An insight into factors to consider when a player or manager leaves their club, resolving the termination of their current employment contract. There are two methods in the law by which an employee waives their statutory employment rights: (1) a settlement agreement following independent legal advice, and (2) a COT3 agreement via Acas conciliation. In professional sport settlement agreements or streamlined termination agreements are used, given the value of the remuneration, termination payment, and any final bonuses, alongside the bespoke terms of these agreements given the specialist nature of the professional sports business.
A settlement agreement in essence provides the player/manager and the club with a clean break, waiving contractual and statutory employment rights and claims when the final terms are agreed. The employee will therefore be giving up the remainder of their employment contract in exchange for a final payment and earlier release. Standard form professional playing contracts reflect the playing seasons, and the player/manager will frequently be committed to a significant fixed term of multiple years (1 July – 30 June).
Responsive legal support throughout the transfer window
During the transfer window player moves can take place in a very acute timeframe, and the player can require very responsive legal support. As the player/manager will be waiving contractual and statutory claims, and such agreements will nearly always include ‘entire agreement’ provisions, it is critical that any final bonuses (whether for promotion, match appearances, league or cup results) are included in the agreement if the player is entitled to the payment. If a player moves during the season, they may wish to push for a pro-rata share of any end of season promotion bonus to reflect their contribution to the club’s campaign if ultimately successful.
Commercial terms and key considerations
The commercial terms will be agreed between the parties, and this will turn on the player’s priorities and reasons for leaving. Whether professional football, rugby, cricket, or another professional sport, players fundamentally want to play at the top-flight level. There are also considerations specific to the sport.
The non-renewal of a fixed term contract on its expiry still amounts to a dismissal in the law. In the standard form Premier League playing contract there is the agreed severance formula whereby the player agrees that if they are not offered a new contract on terms at least as favourable or at all, then they will receive an additional final compensation payment from the club for an additional months pay (or until the Player signs for another club, whichever period is the shorter). Where the player signs for another club within that one-month period at a lower basic wage then the former club still have to top up the players pay. It has also been collectively agreed that the maximum amount payable to the player under clause 19.2 is double the maximum sum which an Employment Tribunal can award from time to time as a compensatory award for unfair dismissal (the statutory cap is adjusted each year and is currently £118,223 for dismissals since 6 April 2025). For player moves, the settlement agreement should preferably not be completed until the player has cleared their medical and have secured an unconditional offer from their new club.
Tax treatment of termination payments
The settlement agreement will deal with high value remuneration and significant payments and it is important that the payments are taxed appropriately. Any termination payment that represents Post-Employment Notice Pay is taxable as income under the Income Tax (Earnings and Pensions) Act 2003, and as players and managers are predominately engaged on fixed-term employment contracts with no prior notice provision the consequence of this is that any payment in respect of the remaining balance of the fixed term (in effect being the PENP under the legislation) will be subject to statutory deductions in full as a matter of law. The old days of clubs paying the first £30,000 as damages for breach of contract are long gone, as the law changed for such terminations since 6 April 2018, and the tax-free threshold applies in much narrower circumstances such as incapacity retirement or redundancy, and subject always to the PENP and all contractual remuneration being taxed.
Medical support & player injury rehabilitation
As the player will be giving up all of their future employment benefits under the contract it is important to consider whether any residual benefits need to be preserved for an agreed period. For example, whilst most players will move because they want to be released to accept a new contract, if an injured player is leaving without a new employer, alongside considering all of their statutory entitlements it may be important to preserve specific contractual entitlements. Under the Premiership rugby standard form playing contract players are entitled to medical treatment funded by the club for up to 9 months from the date of injury even if this continues beyond their termination date (or until a new contract has been obtained by the player to play professional rugby) “…in order to restore the player to fitness to play professional rugby, or in the case of retirement due to such injuries, to a level of health and fitness consistent with the nature and extent of the injury suffered.”. Such medical treatment could involve multiple expensive private operations from leading surgeons and extensive rehabilitation. Settlement agreements should exclude the right to pursue claims: (1) for personal injury claims, which may arise many years later (and could potentially be of a much higher value than the termination payment offered to waive distinct employment statutory and contractual rights), (2) for any accrued pension rights, and (3) to enforce the terms of the settlement agreement.
Managerial departures & post-termination obligations
Because termination payments are paid in respect of a lengthy remaining fixed term and the value can be very significant, sometimes the payments are structured over instalments. Acknowledging the frequency that managers move clubs, it is common that the formula is agreed in advance within a manager’s contract, with agreed termination payments if the manager elects to move, or if the club elects to terminate early. Sometimes it is agreed that the manager will be entitled to the full sum, with no duty to mitigate, and sometimes the manager will agree to account for any alternative income received during the termination payment instalment period. Managers may also request release from specific provisions of their post-termination obligations, such as restrictive covenants that prevent them from recruiting key colleagues if they move to another club. When a manager departs to join a new club they frequently have a dedicated team of coaches and analysts that they wish to bring with them. Similarly, if a club are seeking to exit a manager whose performance has not achieved the desired results, they may wish to accommodate the plans of the successor manager who wants to bring some of their own coaching support team. This in turn can trigger a series of swift departures and new appointments at a club.
The parties will normally agree confidentiality and non-derogatory comment provisions, whereby they will maintain the confidentiality of all club confidential information, will keep the very existence and terms of the settlement confidential, and will not make any disparaging comments whether on social media, in interviews, or otherwise regarding the club, its officers, and employees. The player/manager may wish to carve out specific permissions, for example to write a book or to pursue another media project, subject to the club first reviewing and approving the content. A media release will also be agreed in advance by the parties. There are a multitude of agreements that need to be resolved for a player’s departure, releasing their registration, recording the involvement of a registered agent, and sometimes resolving any image rights agreement and any separate payments due under that separate contract (which will normally be between the club and the player’s image rights company).
Talk to our sport law experts
This article provides just a mere flavour of a range of legal considerations to be covered. The Clarke Willmott Sport & Employment team is ranked as Tier 1 and Head of Sport Tim Copplestone is identified as a Leading Partner in the Legal 500. From corporate, regulatory, commercial, and tax advice to private client and high net-worth family law matters, please do not hesitate to contact the team if you require any legal input on a sports business matter.
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