This article is the fourth in a series of articles on the Saracens salary cap case and shall consider the ways in which Saracens might be able to become compliant with the Premiership Rugby Salary Cap Regulations (the “Regulations”), this season.
As Part I of this series explained, Saracens were found to have exceeded the salary cap in each of the past three seasons (2016-17, 2017-18 and 2018-19). Yet, as considered in Part III, one of the key questions hanging over the club is whether they are compliant with the Regulations in the current 2019-20 season. Last week, Saracens’ interim CEO, Edward Griffiths, explained that cuts will need to be made in order to comply with the Regulations this season.
As explained in Part III, the Regulations operate over the course of whole Premiership seasons. Thus, the salary cap is a limit on the total amount each club may spend from 1 July 2019 up until 30 June 2020. As players will be paid in (presumably) monthly instalments, it is not possible to determine whether there has been a breach until the end of the season – and Saracens have until then to comply with the Regulations. However, given that salaries are, largely, fixed, it is – of course – possible to foresee whether a club will comply with the Regulations by then.
The suggestion by Saracens last week was that they will not be compliant with the Regulations by 30 June, as things stand.
However, there are various (lawful) options which the club might pursue in order to reduce its wage bill, including: player contract termination, salary reductions, and both the injury and loan exemptions under the Regulations. Each shall be considered in turn.
1) Player Contract Termination
The first way for Saracens to reduce their wage bill this season would be to release players. This would, if done lawfully, release the club from its obligations to pay those players during the remainder of the season (i.e. after the contract has been terminated).
Of course, subject to the narrow injury exception below, the amounts already paid to such players prior to termination, as well as any “termination payments” made to the player upon termination will still be classed as “Salary” and, as such, count towards the salary cap (Schedule 1 paragraph 1(q) of the Regulations).
However, contract termination is not without risks. As discussed in depth in Part III, terminating contracts opens the club up to claims of wrongful and unfair dismissal (if not also discrimination, under the Equality Act 2010). Saracens will need to take care to do everything ‘by the book’ to mitigate such risks.
If players are to be let go, the club must adopt a fair process (Polkey v Dayton Services), to comply with the unfair dismissal regime of the Employment Rights Act 1996 (“ERA”). As this is a ‘quasi-redundancy’ scenario, following ACAS guidance, the process ought to involve consulting the players who might be at risk and explaining why the club may need to terminate their contract. In choosing which players are to be released, the club should adopt objective criteria which are non-discriminatory, and must apply them fairly.
In this case, such criteria might include whether the player is a “Home Grown Senior Player” – “a Senior Player who has been a Player of the Club since prior to his 18th birthday and for at least two complete Salary Cap Years prior to the current Salary Cap Year” – as up to £600,000 of salary cap credits are available to clubs in respect of such players (Regulation 3.2(a)). That said, the club ought to be aware of the indirect age, and possibly nationality, discrimination issues that such a policy might entail.
Further detail on the recommended dismissal/redundancy procedures can be found here and here. Players who find themselves being considered for release should seek independent legal advice.
To further mitigate the risks, the club would be advised to enter into settlement agreements with any dismissed players, pursuant to s.203 ERA. The club might need to pay a settlement sum, which would count towards the salary cap, but these agreements would prevent claims arising – assuming the legislation’s requirements are satisfied.
Moreover, the notice provisions of players’ contracts will be key. A fixed-term contract does not automatically contain the (implied) right for an employer to terminate it on reasonable notice (Reda v Flag). As such, the amount of notice to be given for the club to be able to terminate the contract lawfully will depend upon the exact contract itself; though the typical period is one month for players with less than five years’ service at the club. To reduce the wage bill effectively, Saracens will want to exercise these clauses sooner rather than later.
Contracts might also contain ‘pay in lieu of notice’ (“PILON”) clauses. These allow employers to release an employee immediately but pay them the wage they would otherwise receive during the contractual notice period. This would allow Saracens to release players quickly, but any PILON payments will be classed as salary (Schedule 1 paragaph 1(q)).
Breach of any notice or PILON clauses may lead to claims for wrongful dismissal. Saracens must thus take care to follow the contractual procedures to the letter – or reach settlement agreements.
Of course, contracts can be terminated by mutual agreement. If players are able to find another club to join mid-season – on similar money – this option will evidently be the most straightforward. The difficulty, though, is that other Premiership clubs have their own salary cap obligations to worry about, so may not be in a position to add to their squads halfway through the season, and clubs may generally be concerned not to upset the balance of their squads. That said, the injury dispensation provisions at Regulation 5 mean that clubs with an injury crisis might be able to sign more freely.
Alternatively, players might be able to pick up contracts in other leagues. There have already been rumours that Liam Williams might be released early to Scarlets, and that George Kruis may move to Japan. Japan’s Top League only started this weekend, so that may be a promising destination for Saracens players willing to make a short-term move on good money – though moving half-way around the world at such short notice may not be realistic for many.
Aside from the legalities, the human impact of such an approach would be significant. The impact on individual players asked to leave, as well as on the wider squad would need to be managed carefully.
2) Individual Salary Reductions
As Edward Griffiths suggested this week, an alternative to releasing players might be squad-wide salary reductions. This would allow the club to precisely lower its wage bill to comply with the Regulations.
However, as noted in Part III, this carries significant risks. A unilateral salary reduction, or a threat of one on pain of dismissal, is likely to be grounds for constructive dismissal (Mostyn v S and P Casuals Ltd) and will certainly be a breach of contract. Players would be entitled to resign and claim damages for wrongful dismissal and might also have a claim for unfair dismissal. Alternatively, players might wish to ‘stand and sue’ – i.e. remain in post, work under protest and then sue for damages and/or compensation (Alcan Extrusions v Yates). Even if a player continues to play for the club, a court might deem him to have been dismissed and then re-engaged on a new contract.
Claims might also arise for pay deductions under ss.13-27 ERA.
As with contract termination, the most straightforward solution to this issue would be to obtain the agreement of the players whose salaries are to be reduced. If players agree to their contracts being varied in this way, no cause of action will arise.
An interesting point to note in the Regulations relates to a player’s “Benefit Year” – i.e. a testimonial year. Payments from unconnected third parties – and, in limited circumstances, third parties connected to the club – are excluded from the salary cap calculation (Schedule 1 paragraph 2(g)). This could be a useful negotiating tool for the club to reduce the salary of a senior player, as the club could offer him a testimonial year next season to ‘make up the difference’.
3) The Injury Exemption
A third mechanism, not mentioned by Griffiths, would be to use the ‘injured player exemption’ in paragraph 2(l) of Schedule 1 of the Regulations. This states that the following shall be excluded from the salary cap:
any Salary (other than payments or benefits caught by paragraph 1(q) of Schedule 1) paid…to a Player who, due to injury, has not played or been a replacement for the Club during that Salary Cap Year in the Gallagher Premiership, European Challenge Cup, European Champions Cup, Premiership Rugby Cup or in more than 3 matches in any other Competition, on condition that:
(i) the application made by the Club must include an Injury Certificate certifying that the Player’s limited participation has been caused by injury together with all other requested documentation as deemed relevant by the Salary Cap Manager in order to consider the application fully and fairly; and
(ii) the Club has not brought in a replacement player under the injury dispensation provisions set out in Regulation 5. For the purposes of this Regulation, a sevens tournament shall count as one Competition match;
An “Injury Certificate” is defined as “a certificate signed by a Club’s doctor in the form set out in Schedule 4 of the Regulations”.
Therefore, where it can be certified that a player has not played for the club – or has only played three times in the Premiership 7s or A-League – because of injury, that player’s salary can be disregarded for the purposes of the salary cap.
At present, flanker Michael Rhodes, full-back Liam Williams and prop Juan Figallo are all yet to play – or be a replacement – for Saracens this season, due to injury, and would thus fall squarely under the paragraph 2(l) exemption.
However, once they return to fitness, their non-playing would (arguably) no longer be “due to injury” but because the club was trying to use the Regulations to its advantage. Therefore, as morally questionable as it might be, Saracens could well seek to release these injured players before they return to fitness in order to make use of paragraph 2(l). This is particularly so as all three are ordinarily frontline players and must be among some of the higher paid members of the squad in their positions.
In this regard, timing will be crucial. Terminating their contracts immediately would mean a PILON/settlement payment would need to be made. According to paragraph 2(l), such payments then would count towards the salary cap, as they would be “termination payments” under paragraph 1(q). Therefore, the club could allow the players to see out their notice periods. Yet, if the players returned to fitness within that period, Saracens might then be deprived of the opportunity to use the injury exemption altogether, as their non-playing would no longer be “due to injury”! A balancing act would need to be performed by the club.
Of course, if the club did go down this route, it would also have to comply with its unfair dismissal and, potentially, anti-discrimination obligations, as discussed above and in Part III. Saracens would need to establish robust procedures to ensure that dismissing such injured players would be “fair”.
However, this approach would also require serious commercial consideration. It would not be a good look to dismiss injured players. It would surely tarnish Saracens’ reputation and unsettle the remaining squad; running contrary to what the club itself claims to be about.
4) The Loan Exemption
Lastly, Saracens might wish to make use of the ‘loan exemption’ in paragraph 2(j) of Schedule 1. This states that the salary of any player who “has been loaned to another club (excluding a Club) for the entire Season” shall not count towards the salary cap, provided that various conditions are met.
The sub-paragraph then goes on to set out the details of how the remuneration of such players shall be classified for the purposes of the Regulations, including when the player plays matches for the loaning club.
However, the details of the exemption are, for these purposes, irrelevant because the exemption only applies in respect of players who are loaned for “the entire Season”. We are now over half-way through the Season (“the period from 1 August to 31 May (inclusive) in any Salary Cap Year”). Therefore, this exemption would be inapplicable to any loan agreements that Saracens might seek to conclude now, to reduce their wage bill.
It is also worth noting that this exemption does not apply where the loan is made to another Premiership club.
An interesting question arises as to whether a club could loan an injured player out upon their return to fitness to take advantage of the injury and loan exemptions, and avoid their salary counting towards the salary cap. It is my view that combining the exemptions in that way is not permissible. If a player was loaned out upon returning to fitness, they would not be ‘not playing’ for Saracens “due to injury”, rather it would be because they had been loaned out. Meanwhile, they would not qualify for the loan exemption, as they would not have been loaned for the entire season.
The loan exemption – for now, at least – is redundant.
Conclusion
In light of the above analysis, Saracens remain in a difficult position. To become compliant with the Regulation this season, the club will need to release players, reduce salaries or make use of the injury exemption. It may even need to use a combination of the three, depending on the amount by which the salary cap would otherwise be exceeded.
Saracens’ CEO, Griffiths, must now carefully balance the need for compliance with the Regulations against the need to abide by the law, to restore the club’s reputation, and to maintain squad morale. It makes for a fascinating case study – and an unenviable task.