Term Limitations in Competitive Sports: Are All German Professional Sports Contracts Invalid?

The Labour Court Mainz is currently creating quite a stir in German professional sports. For decades, it was customary and recognized by the courts that contracts of professional athletes could be limited. The Labor Court in Mainz now sees this differently.

German goalkeeper Heinz Müller brought an action against his club Mainz 05. He had been under a fixed-term contract with the club since 2009, most recently between 2012 and summer 2014. The club Mainz 05 was of the opinion that because of uncertain progress in performance of the player (Müller, in 2012, was already 34 years old), and because of it being customary practice in the industry, a fixed-term contract was permissible. However, the Labour Court Mainz instead agreed with Müller's complaint, and explained that with regard to the last contract of employment, there were no substantive exculpatory reasons. The central assertion of the Labour Court is that even in professional sports, the mere uncertainty of future performance does not justify a limitation.

The club Mainz 05 has announced plans to appeal. The case carries explosive force and is expected to be decided before the Federal Labour Court or the European Court of Justice. This can take time, and there is uncertainty whether countless professional sports contracts contain invalid fixed-term clauses.

The decision can hit the clubs hard. That the uncertain progress in performance of professional athletes should not justify a term limitation is difficult to accept. Careers of professional football players regularly end no later than in the athlete’s late 30s. This must be taken into account. Either the legislature must intervene, or collective bargaining agreements in professional sports must regulate practice-oriented term limitations in the future. First, however, the opinion of the Labour Court Mainz must contend with the judicial instances. Thus, the game is not over by a long shot. We will keep you posted.

Contractual flexibility clauses must be clear and unambiguous to give an employer a right to make unilateral changes

In the case of Norman and others v National Audit Office UKEAT/0276/14, the Employment Appeal Tribunal (“EAT”) confirmed that flexibility clauses in employment contracts which seek to give employers the right to make unilateral changes to the contract’s terms will be interpreted restrictively against employers.

In reaching its decision, the EAT overturned an Employment Tribunal’s decision that the National Audit Office (“NAO”) had the power to unilaterally vary its employees’ contracts in relation to their leave and sick pay terms.

The Facts

Under their contracts of employment, NAO staff had entitlements to ‘Privilege Leave’ (an additional leave benefit beyond standard holiday entitlements) and generous enhanced sick pay benefits. The NAO sought to reduce those benefits and commenced consultation with the employees’ trade union in 2012. That consultation was ultimately unsuccessful in reaching agreement and, in spring 2013, the NAO sought to impose the changes on its employees unilaterally, relying on what it asserted was a clause in the employees’ contracts allowing the NAO to make unilateral changes without the agreement of the employees.

The NAO’s HR Manual contained two key provisions in this respect. The first (the “Variation Clause”) covered changes to terms and conditions of employment and provided that:

  • Conditions of service are “subject to amendment”
  • Any significant changes will be notified to staff by one of a number of specified methods

The second provision entitled “Settlement of Disputes” stated that:

  • Wherever possible, management and the Trade Union will try to reach agreement before implementing any changes that affect staff
  • Changes to working practices or terms and conditions will not be implemented whilst negotiations are taking place, or whilst the issue is under referral to ACAS, unless management considers this essential to the operation of the NAO

The employees sought a declaration from the Employment Tribunal that their terms of employment were unchanged and contained the original Privilege Leave and Sick Pay provisions. However, the Employment Tribunal found in the NAO’s favour.

The EAT’s decision

On appeal, the EAT disagreed with the Employment Tribunal for two reasons:

1. The Variation Clause was not sufficiently clear and unambiguous to give the NAO a unilateral right to amend the employees’ contractual terms.

The statement that conditions of service are “subject to amendment” did not, when read objectively, give the NAO discretion to change contractual terms unilaterally. In fact, the provision said nothing about which party to the contract could amend it and how. The stipulation that significant changes would be notified to staff did nothing to change that, and was entirely consistent with the NAO not having discretion to amend contractual terms unilaterally.

2. The Settlement of Disputes provision did not give the NAO the right to amend the contracts unilaterally.

The EAT made this finding for two reasons. First, on the facts, the provision did not have contractual effect, such that it could not give the NAO a unilateral variation right. Second, even if it did have contractual effect, it could at most give the NAO a power to unilaterally implement changes which were “essential to the operation of the NAO”. The EAT was not persuaded that the NAO had met that criterion.

The EAT therefore determined that the employees’ Privilege Leave and Sick Pay provisions remained unchanged.

What does this decision mean for employers?

The case emphasises the need to be cautious when seeking to rely on purportedly wide flexibility clauses to make unilateral changes to employees’ terms and conditions without their consent. Clear and unambiguous wording will be required to give an employer a discretion to make changes and, in most cases, the discretion will need to be expressly stated to cover the area which the employer is looking to change. For that reason, when drafting employment contracts, express reference should be made to terms where flexibility is likely to be required, such as an employee’s place of work. A blanket general right for the employer to make changes unilaterally to any term of the contract is unlikely to work.

The duty on employers to maintain their relationship of trust and confidence with employees means that, whatever the contractual position – before making unilateral contractual changes – consultation with employees should be undertaken. In this case, the NAO had consulted with the employees’ trade union and taken measures to lessen the impact of the changes. However, that was not enough to overcome the absence of an adequate flexibility clause.

Where employee consent is not forthcoming and changes that are not permitted by the contract are required, an employer could decide to follow a dismissal procedure and offer to reengage the employees on the required new terms. That is, however, always a risky process, not least because it triggers the right for employees who qualify to bring unfair dismissal claims. The process needs to be managed carefully to limit the scope for successful unfair dismissal, breach of contract and other claims.

Q & A - What does the new "employee shareholder" status mean for employers?

From 1 September 2013 new and existing employees can now give up certain employment rights in return for shares in their employer.   

We take a look at some of the matters employers will want to consider when deciding whether to make use of this new status.

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Zero-Hours Contracts - A Hot Topic

Laura Juillet and Amy Ferrington co-authored this post.

Zero-hours contracts have been in the news a lot recently. We take a look at their legal status, and consider the pros and cons of their use for both employers and workers.

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Employment Law Watch - UK case law update

It has been a busy few weeks with several new interesting employment cases being reported – here is a quick round up of a few that caught our eye: 

There is yet another warning to employers on the importance of getting that contract drafting just right, as Blackburn Rovers found out to their cost (that cost being £2.25 million). And victimisation has been a hot topic in the last few weeks – we look at three new important victimisation cases below. 

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Employment Law Watch - UK case law roundup

Today we take a brief look at a couple of interesting employment law cases from the last two weeks: Anderson v London Fire and Emergency Planning Authority  shows us how not to draft a pay review clause, and HM Land Registry v McGlue looks at when aggravated damages in discrimination cases might be appropriate.

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Plans for new 'owner-employee' employment contracts announced

The Chancellor of the Exchequer, George Osborne, has announced plans to introduce a new type of employment contract – an 'owner-employee' employment contract. ‘Owner-employees’ will receive between £2,000 and £50,000 worth of shares (which will be exempt from capital gains tax) in exchange for giving up certain rights, including redundancy rights, the right to claim unfair dismissal and the right to request flexible working or time off for training.  Owner-employees will also be required to give 16 weeks’ notice of their return from maternity leave, rather than the current 8 weeks.

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Expiry of fixed term contracts and UK collective redundancy consultation

 

The Employment Appeal Tribunal (EAT) has provided guidance on when the expiry of a fixed term contract will count toward the number of dismissals proposed by an employer that triggers collective redundancy consultation obligations.

The EAT held that employees who were dismissed by virtue of the expiry of their fixed term contracts were not dismissed for “redundancy” under the wider definition of that concept contained in s.195 Trade Union and Labour Relations (Consolidation) Act 1992 (TULCRA) and therefore their dismissals did not count toward the number of dismissals required to trigger collective redundancy consultation obligations under s.188 TULCRA minimum 20 employee threshold. (University of Stirling v University and College Union). This decision should be treated with caution since not all dismissals on expiry of fixed term contracts will fall outside s.188 obligations. Such dismissals may ‘count’ when the dismissals are part of a wider exercise involving job losses and in other circumstances where the dismissal does not relate to the employee’s performance or conduct.

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What's coming up in UK employment law this October?

In this alert we outline the main changes in UK employment law this October. The most notable piece of legislation coming into force this October is the Agency Workers Regulations 2010, but there are quite a few possible changes afoot. These include a forthcoming increase to the qualifying period for employees to bring unfair dismissal claims from one year to two years, as well as introducing fees for lodging employment tribunal claims.

Agency Workers Regulations

On 1 October 2011, the Agency Workers Regulations 2010 will come into effect. These controversial new regulations (the Regulations) will have a dramatic impact on the relationship between agency workers, agencies and hirers. They will provide increased protection to agency workers, giving them from day one equal access to facilities and amenities at work and the right to receive information about new positions within the hirer. Most importantly, after working for a qualifying period of twelve weeks, agency workers also have the same right to basic working and employment conditions as those enjoyed by workers recruited directly by the hirer. Both the hirer and the recruitment agency may be liable for breach, depending on the type of claim.

What you should be doing:

  • make an assessment of the skills required for roles carried out by your agency workers and your employees to assess whether the agency workers have an appropriate comparator for the purposes of the Regulations;
  • carry out an audit of your agency workers, paying particular attention to their basic terms of employment, and comparing them to the terms of “comparable” employees;
  • provide to agencies appropriate information of comparable workers (including standard terms of employment, pay scales and holiday entitlements);
  • put in place HR systems to accurately calculate the qualifying period for each agency worker;
  • consider mechanisms to mitigate the impact of the Regulations and take advice as necessary.

For more information concerning the basic rights of hirers and agency workers, please see our client alert.

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UK Agency Workers - understanding the new regulations

This post was written by Thomas Ince and Carl de Cicco.

The Agency Workers Regulations 2010 (“AWR”) are due to come into force on 1 October 2011. The AWR put in place the requirements of the controversial EU Temporary Agency Workers’ Directive, which has to be implemented by 5th December this year. Last week, rumours circulated in the media that there may be a last minute “watering down” of the AWR by the present government. This seems unlikely, particularly because the AWR has already been scrutinised carefully by the new coalition government after they came into power. The Conservatives were unhappy about the proposed 12 week qualifying period which was not set out in the EU Directive. However, having conducted a review, nothing was changed because the AWR was based on an agreement between the CBI and the TUC made prior to the election and could not be changed. We will, of course, update you on any last minute changes to the AWR, but in the meantime we have prepared below a short summary of the basic elements of the AWR.

The AWR will apply to the relationships between agency workers, agencies and hirers. They offer protection to agency workers, providing them with equal access to facilities and amenities at work, the right to receive information about new positions within the hirer. After working for a qualifying period of twelve weeks, agency workers would also have the right to basic working and employment conditions that are equal to those enjoyed by workers recruited directly by the hirer. In May 2011 the government published guidance (the “Guidance”) to help hirers and agencies understand the implications of the AWR and their responsibilities under them.

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Breach of contractual disciplinary procedure may lead to significant loss of earnings claims

The Court of Appeal has ruled that an employee subject to a contractual disciplinary procedure, who was dismissed for misconduct in breach of that procedure may, in principle, recover damages for loss of future employment prospects. The case of Edwards v Chesterfield Royal Hospital NHS Foundation Trust represents a significant departure from decades of established case law concerning the calculation of damages for wrongful dismissal. The decision (which we understand is being appealed) potentially opens the door to huge loss of earnings awards for employees who are unable to find alternative employment due to loss of reputation because of their dismissal.

What happened in this case?

Mr Edwards was employed by the Chesterfield Royal Hospital Trust (the “Trust”) as a consultant surgeon. In 2006 he was dismissed for gross professional and personal misconduct following a disciplinary hearing and had since then been unable to obtain work as a permanent consultant. Mr Edwards maintained that if the contractual disciplinary procedure to which he was subject had been followed correctly, he would never have been dismissed. He brought a High Court claim seeking damages for breach of his contract of employment in the sum of little under £4.3 million (including a loss of earnings claim for £3.8 million to cover his loss of employment income from dismissal to retirement at age 65).

Usually a wrongful dismissal claim would be limited to loss of earnings over the contractual notice period and, where there is a contractual disciplinary procedure, the period in which the procedure should have been followed. Since Mr Edwards’ claim went beyond this (to include loss of earnings to retirement), the Trust applied for an order from the Court that any damages which exceeded the loss of earnings over the notice period should be struck out. This matter was dealt with as a preliminary issue and for those purposes the Court only had to consider whether Mr Edwards had any real prospect of recovering, after trial, damages in excess of the loss of earnings over the notice period. For this purpose, it was entitled to assume that Mr Edwards would succeed in all the allegations made in his Particulars of Claim.

The issue finally ended up before the Court of Appeal, and the issue the Court had to consider was whether Mr Edwards was entitled to damages for loss of professional status in circumstances where, if the disciplinary proceedings had been conducted properly and not in breach of contract, he would not have been dismissed. The Court concluded that damages should not be limited to damages over the notice period and the time which the employer would have taken for the disciplinary procedure to be followed.

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Unilateral contractual variations and employee handbooks

In Bateman and others v Asda Stores Ltd, the Employment Appeal Tribunal (EAT) upheld an Employment Tribunal’s decision that Asda was entitled to introduce new pay terms without its employees’ consent because it could rely on a statement in its staff handbook reserving a right to make unilateral variations to the terms of its employees’ contracts of employment.

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