The AFL and Restraint of Trade

Every so often the question of the ability of the AFL to withstand restraint of trade cases in court pops up for discussion, most recently with regards to the possible – if unlikely – deregistration of Kurt Tippett at Adelaide. To date, the most commonly cited example of restraint of trade applies to the a case featuring the NSWRL and a player which the NSWRL lost. The AFL draft and cap systems have not been challenged since being introduced in 1986.

The VFL/AFL has been subject to a number of restraint of trade actions.

In 1982, the VFL zone laws were challenged when Peter Hall was refused clearance by Collingwood to play for South Melbourne. In this instance the Victorian Supreme Court found the zoning rules of the VFL consituted excessive restraint of trade. The Court believed that it was up to the VFL to prove it was necessary to protect its interests and it failed to do so.

In 1983, the zone laws were challenged again when Silvio Foschini took the league to court when his clearance from Sydney to St Kilda was refused.

In 1987, Gary Buckenara sought court action under the TPA believing that Hawthorns refusal to clear him to play for West Coast constituted restraint of trade. However, the Court found that in this instance Hawthorn were not in breach as Buckenara was still under contract, and dismissed the case.

To properly understand the subject, we must first go back to where it began.

The default position of the Australian court system is defined in the precedent set forward in 1874 (Nordenfelt v Maximum – Nordenfelt Guns and Ammunition Co Limited) where restraints were found to be illegal unless reasonable and in the public interest.

Nordenfeldt is important as it was specifically cited in the case of Adamson v New South Wales Rugby League where the NSWRL draft was found to be a restraint of trade. The Full Federal Court found that the leagues internal draft was a far greater restraint than was necessary to protect the clubs and players of the NSWRL.

Further precedent can be found as far back as 1972 in Buckley v Tutty, with the Australian High Court citing from a UK case, Eastham v Newcastle United Football Club. The UK Court found that the league had a special and legitimate interest in maintaining the quality and eveness of a competition, and measures taken to ensure that were permitted.

The immediate question at hand is whether the draft and cap are together in breach of the Trade Practices Act 1974.

The court must examine each of the following:

• Is there a legitimate interest in need of protection?
• Is the restrain reasonable in that circumstance?
• Is the restraint against the public interest.

The AFLs legitimate interests are likely to be:

• Onfield eveness in the AFL competition
• the popularity of the AFL as a spectator sport
• the promotion of Australian Football as a sport
• funding

Differences between the NSWRL draft,  and the VFL/AFL Draft

The NSWRL draft was an internal draft that involved players already under contract to clubs. It should be noted that the court did not say that draft systems were wrong – only the NSWRL one before it, and the court itself suggested that changing the rules would make it a reasonable restraint. It should be noted that the NSWRL case concluded that much of the problem was because the players in question were no longer under contract. To compound the problem, this was the only way for players to change clubs at the time, hence the restraint.

The AFL system allows drafting for a 2 year period, before allowing players to change clubs via trade, preseason or national drafts. In 2012 it enters a new phase where a limited form of free agency is permitted – and some would say it has been something of a success with 17 players traded during this period.

The AFL draft has never been challenged in  all the years since the NSWRL case primarily since the players and player association all signed on. Its thought that when combined with the salary cap that the AFL could quite easily prove that it achieves its aims of a more even and competitive league.

Applying the Nordenfeldt case to the AFL.

Protecting the Interests of the League

There is considerable evidence that the league is more even than ever. In the 90s for instance, every club made the finals at least once, with the exception of Fremantle, something which had not happened since the 1920s.

As a result of the strength of the competition, the leagues financial viablity has never been stronger.

Protecting the interests of the Public

It can be argued that the draft and cap have enabled more clubs to make more finals more often. A more even and more competitve league is in the interest of supporters. Theres some thought that the draft and cap system has kept some clubs viable a lot longer than may otherwise have been expected.

Protecting the Interests of the Players

While initially players have little choice in their employer, after 2 years it would appear that they have a number of avenues that begin to open up, with more opening up after 7 years and total free agency after 10 years.

Players have a strong and somewhat militant association behind them and lobbying on their behalf, and they have considerable bargaining power as a result of the NSWRL case.

The only real sticking point now is that players may still be traded while under contract, to another club. This is in essence a breach of the TPA and if any area was going to succeed under challenge it would be a player traded against his will. European Courts have ruled against this in soccer under the Bosman ruling where transfers may not be made without player consent.

Legality of the Salary Cap

There has not been any challenges to a salary cap system, although there have at times been systems that limited individual players, these were either lost in court (UK) or scrapped due to poor administration (Aus).

It is believed that the Salary cap would survive the relevant legal tests as its part of what has made the league and its clubs somewhat more financially stable. Where it could fall down is that it may not be in the interests of all players, particularly those forced to relocate to another club in order to recieve satisfactory remuneration.

Conclusion

The AFL system has never seriously been threatened by court action, but prevailing theory seems to be that the league would meet the tests applied under the Nordenfeldt precedent.

Its important to note that the courts have not ruled draft systems illegal, either here in in a 1968 case against the NFL, but have indicated that some simple rule changes would have enabled the drafts to continue. In the NFL case, they made some changes and move on, the NSWRL abandoned the draft altogether.

Player consent is the potential battlefield of the future, with precedent set ii Europe already.

Update: A prominent Melbourne Barrister commented on the prospect of Kurt Tippett being deregistered saying there was a view the AFL could be crushed.

“If in fact the AFL was to deregister Tippett as a penalty there’s an extreme, significant chance it would end up in court,” Ehrlich told AFL.com.au on Sunday.

“It’s a very serious matter to take a professional athlete’s ability to earn a living away from him because of a breach of a policy which prima facie is unlawful because it’s in restraint of trade.

“It’d then be for the AFL to justify that that policy was necessary for the preservation of the game. I don’t know any lawyers that take the view that the AFL restraint would survive a challenge in the courts.

“This is a multi-billion dollar industry and the AFL has spent tens of millions of dollars in financing new wholly owned franchises … it’s then very difficult to run an argument that the game still requires these restraints to survive.

References:

• Restraint of Trade in Australian Sport – Sam Chadwick, 2010
• The AFL contract and common law of trade – Sam Cusanamo, 1994
• Draft Systems and Salary Caps in Australian Sport – Dr. Chris Davies, 2012
• Draft Systems in Professional Sport – Dr Chris Davies, 2011
• AFL confident cap and draft solid, The Age, 2008
• Tippet could face sanctions, Foxsports, Oct 26, 2012
• Could going back to zoning bring back the fans, Dr David Nadel, March 2012
• Restraint of Trade in Sport, Sportlawyer
• The use of Salary caps in professional sport – Dr Chris Davies, 2006
• History of Player Recruitment, Transfer and Payment Rules – Ross Booth, 1997
• Tippett legal thread, AFL.com.au, Oct 30, 2012

Additional Remarks (from previous footybusiness site that add to this)

Simmo on October 29, 2012 at 4:02 pm said: Edit

Firstly, restraints are presumed to be unfair, so the onus is really on the governing body (in this case the AFL) to demonstrate the broader benefits of the restraints. The post has highlighted what they might be but the analysis falls down by attributing the benefits incorrectly.

It’s the salary cap that gives the bulk of equalisation in Australian sporting leagues. ie/ the A-League and NRL get the same benefits (Onfield-evenness leveraging into popularity which lead to increased revenue and funding for the sport as a whole) through having a salary cap only. To flip it around and ask the opposite question: what benefits would the A-League and NRL get if they chose to get rid of free agency? None that I can see.

Not allowing true free agency is a minor benefit to the league as a whole, but greatly interferes with an employee’s ability to work for his employer of choice, when the employer has the means and capacity to employ him. The AFL has essentially conceded this point by introducing limited free agency recently, but even though they have not publicly acknowledged it, they must understand they are fighting a rear-guard action on this issue.

The draft is a separate question but one with the same test. What is the broader benefit to the league and the sport in telling 18 year olds where they must start their careers? What benefit is gained that the salary cap does not already create? Again, none that is obvious. And again, do the sports that don’t have a draft suffer from a poor distribution of talent? No.

Redistribution of footballing talent is better determined by an open market rather than the diktat of a draft or by otherwise preventing them the same ability to work where they want, that the rest of us have.

IMO the AFL as a competition would not be worse off without a draft or with free agency as the salary cap is the most effective way to make sure there is an even distribution of talent.

Arguably the cap would be even more effective if players were completely free to find a club that was able to pay the player their true value.

I’m confident that should an out-of-contract player be prevented from joining a club of his choice, when his preferred club has the capacity and means to do so, that a court would strike out the league rules that prevent his freedom of employment.

Reply ↓

• Every time the issue comes up for potential action, theres always a legal guy who gets an interview in the media saying theres a chance. And why wouldnt they? Its how lawyers make money after all.

  Yes theres a chance that the AFL could lose, but the fact that the clubs, players and the AFLPA which represents the players, not to mention player agents, all have to sign up to the AFL Code of Conduct, means that there is almost certainly, in this authors mind, a very real chance that any action would fail when combined with actual legal precedent as posted already.

  Reply ↓

• Further as shown in Nordenfeldt – which as posted was specificly cited in the NSWRL case – restraints can be reasonable if they are properly done.

  Reply ↓

  • A few things. The Nordenfeldt decision is ancient, English and not particularly relevant to the facts in Australian sport in 2012. Relevant, recent case law on similar issues is quite thin on the ground so makes our predictions about what way a court may go on drafts, salary caps and free agency far more speculative than anyone would like to admit. That said, I’d put my confidence levels in the salary cap being overturned at around 10%, the draft being overturned at a little over 50% and full free agency being instated at 95%.

    The consent of the Players Association agreeing to trade and draft restraints is important. Most restraint of trade case law is based on individual contracts where there has been actual consent of the restrained employees (mostly executives with rare skills and experience, analogous to pro footballers). That’s not strictly the case with AFL players as their union consented, rather than each individual player.

    So this may turn on a different, and completely untested proposition: does an individual player have the right to seek his own employment conditions outside that of the one bargained by the player’s union? That’s a broader employment law question that moves away from a narrow characterisation of these issues as only questions of restraint of trade. Unfortunately, that’s outside my area of expertise so I can’t give a confident answer but life experience suggests that no-one is completely bound to follow an industry certified agreement if they can negotiate better conditions on their own behalf.

    In summary, there’s no directly relevant precedent to rely on and there are more legal issues to think through than have been publicly considered in the press. I’d be a lot more wary of thinking that the AFL has a strong case, especially as legal experience shows that you put forward a strong public face, even if you understand that your position is a lot weaker and susceptible to successful challenge.

    I think maybe, the AFL will do its best to keep these issues out of court as long as possible by making small concessions here and there.

    Reply ↓

    • Ill agree with most of what you said, particularly as theres been no direct confrontation between the AFL, its systems and the law. However, just because a precedent is ancient doesnt make it irrelevent in legal terms.

      I am most grateful for your constructive input on the matter though.

      Reply ↓

      • No worries. I’m enjoying the discussion as well.

        But just to hammer home the uncertainty point here I have to pull you up on this:
        “However, just because a precedent is ancient doesnt make it irrelevent in legal terms.”

        Not on it’s own no, but citing an originating case and then not following on with analysing 120 years worth of statutory and common law evolution since then is the sort of analytical mistake that first year law students make.

        As a professional lawyers roaming outside of our specific areas of expertise we’d be wise to remember how much employment law has changed even in the 20 years since the Adamson case. I have no idea how much employment law changes via the FWA Act might impact here beyond the more limited CC Act stuff that’s been discussed to this point.

        Anyway, cheers for the opportunity to think through these issues. They’re relevant to all professional sports.

      • To be honest, I hadnt considered the implications of the Fair Work Act, all the reading on the subject seemed to be tied to the Trade Practices Act. Ill have to take another look at that when I get the chance.

        Ill agree that its not as simple as Ive presented here, this was more about having a summary of the position as I was unable to find a short article sized version anywhere else – presumably because of all the matters you’ve put forward above.