Professional sports contracts: Are they worth the paper they are written on?

As a matter of principle, professional sports contracts, whether it be in the NRL, AFL, A-League or Suncorp Super Netball, are more or less the same as other employment contracts. The athlete is the employee and the club that they play for is the employer. Both types of contracts set out the terms and conditions that will govern the relationship between the contracting parties and includes terms relating to salary, KPIs, length of the contract and termination of the contract. In reality though, the practicalities surrounding sports contracts are vastly different, especially regarding their termination.

A prime example of this is the news recently that Jarryd Hayne effected the end of his contract with the Gold Coast Titans to return to Sydney to fulfil his current “lifelong dream” to play for the Parramatta Eels. This isn’t the first time, nor will it be the last, that NRL players have effectively walked out on their clubs with many in the past unable to resist the lure of a well-paid gig in overseas rugby union (I’m looking at you Sonny Bill Williams and Semi Radrara). Hayne himself is a repeat offender having previously walked out on the Eels in 2014 to pursue his then “lifelong dream” to play in the NFL. Standard NRL player contracts do not generally contain an out clause so it has become somewhat common for a player seeking to move to reach a “mutual agreement” with their club whereby the contract is terminated, and the player free to go elsewhere.

The issue isn’t just confined to rugby league either. The AFL has seen a large number of players in the recent trade period, such as Jake Lever, Charlie Cameron and Josh Schache, effectively pushing through their own trade to move back to the state in which they grew up. This so called “go-home factor” has seen players like Charlie Cameron, previously of the Adelaide Crows, requesting a “compassionate” release from his contract so he could be closer to his family and friends. Cameron got his wish, he is now back in QLD and will line up for the Brisbane Lions in 2018.

This contrasts significantly with an ordinary employment context, where an employee is rarely able to up and leave with their employer highly unlikely to reach a “mutual agreement” regarding a release. Ordinary employers certainly would not allow a mutual termination because of a “go-home factor”. If an employee was adamant on leaving, their employer would insist they provide notice under their contract of employment. For particularly skilled and highly valued employees (which would be a fair description of professional athletes), their contracts generally provide long notice periods in which their employer can place them on gardening leave as well as enforce restraints of trade that prevent them from working for competitors.

From the perspective of the clubs, I often wonder why they rarely play hard ball with their players and try to prevent them from leaving. Clubs rarely insist on the performance of the player’s contract (with the Sonny Bill situation being a notable exception) despite investing significant resources in them in the form of money, development and draft picks. Nor do clubs attempt to enforce restraint of trade provisions after they have left. Clearly, clubs would much rather cut their losses and run than have a $1.2 million a year player such as Jarryd Hayne, or a number 2 draft pick such as Josh Schache, sulking in reserve grade when they could let them go, and use that money and salary cap space to recruit someone who wants to be there.

However, it would seem the pendulum has swung too far towards player power with clubs seemingly unable to ensure that their players, many of whom are extremely well paid, honour their contracts. Professional sporting clubs need to consider whether a hard-line approach should be adopted because it is clear that if the status quo remains, professional sporting contracts will continue to be worth less than the paper than are written on.

Category: News & Commentary | 1 Comment

November 18

Post employment restraints either side of the Murray – murky territory for employers and employees

We tend to think that the main differences between New South Wales and Victoria concern the trams, ‘hook turns’, and AFL. When it comes to the business, economics, law, and our fundamental rights, there is a general understanding that the law that governs one Australian should be the law the governs all.

But this is not always how things play out. And the difference in enforcement of post-employment restraints either side of the Murray river is one of the more interesting examples. A recent case from the Victorian Supreme Court demonstrated this emphatically. In Just Group Ltd v Peck [2016] VSC 614, the company brought action against their former CFO, Nicole Peck, to restrain her from joining Cotton-On Group, the company’s main rival. The court held that their clause restraining Ms Peck was unreasonable, because the restraints were broader than required to protect the company’s legitimate interests. Despite the fact that the clause was negotiated in good faith between the parties when the Ms Peck joined Just Group, the company were unable to rely upon it.

Both companies operate retail outlets homogenously throughout Australia. But had the governing law of the contract been New South Wales, there is no question the employee would have been restrained. How could such a different result be possible?

In New South Wales, the Restraint of Trade Act 1975 (NSW) allows a court to modify a restraint clause if it is unreasonable. A tiny, technical, and uncontroversial piece of legislation, which has massive impacts on the human rights of workers. To understand this difference, and how it would have applied in this case, it is important to understand how the common law applies outside New South Wales. Put simply, a clause purporting to restrain an employee, can do no more than is ‘reasonable’ to protect a legitimate interest of the employer. If it attempts to do so, then the entire clause is unenforceable, and will fail.

Ms Peck’s contract attempted to stop her for a period of two years from performing ‘any activity’ which was either:

The same as, or similar to, any part of the specialty brand and fashion business of a Group Company, in which she was involved or received confidential information about. As CFO of the whole group these companies include Just Jeans, Dotti, Portmans, Jacqui E, Jay Jays, Peter Alexander, and Smiggle.
In addition, and alternatively, she would also be unable to work for any of the companies that was specifically listed in Schedule A to the contract. The schedule listed 50 companies, (including Cotton On Group), and covered every major retail apparel company currently operating in the Australian Market.

The effect of either clause, would be to prevent Ms Peck from working in any significant capacity the retail apparel or stationary industry in Australia for a period of 12 months. The court acknowledged the fierce competition between Cotton on Group and Just Group, and in doing so acknowledged that protecting the inevitable leakage of confidential information in Ms Peck’s position would have been a legitimate interest. However, both limbs of the clause went much further than was required to protect the legitimate interests of Just Group. The clauses were therefore unenforceable, and the company was denied relief.

Had this taken place in NSW however, the same common law would have applied, but the Restraint of Trade Act 1975 (NSW) would have allowed the court to modify the clause, but also, it effectively allows the court to approach the problem from the opposite direction. The first question would have been: did the contract adequately restrain the employee from working at Cotton-On Group? The court would have answered ‘yes’, as either limb would have been easily satisfied. The second question would then have been: would it have been reasonable, at the time the contract was made, to restrain the employee from this activity? In Ms Peck’s, a high paid CFO defecting to a direct and crucial competitor, the answer would have also been a resounding ‘yes’. The legislation would have allowed a New South Wales Court to ignore the elements of the restraint clauses that went beyond that activity. The legislation, probably unintentionally, therefore permits courts to take a retrospective and contextual approach to reasonableness, rather than a purely prospective, theoretical approach. This creates vastly different outcomes. Arguably, it has also led the two state supreme courts to have formed different standards, when applying the overarching common law.

In my view, had this case been brought under New South Wales law, it would have been virtually incontestable, and therefore resolved in the favour of the employer before ever getting to court. In a supposedly federal economy, in which the business communities of neighbouring states such as New South Wales and Victoria are otherwise neatly aligned, this creates an absurd situation, for both employers and employees alike.

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