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Breach of terms: When contracts fail to secure employers pole position - 14 December 2016

Nico Rosberg’s recent announcement that he was retiring from Formula 1 on 2 December 2016, a mere five days after winning the F1 World Drivers’ Championship, not only shocked the public but also took his team by complete surprise. Rosberg’s retirement comes in the wake of his signing a new two-year contract with the Mercedes AMG Petronas F1 team in late July for the 2017 and 2018 seasons, worth at least £18 million annually.

As the non-executive chairman of the Mercedes team, Niki Lauda, commented several days later, there was no hint given by Rosberg of a potential retirement during the contract negotiations.  Consequently, instead of celebrating its third successive year of achieving both the constructors’ and drivers’ titles (including back to back one-two finishes), Mercedes has found itself scrambling to replace Rosberg before Christmas.  

In this Alert, Senior Associate Stephanie Tan, Solicitor Josephine Hart and Law Graduate Mia De Leo discuss whether Rosberg’s decision is a breach of contract and the potential remedies for Mercedes.

Breach of contract?

Although the specific terms of Rosberg’s contract are unknown, generally, a professional competitor who is part of a team will be bound by a contract of service whereby the sportsperson becomes an employee of the organisation for whom they compete.  Alternatively, they might be engaged as an independent contractor (via a contract for services).  It is also common for a sportsperson to be engaged by a number of non-competing employers at one time where endorsements and marketing appearances are involved as, presumably, would be the case with Rosberg.

Given Rosberg unilaterally terminated his contract prior to the term’s end, an interesting issue is whether he may have breached either an express or implied term of the agreement.

What about Mercedes?

If a breach of contract has occurred, in terms of remedies, Mercedes would ideally be seeking specific performance; that is, for Rosberg to defend his title and continue racing until the end of 2018 as he was contracted to do.  

In the employment sphere, however, courts are very reluctant to make orders directly compelling an individual to perform personal services because it could be seen as “compelling involuntary servitude or compelling an individual to continue in a relationship they found to be irreconcilable”. In short, there is no point in having a reluctant driver.  

A more appropriate remedy could therefore be damages with the principal measure of damages being the expectation interest. That is, a sum necessary to put the employer in the position they would have been in had the employee properly performed the contract, in monetary terms.

However, due to the nature of the ‘service’ provided by Rosberg, this could be very difficult to calculate.  In the sporting world, because of the nature of the competition and the financial rewards that are tied to it such as, in this instance, the number of podiums achieved during the year and additional prize money they entailed, it can be impossible to assess the value of the work that would be done.

While it may be difficult to assess the monetary value of damages that would be sought, there is, arguably, value in Mercedes sending a message to drivers that they need to honour their contracts.  On the other hand, this could negatively affect Mercedes’ public image, particularly as most of Rosberg’s competitors and even Mercedes’ executive director, Toto Wolff, have been supportive of his decision to retire to spend more time with his family.

What could they have done differently?

During negotiations, Mercedes could have extended the notice period specifically in the case of retirement, requiring Rosberg to have provided them with, say, at least six months’ notice and, if this was breached, enabling Mercedes to withhold any monies owing, clawing back amounts that had already been paid up to a pre-determined amount or requiring Rosberg to pay Mercedes for any unserved notice period.

Potentially, Rosberg’s employment contract could have been drafted in such a way that it would effectively have required him to at least provide Mercedes with an indication that he would retire if he won the championship.  Such a clause could have assisted any perceived lack of transparency in the negotiations.

In this instance, money isn’t the issue for Mercedes and even if Rosberg’s contract did contain this provision, the team would still currently be looking at entering into the 2017 season with only one driver and without any backup plan.  From the public perspective, this might have the welcome result of making F1 less predictable next year and, provided Mercedes doesn’t go down the route of poaching a top driver from another team, Rosberg’s retirement may be the best possible news for teams like Red Bull and Ferrari.  


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