Restraint of Trade: Breathing New Life Into an Old Legal Doctrine

Can a sport organization stop, or limit a coach or athlete from earning a living through sport? This is the essence of the legal doctrine known as “restraint of trade”. It is a doctrine that has been around for some time but has recently attracted new attention. In sport it has been used as the basis for a series of high profile lawsuits in Europe relating to doping, and it was one of Ben Johnson’s main arguments in his recent attempt to seek reinstatement as a competitor from his lifetime suspension for a second doping infraction. It has also been used to challenge sponsorship and endorsement matters, limitations on athlete membership in associations, and transfers within and between leagues. Legal expert Hilary Findlay sheds light on the doctrine’s implications for coaches, athletes and sport organizations.

The right to earn a living is an important and closely held principle long-recognized in our law. Many athletes, coaches and others in amateur sport now make a living either directly through their athletic ability or knowledge, or indirectly through corporate, media or business opportunities that arise as a result of athletic ability and knowledge. Any restraint which destroys that ability to earn financial remuneration, either directly or indirectly is, by definition, a restraint of trade. Where that restriction is unreasonable, it is illegal.

This is not to say that any restriction on ability to earn a livelihood will be against the law. Parties may enter contracts which limit, or place conditions on, one’s ability to earn a livelihood. For example, it is not uncommon in employment contracts to limit the territory or manner in which a person may ‘work’, or to enter into exclusive agreements preventing one from working for a competitor. It is also common to see a party agreeing, by contract, not to compete with an employer for a period of time after leaving a particular business.

As long as the conditions are reasonable, such restraints of trade are quite acceptable and are common practice in commercial and business activities. And as long as the parties enter into an agreement or contract freely, and the restrictions are reasonable, the courts will not intervene. Thus, in Canada (as elsewhere) when we speak of a “restraint of trade” as being illegal we are actually referring to a restraint of trade as being “unreasonable” and thus unacceptable.

Although most restraints of trade are for the often legitimate purpose of controlling competition, such restraints can also arise as a result of other actions which have an entirely different purpose. We have seen this occur in sport where an athlete or coach is disciplined, with the result that their opportunities to participate and to earn a livelihood are restricted. In these cases the purpose of the restraint is typically deterrence or punishment. Doping infraction penalties are an example of this and have, in several instances, been challenged on the basis that the sport organizations has unreasonably restricted an athlete’s activities.

In these situations where discipline gives rise to a restraint of trade issue, it can also be argued that the athlete voluntarily entered into a contract with the sport association which authorizes that body to take extreme measures which may interfere with the athlete’s activities. It is well established that the sport organization and its members have a contractual relationship, and that this relationship has been entered into voluntarily by the athlete. By being a member of the sport association, the athlete has agreed to abide by the organization’s bylaws and policies, even where such policies may provide for severe disciplinary sanctions and may result in a serious restriction on participation. Nonetheless, such sanctions must still be reasonable, taking into account all circumstances.

How does the doctrine work?

It is easy to see that the doctrine of restraint of trade may have significant implications for amateur sport, particularly as sport becomes more commercial and as business corporations see sport, and people within sport, as increasingly marketable commodities. But how does this doctrine actually work? To show that a restraint of trade has been unreasonable, three issues must be proved:

1.  That the activity is a form of trade

Is sport a trade? No Canadian cases have addressed this issue directly, although the British doping case of Gasser v. Stinson does address the issue explicitly. In that case the International Amateur Athletic Federation (IAAF) argued that the athletes were “amateurs” and “did not and could not under IAAF rules, earn their daily bread as athletes”. Further, the IAAF argued that while the activities of athletes enabled them to earn potentially large sums of money, most of it came from contracts between the national federations and a sponsor to which the athletes themselves were not parties. This money, it said, was not available for the athletes’ immediate enjoyment (except for expenses) and their entitlement to it lay in the future. The Judge rejected this position stating:

I am unable to accept that these circumstances take the case out of reach of restraint of trade law. The policy underlying restraint of trade law is that people should be free to exploit for their financial gain the talents and abilities that they may have. I would accept that restraint of trade law would not be applicable to activities that were undertaken for no financial reward at all (for example, school sport). . But, in a sport which allows competitors to exploit their ability in the sport for financial gain and which allows that gain to be a direct consequence of participation in competition, a ban on competition is, in my judgment, a restraint of trade.

In the Canadian case Johnson v. Athletics Canada and the International Amateur Athletic Federation the judge adopted the thinking in Gasser, and in so doing accepted that sport can be categorized as a trade.

2.  That one’s ability to earn a livelihood from that trade is restricted

Any restriction that destroys the ability to earn financial remuneration, either directly or indirectly, is a restraint on trade. Thus, a doping penalty (two-year, four-year or lifetime ban) has been found by some courts to be a restraint on trade. However, other courts have found such penalties to be a reasonable or appropriate restriction, thus underlying the importance of the circumstances in determining reasonableness. A two-week suspension of a tennis player for misconduct pursuant to a discipline policy has been found to unreasonably interfere with the athlete’s freedom to earn a living within the European Economic Union. And in some cases, restrictions on transfer of membership in a sport organization have been found to be a restriction.

3.  That the restriction is unreasonable

The onus of proving that the provision leading to a restraint of trade is reasonable is on the party seeking to uphold the restriction. Thus, if a restriction comes as a result of a disciplinary process, the organization must be able to show that the restraint is reasonable in the circumstances.

What is reasonable is a matter of law. In other words, no one can know for certain until a court makes a ruling. In the Australian doping case of Robertson v. Australian Professional Cycling Council Incorporated the court looked at the objective of, or reason for, the restriction and whether the restriction was reasonably related to that objective. Could the objective be met through a less restrictive means? The court will also look at industry standards, the expertise of those in the area in which the restriction is imposed, and the circumstances surrounding the restriction, among other such factors.

It is important to note that courts will give significant deference to private organizations (such as sport organizations) in the way they run their affairs and the kinds of penalties they impose – provided they are within the “norm” or within an acceptable range.

Canadian applications

In addition to the Johnson case, there are a few Canadian court cases which have used the doctrine of restraint of trade. In Figure Skating Coaches of Canada v. Canadian Figure Skating Association the association enacted a by-law that required any coach wishing to coach in clubs it recognized to obtain a membership in the Figure Skating Association and pay a fee for membership. The figure skating coaches organization challenged the by-law as a restraint on trade. The matter never went to trial and thus we don’t know how the court might have ruled on the restraint of trade issue. However, the applicant coaches association was able to obtain a temporary injunction to stop the CFSA from requiring membership on the basis of a restraint of trade argument.

In Willey v McLaughlin et al. Willey was suspended from membership in the Canadian Professional Golfers Association for advertising the sale of golf equipment in a manner that violated the association’s by-laws. Willey argued that the arrangement between the major manufacturers and suppliers of golf equipment and the CPGA interfered with his right to earn a living and was an unreasonable restraint on trade. As in the Figure Skating Coaches of Canada case, the matter did not go to trial and was presumably settled by the parties. Nonetheless, Willey was able to get an interim injunction precluding the organization from suspending him.

Other relevant legislation

Restraint of trade matters in Canada are also dealt with under Federal legislation called the Competition Act. This is legislation aimed at precluding unfair or oppressive competition, and while the legislation covers professional sport in Canada, it specifically exempts amateur sport. Nonetheless, the wording of the legislation leaves certain openings for inclusion of amateur sport at elite levels, where an athlete receives significant remuneration.

While this legislation is based on similar principles to the restraint of trade doctrine, there are slight differences – for example, the Competition Act talks of “undue” restriction as opposed to “unreasonable”. As well, the legislation refers to three very specific restrictions, including that of imposing unreasonable terms or conditions on opportunities to participate or imposing unreasonable limits on player mobility (for example, oppressive eligibility or transfer rules or discipline which has an excessive result that is not clearly related to legitimate interests of the league). However, like the restraint of trade doctrine, the legislation still focuses on what is necessary to meet the objectives of the restrictions.

In conclusion, restraint of trade can be a very flexible legal tool. As sport becomes more business-like and seeks outside sponsorship, and as individual coaches and athletes pursue personal sponsorships that may conflict with team or association sponsorship arrangements, this doctrine will probably be invoked more frequently. At the elite level, sport is now very lucrative and organizations imposing disciplinary sanctions which severely restrict an athlete’s opportunities must ensure that such sanctions are reasonable and justifiable in the circumstances, or these sanctions may be challenged as an unreasonable restraint of trade.

Originally published: Coaches Report (1998) Vol. 4(3)

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