, includes a “negotiations window” of 180 days prior to the expiry of players’ contracts, during which they are entitled to enter into negotiations with suitors.

The fallout from the termination clause

There are fascinating subplots in the aftermath of the opening and closing of the termination window. A number of players activated the termination clause to join foreign clubs. Springboks Lukhanyo Am and Makazole Mapimpi will remain in Durban, with the Sharks agreeing to Mapimpi taking a lucrative sabbatical from September 2020 with the NTT Docomo Red Hurricanes in Japan, who will be coached by Johan Ackermann. Similarly, 2019 Men’s World Rugby Player of the Year Pieter-Steph du Toit will remain in Cape Town. On the other hand, another marquee player and Springbok, Malcolm Marx, is leaving the Lions to join the Kubota Spears in Japan.

Du Toit submitted notice of termination of his contract during the termination window, as was confirmed by WP Rugby in a statement on 16 May. There were reports of lucrative interest from France and Japan. In a subsequent statement issued on 24 May, WP Rugby confirmed that du Toit had “withdrawn” the contract termination, taking the agreed pay cut, and that he has committed his future to the franchise until at least the end of the 2021 British and Irish Lions tour. This would technically have had to involve WP Rugby agreeing to the reinstatement of his contract.

There are a few intriguing aspects to du Toit’s re-commitment to the Western Cape. WP Rugby, in the 24 May statement, made reference to du Toit and others having “purportedly cancelled” their contracts. They also stated: “the existing contracts between the players and the Company are considered as binding and WP Rugby has reserved the right to hold players to these contracts or exercise other rights that may be held”. This indicates that, at the time, WP Rugby viewed the players’ termination of their contracts as not being valid and binding.

The Daily Maverick reported that before announcing the exits of Jean-Luc du Plessis and Cobus Wiese, the WP Rugby leadership had met on 15 May to decide whether to pull out of the Covid-19-related collective agreement. Zelt Marais, President of the Western Province Rugby Football Union (WPRFU), which owns WP Rugby, had faced anger from his own board, as he had reportedly bound WP Rugby to the collective agreement without a proper mandate to do so and without properly consulting the WP Rugby company directors. According to a source close to the negotiations who spoke to the Daily Maverick, after the terms had been agreed in principle by the parties on 30 April, it was too late for WP Rugby to push back on the termination clause. The Cheetahs and the Sharks were reportedly the only unions who dissented against the terms of the collective agreement.

WP Rugby had clearly been attempting to leave the door open to claiming that they were not bound to the collective agreement, which they may have deemed a necessary course of action if du Toit, one of their most high-profile players, had sought to follow through with his contract termination and sign for a foreign club. The WP Rugby position was contradictory; they referred on the one hand to termination notices being submitted prior to the deadline, thereby implying that the termination clause applied to their players, and at the same time they stated that they could enforce specific performance, which would require the players to see out their contracts.

After du Toit had given notice of termination, his agent told the Daily Maverick that his client was staying at Western Province, but that there was “some paperwork to finalise”, saying “there may be one or two sticking points there”. From a legal perspective, the reports on the situation were contradictory. Reference was made by the Daily Maverick to du Toit being engaged in negotiations with WP Rugby and that he was officially still employed by the franchise, but that if he did not receive the terms sought, he would leave. SuperSport referred to du Toit having negotiated with WP Rugby about recommitting “on the same deal” and SARugbymag referred to him “negotiating a new contract” and needing assurances to confirm his commitment. Stormers coach John Dobson was quoted by SuperSport as saying that this was not a new contract and that du Toit had rescinded his decision to terminate his contract, with a few minor amendments made to the contract.

According to the Daily Maverick, at that stage du Toit was “waiting for a new contract” with allowances that would provide him with more scope to supplement his income from commercial ventures. SARugbymag reported that du Toit had opened negotiations on his next contract and that agreement was reached on changes to the terms governing his image rights. The players’ commercial image rights are dealt with collectively in terms of the CBA. These rights are acquired by franchises either through SA Rugby, who acquires the rights by transfer from the players via a purpose-built trust, or directly, where no such transfer has taken place. The terms of the CBA are restrictive in terms of commercial rights. This includes players being required to obtain their franchise’s consent before they can make any commercial appearance or enter into marketing contracts. The franchise is entitled to withhold their consent where there is conflict with their sponsors or where they are otherwise prejudiced.

Removing or diluting these restrictions would be extremely attractive to du Toit and could be especially profitable for a player of his stature and commercial appeal. Importantly, with commercial rights generally being dealt with in a tripartite arrangement and du Toit being a Springbok, SA Rugby may have been involved in any decision to change the terms applying to him. One suspects that this might be a concession that franchises and SA Rugby will be willing to make going forward to retain top players, providing them with greater autonomy over commercial revenue derived from their image rights without necessarily having to pay them more. According to Rugby365, Siya Kolisi, Springbok captain and the most influential person in rugby in 2020 according to Rugby World magazine, is one of the few South African players who has control over his own image rights. Kolisi has recently signed a management deal with Roc Nation Sports International and one can imagine the value of his image rights and the plethora of commercial opportunities which are available to him.

Of course, the April collective agreement expressly prohibited teams from making counter offers and negotiating with their players. SARugbymag reported on 24 May that SAREO had given its member, WP Rugby, until 25 May to prove that they had not breached the collective agreement by keeping du Toit. SAREO could then have lodged a dispute, which may have been followed by arbitration. Framing du Toit as having recommitted on the same deal implies that there was no material change to his contractual terms. The pertinent questions which arise are what precisely was prohibited in the collective agreement in terms of negotiation and whether WP Rugby technically made such a counter offer or entered prohibited negotiations with du Toit. It would need to be determined whether any agreement or negotiations on his next contract and a change of the terms concerning his commercial rights amounts to prohibited conduct. There were no further reports on whether this issue was resolved, which may mean that WP Rugby provided an explanation which SAREO deemed satisfactory.

In May, SARugbymag referred to Rapport newspaper reporting that in response to Malcolm Marx seeking to enforce the termination clause, the Lions had sought clarity on whether Marx was within his rights to cancel his contract – set to commence from 1 June 2020 – before it had come into effect. Once the legal position was clarified, as Lions CEO Rudolf Straueli told News24, the Lions entered active negotiations with Marx to keep him in Joburg, with national Director of Rugby Rassie Erasmus involved in the discussions. When the Lions and Marx agreed in 2019 that he would go on a Japanese sabbatical after the world cup, it was widely reported that he had agreed to an extension until 2021. This now seems to have been wide of the mark. Marx’s departure indicates that the likelihood is that during the termination window he was indeed entitled to cancel the future contract, or extension of his prevailing contract.

To be continued: Part 2 – The new model for player contracts, the salary cap and concluding thoughts

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Sports labour lawMiles ChennellsJuly 7, 2020