The impact of COVID-19 in basketball employment related disputes

Authors：Alessandro Mosca, Juan de Dios Crespo Pérez, Alejandro Pascual Madrid (from Spanish Law Firm: Ruiz-Huerta & Crespo) 

The Coronavirus pandemic has been inevitably affecting the worldwide sport industry, including basketball. As of today, many leagues have made critical decisions aimed to prevent Covid-19 outbreak, by initially having single games played behind closed doors, as the most lenient measure, until being forced to suspend and possibly cancel entire competitions in order to save the health of all the members of the basketball family.

On the 24th of January 2020 the Chinese Basketball Association was the first institution to issue the official communication suspending its league until further notice. Over the following days, many other leagues eventually opted for the same extreme decision in order to prevent possible infections once acknowledged that some professional athletes had been tested positive for the Coronavirus. Thus, among others, FIBA, Euroleague, NBA, WNBA and the NCAA temporarily suspended their competitions, as well as the entire European basketball, without excluding the possibility of further cancellations (which have been already applied, for instance, in the Ukrainian, Belgian and Lithuanian leagues).

Such context, characterized by uncertainty, provokes many legal questions which may arise depending on different scenarios in the management of present crisis. Playing behind closed doors and, even more, suspending or cancelling leagues will negatively affect the clubs’ capacity to fulfil their financial obligations toward employees, including players and coaches. Clubs experiencing difficulties in paying salaries may potentially lead to a numerous increase in employment related disputes throughout the world. Would a player be entitled to terminate an employment contract due to outstanding salaries and to claim related compensation? At the opposite, would clubs be exempted from the obligation to pay salaries and compensations in relation to a force majeure situation?

The NBA has suspended both the league and all teams training sessions. The NBA-NBPA Collective Bargaining Agreement regulates force majeure situations, where article XXXIX, Section 5, literal a)establishes that “Force Majeure Event” shall mean the occurrence of any of the following events or conditions, provided that such event or condition either (i) makes it impossible for the NBA to perform its obligations under this Agreement, or (ii) frustrates the underlying purpose of this Agreement, or (iii) makes it economically impracticable for the NBA to perform its obligations under this Agreement: wars or war-like action (whether actual or threatened and whether conventional or other, including, but not limited to, chemical or biological wars or war-like action); sabotage, terrorism or threats of sabotage or terrorism; explosions; epidemics; weather or natural disasters, including, but not limited to, fires, floods, droughts, hurricanes, tornados, storms or earthquakes; and any governmental order or action (civil or military); provided, however, that none of the foregoing enumerated events or conditions is within the reasonable control of the NBA or an NBA Team.”

The same Section 5, by means of the following literals b), c), and d) describes the consequences of force majeure events. In this sense, literal b) establishes that: “In addition to any other rights a Team or the NBA may have by contract or by law, if a Force Majeure Event occurs and, as a result, one or more Teams are unable to play one or more games (whether Exhibition, Regular Season, or Playoff games), then, for each missed Exhibition, Regular Season, or Playoff game during such period (the “Force Majeure Period”) that was not rescheduled and replayed, the Compensation payable to each player who was on the roster of a Team that was unable to play one or more games during the Force Majeure Period shall be reduced by 1/92.6th of the player’s Compensation for the Season(s) covering the Force Majeure Period…”

Moreover, literal d) provides for the possibility for an early termination of the NBA-NBPA CBA, establishing that “Upon the occurrence of a Force Majeure Event satisfying the terms of Section 5(a) above, the NBA shall have the right to terminate this Agreement as of the sixtieth (60th) day following delivery to the Players Association of a written notice of termination, which must be delivered to the Players Association within sixty (60) days of the Force Majeure Event…”

However, before deciding to exercise said rights, the overall Coronavirus situation in the United States should be better assessed, besides the NBA and NBPA having engaged in good faith negotiations for the purpose of finding an amicable solution.

Remaining in the United States, on 12 March 2020, “The NCAA announced that Division I men’s and women’s 2020 basketball tournaments, as well as all remaining winter and spring NCAA championships, were cancelled because of the evolving COVID-19 public health threat”. Therefore, the 2019-2020 NCAA March Madness will not take place. However, for the purposes of this analysis, it shall be noted that NCAA student-athletes will not face any employment related disputes because the NCAA Manuals do not allow them to receive salary remunerations, due to the fact that they are not considered as employees, embracing the concept of “amateurism”, which is nowadays object of vigorous discussions.

In China, the CBA and WCBA leagues were suspended in late January right before the Chinese New Year. However, Chinese leagues could be the first championships resuming thanks to the local Coronavirus current recession. It shall be noted that most of the foreign players have left China during the suspension period, negotiating with clubs the authorizations and related conditions. Where the CBA regulations and the CBA foreign player standard employment contract do not provide any force majeure provision, single negotiations and decisions should be made in accordance with CBA regulations and guidelines, besides taking into account the measures adopted by local and central governmental bodies. In case of unsuccessful negotiations, employment related disputes would be decided in the first instance by the Arbitration of the CBA with a possible appeal before the Basketball Arbitral Tribunal. It shall be additionally noted that the Disciplinary Committee of the CBA are entitled to impose sanctions in case players and clubs do not comply with CBA decisions and guidelines.

The BAT would be the judicial body deciding on potential employment related disputes in case of the existence of a specific arbitration clause, which is widely provided in most of the basketball employment contracts worldwide. We shall firstly mention that the BAT decides ex aequo et bono, which concept was explained in the first BAT decision as follows: “In substance, it is generally considered that the arbitrator deciding ex aequo et bono receives “a mandate to give a decision based exclusively on equity, without regard to legal rules. Instead of applying general and abstract rules, he/she must stick to the circumstances of the case.1” Moreover, the BAT has also consistently applied the doctrine of pacta sunt servanda as an equitable principle in analyzing the contractual obligations of basketball players and clubs: “At the outset the Arbitrator notes that the doctrine of pacta sunt servanda, which is consistent with justice and equity, namely requiring parties who make a bargain are expected to stick to that bargain, is one which is consistently at the heart of BAT awards. Thus, pacta sunt servanda is the principle by which the Arbitrator will examine the merits of the claims.”

However, the BAT Arbitrators’ mandate is not absolute, being subject to specific limits in the following terms: “When the parties authorize the arbitrator to decide ex aequo et bono, the arbitrator is required to decide ex aequo et bono. That said, this duty does not prevent the arbitrator from referring to the solution which arises from the application of the law before reaching a decision ex aequo et bono, in particular to “guide or reinforce” his/her own understanding of fairness.”

Having said that and assuming the absence of any contractual force majeure provision, the attention shall be brought to additional factors which BAT Arbitrators could take into consideration when deciding employment related disputes between players and clubs. For instance, not only hierarchically higher decisions taken by public (i.e. central or local governmental institutions) and private authorities (i.e. leagues, trade unions...), but also the countries and leagues concerned and the attitude of the two parties over the suspension period might play a crucial role in this respect.

The Arbitrators could also rely on precedent BAT cases involving force majeure situation, as a critical factor to determine if employment contracts were terminated with or without just cause and establish the related consequences. In some precedent cases, the BAT, deciding ex aequo et bono, has applied force majeure even if not specifically provided in the contracts. Moreover, when deciding the amount of compensation, force majeure could be considered as mitigating factor to reduce the final sum which should be based on the guaranteed residual value of employment contracts.

In one of the precedent cases, the Arbitrator, upon recognizing the existence of a type of force majeure having disrupted and affected the pacific fulfilment of the two parties’ obligations, established: “Bearing in mind all the foregoing elements – notably the contractual guarantees, the Player’s contractual permission to have another job in parallel and the fact that he had/has a full-time job, the existence of a force majeure situation suffered by the Club which led to the termination by the Player and the latter’s engagement by another club for a lower salary – the Arbitrator finds it fair and just, overall, that in the particular circumstances of this case the Player not receive any compensation for the season and-a-half that were guaranteed beyond the termination, but that he receive compensation for the fact that, without him being at fault, he was unable to play for the Club during the first half of the 2013/2014 season and therefore justifiably terminated his contract and was only able to find a lesser-paid engagement with a second-division club for the remainder of the season.”

In another case, the Arbitrator applied the concept of pacta sunt servanda strictly, stating that “There is no provision in the Agreement for the application of a force majeure situation, and consistently BAT awards have explicitly rejected the economic conditions of clubs as a reason to excuse non- performance of payment obligations.”5In the same line, by strictly applying the concept of ex aequo et bono, the Arbitrator ruled that “It is well established in BAT jurisprudence that financial difficulties faced by a club provide no defence to a claim by a player for salary payments which are due and unpaid.6 The Arbitrator does not find that the Respondent’s submissions on this point in relation to Greek law and other principles help him to reach a conclusion in this case which departs from the BAT jurisprudence. As explained above, the Arbitrator must decide this dispute ex aequo et bono, and that is what he has done. The Arbitrator finds that the existing BAT jurisprudence applies in this case. In disputes before the BAT, financial hardship – even if caused by a global or national financial crisis – is not a defence or answer to claims for amounts due and unpaid under contracts”

However, the current worldwide Coronavirus outbreak resulted in an unprecedented WHO’s declaration of global pandemic, which is graver and more complex situation rather than a financial hardship. Thus, in case of unsuccessful negotiations, basketball employment related disputes could be possibly decided taking into consideration the exceptional circumstances and all the factors described above.

FIBA Secretary General, Mr. Andres Zagklis has recently stated that“FIBA has been informed by the BAT that the first case(s) involving COVID-19 as ‘force majeure’ will be treated in an expedited manner and will be published with their reasoning on the FIBA website, so as to provide as early as possible relevant guidance to the actors in professional basketball.” It is possible to understand that BAT is willing to establish a strong precedent case that would serve as guidance for any subsequent dispute. 

In summary, the suspension and the cancellation of basketball leagues due to COVID-10 outbreak could be in principle considered as force majeure situation even without any specific contractual or regulatory provisions. It is therefore possible that the competent judicial bodies, including the BAT, could decide on the termination of employment contracts without financial consequences of any kind or with specific consequences established by ad-hoc decisions.

In the absence of any force majeure provision previously established by players and clubs in their employment contracts, the same parties could still mutually reach an amicable solution by taking into consideration their respective financial interests, as well as their health. In case of unsuccessful negotiation, the outcome of the subsequent litigation procedures would be inevitably subject to possible future decisions of the competent public authorities and the relevant private institutions, which could hardly be predicted at the moment.