ESPORTS PLAYERS AS EMPLOYEES: WHAT EUROPEAN TEAMS AND PLAYERS NEED TO KNOW
There’s lots of talk of players being ‘employees’ or ‘contractors’, accelerated by big moves planned by Riot, but what does that actually mean for players, teams and beyond? European esports lawyers Pete Lewin and Jas Purewal from Purewal & Partners explain.
- There is a big legal and tax difference between a pro player being an employee vs being a contractor.
- Most pro players are classed as contractors atm but there is a move towards some of them being classed as employees (especially in LCS).
- Being an employee has direct financial and legal consequences for both players and teams e.g. higher taxes (we’re talking double digit increases for players and teams) and legal stuff like minimum holidays and sick leave in Europe.
- This is becoming an important issue for any pro team or pro player.
Is a pro player an employee or contractor of his/her teams? This question has a really significant financial and legal impact on both teams and players and now, with Riot’s intention to require all NA and EU League Championship Series players to be employed by a team from 2017 onwards, it’s at the top of the player/team agenda — above all in Europe, where strong employment and tax rules will lead to considerable changes in the player/team dynamic.
What’s the difference?
Employees and contractors are both staff members of a business, but employees have significantly higher legal protections, employers have significantly higher legal obligations and both employer and employee usually pay higher taxes. For example: employees may benefit from a minimum wage, health plans and protections against unfair dismissal and typically both employers and employees have to pay employment taxes.
None of that (generally) applies to contractors: lower contractor legal protections, lower ‘employer’ obligations and (generally) little or no employment taxes. It’s also worth noting that in some countries there are intermediate stages between employees and contractors.
Why does this matter?
Very basically, it’s more expensive and more burdensome for a business to have an employee compared to a contractor. Generally speaking (but not always) it’s more advantageous in the long run for a staff member to be an employee rather than a contractor.
So, whether a player is classed as an employee or a contractor can have a real impact on both the player and the team in terms of obligations and money.
How do you decide whether someone is a contractor or an employee?
It varies around the world, but most countries have a multi-step test which includes factors like: is the staff member full-time or part-time? Is he/she remunerated on a salary or project basis? Is he/she exclusive to the business? Does the business have a high degree of control over the daily activities/duties of the staff member? Does he/she act like an employee or a contractor? Fundamentally, the test of employment vs contractor is one of substance, not form: what the staff member does is more important than what he/she is called.
How does this work in esports right now?
Historically, the majority of pro players were classed as contractors. In the modern age of esports, there are some teams and players which have classed players as self-employed or employed directly by the team — but this is probably still a minority. There’s no hard data yet regarding exactly how this is working in practice but our anecdotal experience suggests that several EU LCS teams have either already made this change or were considering it prior to Riot’s plans. Outside of League, many EU teams still class players as contractors (more on that later).
Will all pro players eventually be classed as employees? That’s a difficult question and no-one really knows. Our view is that over the long term there will probably be a move towards more pro players being employees, but it will not apply universally across the board — sometimes for business reasons, sometimes for legal reasons and sometimes because different esports have different needs. Again, we stress we are talking about long term trends here. We talk later on about how the legal rules mean that a player is not automatically an employee or a contractor.
What does classing players as employees mean in Europe?
We’re focusing on Europe specifically because Europe has by far the most advanced and prescriptive employment systems in the world and, from an employer’s perspective, that makes it a big deal. It also means that European employment law is going to have a real impact on teams and players in European esports.
(1) European employment taxes are often quite high and the rules can be complex.
· Tax rates vary from country to country and can add up quickly depending on the amount an employee is earning. For example, income tax rates (paid by players), ‘social security contributions’ (paid by players) and additional social security contributions on top of the player’s own paid by the team varies per territory. Some (very simplified) examples follow:
To put this in perspective: if a pro player in France moves from being a contractor to being an employee, you can expect the player to pay around 30% more tax and the team to pay around 43% more tax on that player’s remuneration (again, this is super simplified but you get the idea).
· Employment taxes can apply if the team or the player are ‘resident’ in one or more countries. Sometimes multiple countries’ rules can apply.
· It’s not necessary for the employer to have a legal entity in the territory where the player is based for the local tax rules to be triggered. For example, a team based in e.g. the UK with a player from Holland who plays in Germany could in theory be obliged to pay employer taxes in one, two or all three countries unless there are applicable tax rules that can reduce this down. In practice, this means that cross-border European esports employers will need legal and tax advice to ensure they have the proper employer tax setup.
· Most European countries will require a team to automatically deduct income tax and other taxes from a player via the payroll system. This is helpful to the player, but adds to the team’s administration overheads.
· Non-cash benefits provided by teams (e.g. accommodation and gear) are taxable.
· So will prize winnings, sticker money, streaming revenue etc. Watch the tax authorities have fun with that.
(2) Employed players get a minimum wage.
It is common in the EU to have a minimum wage for employees. Details vary but to give you an idea: UK £4-£7.20 / hour); Germany (€8.50 / hour); and France (€1,467 / month). In practice this should not be a problem for pro players of the top games, but it could be an issue for lower paid players (e.g. for newer or less popular games).
(3) Employed players get minimum paid holidays.
All employees within the EU are entitled to at least 4 weeks paid vacation, although this may be more in certain countries — e.g. including paid public holidays: UK (28); Germany (29); France (36); and Sweden (34). Teams could legitimately impose certain conditions regarding when players could take their holidays (such as not during or in the run up to tournaments), but this could still be difficult to coordinate given the often busy events calendar for many teams and players.
(4) Hiring and firing EU employees can be difficult.
Most countries have detailed rules surrounding the hiring and firing of employees. These often include minimum ‘notice periods’ (i.e. the amount of warning that an employee must be given before they can legitimately be fired) and protections from unfair and/or wrongful dismissal. For example, in Germany employees who have been employed for < 6 months can be dismissed relatively easily, but after that period restrictions are introduced regarding what constitutes a valid reason for dismissal, with poor performance alone rarely being sufficient. In the UK, if an employee has been with an employer for > 2 years, dismissal becomes harder with the employee is entitled to protection from unfair dismissal (i.e. from being dismissed without good reason or not in compliance with the employer’s own formal disciplinary/dismissal process). Teams would need to familiarize themselves with these rules (which vary from country to country) to ensure they act in compliance during the hiring, firing and transfer of players.
(5) Sick pay.
Throughout many European countries, employees are entitled to continue to receive minimum salaries from their employers during periods of absence due to illness. For example, in Germany an employee is entitled to 6 weeks off at 100% pay and up to 78 weeks off at 70% pay, whereas in the UK it’s up to 28 weeks at £88.45/week.
(6) Maximum Working Hours
Within Europe there are legal restrictions on the number of hours a person can work in any given week. This varies by country, but in the UK and Germany this is 48 hours while in France it is 35. Some countries let employees ‘opt-out’ of this (i.e. agree to work more than the set limits) but this must be covered in the employment contracts.
(7) Other matters
There are also restrictions around the treatment and dismissal of employees on health/illness/race/gender grounds that teams would also need to be aware of. Since employment laws vary (sometimes significantly) between countries, there may also be a number of country-specific laws which apply.
Real world examples of how employment status would impact players and teams
a. Reduction in salaries? While employee status would not technically impact the amount of income tax due on a player’s salary, it would introduce the social security contributions and other indirect costs mentioned above. Unless teams increase a player’s salary to account for this, players could see less in their pockets each month.
b. Player Contracts. If a team previously used a contractor agreement for its players and either decides or is required to move the players to employment status, then a new employment-oriented player agreement will be required.
c. Dismissal Protections. Hiring and firing players could become more complicated, particularly where a player has been with a team for several years. Many teams will likely need to expand upon (or build) their disciplinary and dismissal procedures to ensure they are legally compliant.
d. Higher overheads and more paperwork. Compliance with employment laws is not easy especially at an international level and the rules change often. Over the medium terms teams will need to invest in their HR and compliance functions to keep up with legal developments.
e. Overtime? Unfortunately for players, probably not. With salaried jobs where an employee is paid £X regardless of the number of hours worked per month, generally speaking overtime is not applicable.
How would EU employment law impact on esports player specific issues (e.g. transfer rights, buyout fees, personal sponsorship)?
In theory, employment law should not affect these kinds of matters IF they are already being approached in a legal compliant and reasonable matter. However, if for example transfer deals are being approached in a way that could breach EU employment law, then it would cause a problem. Plus, these kinds of matters would now need to be fit into employment law compliant player agreements, which may well mean rewriting them.
Which country’s employment laws should apply?
There’s no single answer: it depends on a mixture of where the team is based, where the player is based, any league requirements and legal/tax considerations. This question matters because, as we have shown, there are a lot of differences in different countries — there are low cost/low regulation states like the UK and then higher cost/higher regulation states like France and Germany, for example. Our understanding is that Riot’s requirements are that EU LCS players must be employees whose contracts comply with minimum requirements of German employment law but the player doesn’t need to actually have a German law employment agreement as such.
Does Riot’s plans mean that ALL esports players must be employees?
No. In our view, the reality is that regardless of whether or not publishers/leagues like Riot introduces changes in this area, the test for whether someone is an employee or a contractor remains the same as it always has been and involves a detailed analysis of the factual circumstances around the specific player/team relationship at hand. It will not always necessarily lead to an answer that a player is definitely an employee: a single team could have some players that are employees and some that are legitimately classified as contractors (or potentially the player could fall into another locally permitted status, such as ‘worker’ in the UK). In fact, in the modern age of technology the whole concept of employee vs contractor is being challenged in court and legislatures by companies like Uber with different results in different countries.
That said, realistically it is likely that Riot’s plans in this area, the involvement of traditional sports organisations and the more general professionalisation and growing legal awareness of the pro teams is likely to have a systemic impact on esports beyond League of Legends over the long term. How much depends in part on what (if anything) he other publishers and leagues do in response.
What do teams and players need to do?
In practice, the burden will fall hardest on teams, who need to:
· Take legal and accountancy advice on the implications of employment status for their players.
· Establish which are the applicable jurisdictions: this could be some combination of the home jurisdiction of the team; the home jurisdiction of the player; and/or a third party jurisdiction which has sufficiently favourable employment laws (although the player will always have his/her local rights).
· Establish the administrative infrastructure to identify, collect and pay the appropriate taxes.
· Reach an appropriate arrangement with players regarding the taxes (and potentially costs) involved.
Players will have less of an overhead, but as explained above they will have greater rights, obligations and tax requirements, so it’s worthwhile employed players having a good working idea of how the employment rules will work — especially regarding their own tax obligations.
How do you find out more?
Please contact Jas Purewal (firstname.lastname@example.org / @gamerlaw) or Pete Lewin (email@example.com / @LegalGamerUK)). Needless to say, please do not rely on this note as legal advice and always take advice specific to your facts and circumstances.