How to justify a no-poach agreement: CJEU refines applicability of competition law to sports in Tondela judgment

The Court of Justice of the European Union (CJEU) has delivered its preliminary ruling in Tondela, clarifying that while “no-poach” agreements in principle have as their object the restriction of competition, a specific examination of their content and overall context can demonstrate otherwise. In such cases only, they can in turn be justified by the legitimate objectives they pursue in the public interest.

The judgment provides further clarification of the application of EU competition law principles to the governance of professional sports, which has been the subject of high-profile scrutiny in recent years¹. It may also have significant practical implications for the sporting authorities. Compared to the judgments that preceded it, Tondela arguably gives greater scope for prima facie restrictive rules to be legitimised by the pursuit of sporting integrity and a level playing field amongst tournament participants.

Background 

The Liga Portuguesa de Futebol Profissional (LPFP) is a private law, not-for-profit association responsible for regulating and organising professional football in Portugal, including the Primeira Liga and the Segunda Liga. On 12 March 2020, a day after the WHO declared the COVID-19 outbreak a pandemic, the LPFP suspended all professional football competitions indefinitely with 10 fixtures still to play.

In the weeks that followed, negotiations resulted in an agreement to extend the players’ employment and loan/transfer contracts until the end of the 2019/2020 season, whenever that might be. Further, “no club [would] hire a player who unilaterally terminate[d] his employment contract, citing difficulties caused by the COVID‑19 pandemic or by any exceptional decision arising from it, and in particular by the extension of the sporting season”.

On 26 May 2020, the Portuguese Competition Authority (PCA) imposed an interim measure to immediately suspend, for a period of 90 days, the agreement among Primeira Liga and Segunda Liga clubs not to recruit or hire players who unilaterally terminated their employment contracts. On 28 April 2022 it issued a final decision in the case, finding the agreement to be in breach of Article 101(1) of the Treaty on the Functioning of the EU (TFEU).

The LPFP and a group of clubs challenged the PCA’s decision, and the Portuguese court decided to stay the proceedings and refer three questions to the CJEU for a preliminary ruling on the proper application of Article 101 TFEU to the matter. 

The ruling

The relationship between sport and EU competition law

The CJEU recalled that sport has a special place in European culture, and the EU has a treaty obligation to “contribute to the promotion of European sporting issues, while taking account of the specific nature of sport, its structures based on voluntary activity and its social and educational function”.³ However, in so far as it constitutes an economic activity, the practice of sport remains subject to the provisions of EU law, including competition law. Only purely non-economic sporting rules fall outside the scope of EU competition law, and this exception must be interpreted narrowly. 

The CJEU found that this exception did not apply to the agreement in question. It explained that “the composition of the teams constitutes one of the essential parameters of the competitions in which professional football clubs compete and those competitions give rise to an economic activity”. Therefore, the agreement between the clubs concerning recruitment and future transfers “must be regarded as having a direct impact on the conditions for engaging in that economic activity and on competition between the professional football clubs engaged in that activity".

Do no-poach agreements always have an anticompetitive object?

The CJEU first addressed the referring court’s third - and most fundamental - question: whether the agreement at issue should be categorised as a restriction of competition “by object” within the meaning of Article 101(1) TFEU.

The CJEU recalled its established case law, according to which the concept of anticompetitive object must be interpreted strictly - referring solely to “certain types of coordination between undertakings that reveal a sufficient degree of harm to competition so that it is not necessary to assess their effects.” These primarily include conduct that is “particularly harmful to competition” (e.g. horizontal cartels involving price-fixing, market-sharing or output restrictions), but also conduct which, “without necessarily being equally harmful to competition”, is shown to have a “manifest anticompetitive economic rationale”. 

In either case, an examination of three elements is necessary: the content of the agreement; the economic and legal context of which it forms part; and the objective aims it pursues from a competition standpoint. However, while for particularly harmful forms of co-ordination the contextual analysis may be limited to what is strictly necessary, for other forms of conduct a more thorough examination of the legal and economic context is required.

The content of the agreement

The CJEU found the agreement among the clubs to be equivalent to a no-poach agreement (such agreements being equivalent to horizontal agreements to share sources of supply) that constituted “a manifest restriction of a competitive parameter which plays an essential role in high-level sport” and was capable of potentially impacting players’ salaries indirectly. Nevertheless, it held that the content of the agreement did not by itself justify an “anticompetitive by object” categorisation. 

The economic and legal context

The CJEU emphasised that sports clubs compete on various markets, such as ticket sales, sponsorships, and the exploitation of commercial rights, but their competitive positions on those markets depend to a certain extent on their primary activity: participating in sporting competitions. Those competitions presuppose that results achieved by all clubs are based on sporting merit, which can only be guaranteed by homogenous regulatory and technical conditions that aim at ensuring equal opportunity. Sporting associations may therefore legitimately seek to ensure the stability of a team’s player rosters⁴, as long as they do not breach Article 101 TFEU or limit EU citizens’ fundamental freedoms.

The CJEU also recognised that the conduct occurred in the very specific context of the COVID-19 pandemic and the indefinite suspension of the league this necessitated. This meant that, in absence of the agreement, players could have been freely hired by other clubs before the end of the season following the ordinary expiry of their contracts, thereby “inevitably and significantly alter[ing] the composition of the various teams involved [and] undermining the integrity of competition”. While this context did not per se provide an exemption from competition law, the CJEU held that it should be considered when determining whether the agreement had a sufficient degree of harm to be categorised as a restriction by object.

Objectives pursued

Turning to the competition-related objective aims of the agreement, the CJEU observed that the referring court was entitled to find that the agreement pursued, in parallel, both an objectively anticompetitive aim: the restriction of competition on the player recruitment market, and an objectively pro-competition aim: ensuring the stability of player rosters during the disrupted season by limiting clubs' ability to poach players whose contracts had ended for pandemic-related reasons.

Conclusion

Considering the above, the CJEU held that under Article 101(1) TFEU, the agreement at issue must be categorised as a by-object restriction of competition, unless a specific examination of its content, its objective aims from a competition standpoint, and the economic and legal context of which it forms part indicate otherwise. This was left for the referring court to determine.

Did the Wouters and Meca-Medina safe harbours apply?

By its first and second questions, the referring court asked whether the agreement at issue was exempt from Article 101 TFEU through application of the Wouters and Meca-Medina safe harbour, which requires an assessment of whether:

1. the restriction was justified by the pursuit of one or more legitimate objectives in the public interest, which were not per se anticompetitive;
2. the specific means used to pursue those objectives were genuinely necessary; and
3. even if the means had the inherent effect of restricting or distorting competition, that effect did not go beyond what was necessary. 

Importantly, this safe harbour does not apply to object restrictions. Therefore, only by escaping the “by object” label could a no-poach agreement such as the one at issue benefit from it.

Before addressing the three limbs of the safe harbour, the CJEU confirmed that it was potentially applicable despite the conduct at issue involving an agreement between undertakings (in collaboration with an association - namely the LPFP), and not just the rules of an association of undertakings.

First limb: legitimate objectives

The CJEU recalled that ensuring the regularity of sporting competitions constitutes a legitimate objective in the public interest (particularly in football), which may justify rules on time limits for player transfers and the maintenance of a certain degree of roster stability. It then held that that objective was, similarly, in principle capable of justifying the no-poach agreement at issue.

Second and third limbs: necessity and proportionality

The CJEU held that it was for the referring court to assess whether the no-poach agreement was both suitable (i.e. appropriate) and necessary (i.e. no less restrictive alternatives existed) for ensuring achievement of the above objective, and also whether its restrictive effects were disproportionate to that objective (in particular by eliminating all competition on the market). 

In this regard the CJEU noted that the referring court had expressed doubt in its request for a preliminary ruling as to whether the agreement met these conditions, and instructed it to carry out an in-depth examination thereof. 

Conclusion 

In conclusion, the CJEU held that the prohibition in Article 101(1) TFEU does not apply to a no-poach agreement such as the one at issue where: 

1. following an examination of its content, objective pro-competitive aims, and economic and legal context, the agreement cannot be categorised as having an anticompetitive object; and
2. the agreement is justified by the pursuit of a legitimate objective in the public interest, in respect of which it appears to be appropriate, necessary, and proportionate in the strict sense of the term. 

The ruling provides important guidance on the intersection of EU competition law, sports governance, and crisis-era decision-making. And the outcome (although foreshadowed by AG Emiliou’s Opinion a year ago) may come as a surprise to those well-versed in the EU Courts’ traditional lack of sympathy for so-called “crisis cartels”, as well as the European Commission’s strict position on no-poach agreements in its Policy Brief on antitrust in labour markets. 

By holding that some potential object restrictions require a more detailed consideration of their legal and economic context before being labelled as such (and implying that the agreement at issue falls within that bucket), the CJEU appears to be opening the door for more inherently restrictive rules and decisions of self-regulatory bodies to benefit from the Wouters/Meca Medina safe harbour. And in this regard it is significant that it is the pro-competitive aims pursued by the Portuguese footballing authorities (i.e. maintaining the stability of clubs’ player rosters, thereby preserving the sporting integrity of the competition) that might serve to prevent the finding of an object restriction, rather than merely the unique circumstances of the COVID-19 pandemic.

The case now returns to the Portuguese court, for a detailed factual assessment of whether the agreement can withstand scrutiny under both the by-object analysis and, if applicable, the Wouters public interest test.