Why Football Federation Australia’s new salary cap proposals may be unlawful

The author’s previous article (available here) examined the terms of the current dispute between the Football Federation of Australia (FFA) and the Professional Footballers Australia (PFA) over the game’s new collective bargaining agreement (CBA).

This article moves on to consider whether the FFA’s new salary cap proposals (one of the core issues of the dispute) could constitute an unlawful restraint of trade. The author gives a short overview of leading cases in common law restraint of trade in sports, and then analyses how the doctrine may be applied to the current dispute should there be a legal challenge.

RESTRAINT OF TRADE CASE LAW

Historically, several types of labour market restraints have been used by sports organisations to regulate the employment of players. Under English and Australian common law, such controls have been challenged as an unreasonable restraint of trade - and on several occasions, have been held to be unlawful.¹ These restraints include zonal/residential requirements,^{2, 3} maximum wage,⁴ retention and transfer systems,⁵ and player draft.⁶

(i) Eastham v Newcastle United Football Club

In the early days of player unions, doctrine of restraint of trade was used to overturn the English Football League (EFL) retain and transfer system in Eastham v Newcastle Football Club.⁷ In essence, the retain and transfer system allowed clubs to retain players even after contractual obligations had been completed. For players placed on the transfer list, league regulations allowed them to appeal to the League Management Committee (LMC), if the player believed the transfer fee fixed by his club was excessive. The LMC had powers to determine transfer fees or grant free transfers. However, players placed on the retention list did not have such right of appeal, and could in theory be retained indefinitely without pay, if the player did not sign a new contract in the absence of an acceptable transfer fee from another club. George Eastham wanted to leave Newcastle United at the end of his contract to join Arsenal. However the club wished to retain Eastham, despite his contract having expired - for the purpose of holding out for a transfer fee in consideration for releasing Eastham.

Backed by the English Professional Footballers Association, Eastham sued the club for a declaration that the system was an unreasonable restraint of trade. Wilberforce J found that the retain and transfer system was an unreasonable restraint of trade. Further, he found (EFL) did not discharge the onus of proof that the retention system in combination with the transfer system, was no more than was reasonable or proportionate to protect its legitimate interests.⁸

(ii) Johnston v Cliftonville Football and Athletic Club (“Cliftonville”)

In Cliftonville, the Ireland Football League (IFL) provisions allowed for a maximum signing on fee of £120, and a weekly wage of £12. Johnston (the player) was paid extra money on top of contracted amounts in contravention of IFL regulations. Johnston commenced proceedings to have the maxima weekly and signing-on fee declared an unreasonable restraint of trade. He claimed it was a fetter on his freedom to bargain freely on his remuneration. The court held that the maximum wage was an unreasonable restraint of trade. Further, the onus was on IFL to prove the restraint was reasonable with reference to the interest of both parties and the public interest. The court held that this burden had not been discharged by the defendant. ⁹

(iii) Adamson v New South Wales Rugby League (“Adamson”)

In Adamson, 170 rugby league players challenged the legality of the New South Wales Rugby League (NSWRL) internal draft on the basis that it was an unreasonable restraint of trade. The internal draft system was for contracted NSWRL players who were off contract, and wished to continue to play in the NSWRL with another club. The players submitted their terms, agreeing to play for the club that drafted them, provided the club was no more than 100 miles away from the ground of the club he last played with in the competition. The internal draft was in contrast to external drafts, which applied to players outside the competition including juniors, country and overseas players. In essence the external draft was for players not already contracted to a club.

The Full Federal Court of Australia held that while the NSWRL internal draft did ‘operate to some degree’ to assist with competitive balance, the overall effect was that the restraint imposed on players went beyond what was required to protect the legitimate interests of the league.¹⁰