UNILATERAL EXTENSION CLAUSES AS A MECHANISM TO AMORTIZATION INVESTMENTS MADE BY PROFESSIONAL FOOTBALL CLUBS IN COLOMBIA
Under Colombian Labor Law, the maximum term for fixed-term contracts is three years. From an economic perspective, this term can be unfavorable for professional football clubs wishing to invest large amounts in hiring world-class players or young promises.
This maximum term seeks the protection of employees from potential abuses by the employer. However, professional football clubs are also aware that this period is very limited in terms of trying to maximize an athlete’s performance, in both sporting and economic aspects.
The dichotomy between the need to professionalize this sport, respecting the fundamental rights of players at all costs, and the possibility of maximizing the profits of the clubs that acquire their economic rights, understood as an investment, necessarily entails the implementation of alternative mechanisms to level the balance.
To that extent, it is necessary to draw attention to a concept that, although widely and openly criticized by some lawyers in Colombia, in our opinion, could serve as a solution to this problem if used correctly: unilateral extension clauses (cláusulas de extension unilateral) in employment contracts.
Unlike bilateral renewal clauses that require the express or implied consent of both parties, unilateral extension clauses establish the possibility for a contractual party to reserve the exclusive right to unilaterally extend the employment relationship with the other party.
The topic of unilateral extension clauses in employment contracts is one of the most controversial and complex discussions in football law. Firstly, we must bear in mind that both FIFPRO and ACOLFUTPRO (organization that represents professional footballers in Colombia) oppose their application and consider them to openly violate the right to work and the free movement of footballers, among other reasons, because they could be interpreted as an abuse of the negotiating position of the clubs vis-à-vis the players, as it is not a reciprocal right (the FIFA Dispute Resolution Chamber endorsed this last argument in a 2004 ruling). However, it must also be noted that there are no FIFA rules or public judgements of its Dispute Resolution Chamber – DRC, and/or of the Court of Arbitration for Sport – CAS, expressly prohibiting the use of these clauses in all circumstances.
Although we are aware that this definition can be regarded as yet another figure of oppression of the employee, as his/her right to work and/or to freely choose a profession or trade may be limited, the reality is that the correct use of these clauses would benefit both the professional football clubs and the players.
On one hand, the clubs would have the possibility of repaying their investment by extending the term of the provision of services of the player and obtaining economic profits from, for example, the exploitation of the player’s image, of television rights, or from the ticket sales of matches, among others.
On the other hand, these clauses are also beneficial for players insofar as they provide work stability with the same institution and the possibility of substantially improving their working conditions.
In this respect, in view of some of the problems clubs are currently facing, most of which are related to the early migration of players to European clubs, unilateral extension clauses offer the possibility for players to develop in a reasonable and sufficient time of formation and growth with their clubs, and at the same time to enjoy an improvement in their working conditions.
However, the arbitrary use of this figure could generate negative consequences and violate the fundamental rights of players. For this reason, CAS has allowed the validity and enforceability of such clauses provided they meet certain criteria and the general circumstances of the underlying contract and the balance between the parties are assessed.
In addition, for the most part, CAS follows the criteria established by Professor Wolfgang Portmann, consistent of a series of guidelines (the application and/or relevance of which will depend exclusively on the panel reviewing the topic) that permeate the arbitrariness of these clauses and protect the minimum and fundamental rights of the player, notably:
- ➢ The potential maximum duration of the employment relationship must not be exces- sive;
- ➢ The unilateral extension clause must be exercised within an acceptable deadline before the expiry of the current contract;
- ➢ The original contract must define the salary raise triggered by the unilateral extension clause;
- ➢ The content of the contract must not result in putting one party at the mercy of the other;
- ➢ The unilateral extension clause must be clearly emphasized in the original contract so that the player can have full consciousness of it at the moment of signing;
- ➢ The extension period should be proportional to the main contract; and
➢ It would be advisable to limit the number of unilateral extension clauses to one.
Thus, it follows that, if the above criteria are met, the inclusion of unilateral extension clauses in employment contracts could be valid and enforceable in light of the CAS, i.e. from the perspective of Sports Law.
An example is the case of Maxi López and Gremio (CAS 2013/A/3260), where the CAS established that unilateral extension clauses are permitted provided they meet the Portmann criteria. For such purpose, it would be necessary to agree on salary increases according to the “market value” of the player, potentially the payment of signing or renewal bonuses and, in general, to include conditions where it is clear that the player is being fairly compensated and that the clause was not agreed with the purpose of paying the player less than what it would earn in a new contract with the same or a different club.
From the perspective of Labor Law, however, it is necessary to bear in mind that, under Colombian regulations, the three-year limitation would not allow the execution of a three- year fixed-term employment contracts with unilateral extension clauses to renew it (e.g. for one more year). The reason for this is that, under Colombian law, from the third year onwards, any renewal or extension would have to be agreed between the two parties, either expressly or tacitly, or through an automatic renewal clause with a reciprocal right of prior notice.
Notwithstanding, bearing in mind the benefits and positive impact that could be generated by a responsible use of these clauses, such as improvements in players’ working conditions, it would be worth analyzing the possibility of allowing such clauses for the employment contracts of the sports industry, which dynamics are substantially different from those of many other sectors, and which could, eventually, be more favorable for the parties to the contract.
In conclusion, the correct inclusion of these clauses could have the effect that, in economic and sports terms, the professional football clubs in Colombia can actually amortize their investment, improving the cash flow and ensuring a longer term to recover the investment made when hiring the players. Similarly, and as mentioned above, it would give players the possibility of greater work stability with their clubs of origin, along with substantial improvements in their working conditions and a consolidation of the country’s football level.