October 21, 2010Client Alert

Court Determines Multi-Employer Agreement to Share Profits During a Strike is Not Exempt from the Antitrust Laws

The United States Court of Appeals for the Ninth Circuit recently issued a decision which restricted the options available to employers who seek to act jointly in response to a strike California ex rel. Brown v. Safeway, Inc., 615 F.3d 1171 (9th Cir. 2010). The case arose from an agreement between three of the largest supermarket chains in Southern California. The supermarket chains were part of multi-employer bargaining unit that employed grocery workers at their stores. These supermarket chains agreed to share profits amongst themselves during the time of anticipated labor disputes with their workers. Once the strike was settled, the State of California sued, and sought a declaratory judgment that the conduct violated § 1 of the federal Sherman Antitrust Act. The grocers argued that the profit-sharing agreement did not violate the antitrust laws, but even if it did, the conduct was exempt from antitrust review pursuant the anti-trust labor exemption. The Ninth Circuit held that the profit-sharing agreement violated the antitrust law and the agreement was not shielded from review by an implied non-statutory labor exemption.

The Ninth Circuit first addressed whether the profit-sharing agreement violated § 1 of the federal Sherman Antitrust Act, which prohibits agreements that unreasonably restrain trade. When assessing challenged conduct under this section of the antitrust laws, courts normally employ either the per se approach, which condemns a narrow range of conduct without any detailed analysis of the conduct’s affect on the market, or a rule of reason approach, which is used in most cases and can involve a detailed economic assessment of the anti- versus pro- competitive effects of the challenged conduct. Here, the Ninth Circuit did neither, and instead employed a "quick look" approach, which reviews the proffered justification for the conduct without detailed economic analysis. The grocers argued that their agreement to share profits benefited consumers in the form of lower labor costs since the agreement allowed them to increase their collective bargaining position in order to extract a better labor deal. The Court held that this proffered pro-competitive justification was neither supported by the evidence nor consistent with the aims of the antitrust laws and therefore was rejected as a matter of public policy.

After holding that the conduct would violate the antitrust laws, the Ninth Circuit then turned to the question of whether the grocers’ conduct was within the implied non-statutory labor law exemption to the antitrust laws. If so, this exemption would shield such conduct from antitrust review. The Ninth Circuit held that the conduct was not shielded.

The Court began its analysis by noting that employees traditionally have been able to gather together and exercise power in labor negotiations, and that such conduct was explicitly exempted from antitrust review under the Norris-LaGuardia Act and the Clayton Act. The Court noted that agreements, which involve both unions and employers, are not explicitly exempt from antitrust review, and therefore the Supreme Court in Brown v. Pro Football, Inc. 518 U.S. 231 (1996) stepped into this void to recognize an implied non-statutory labor exemption that would shield certain arrangements between the unions and their employers, and between employers, from antitrust scrutiny. The logic behind this implied exemption to the antitrust laws is that, without such protection, it would be difficult for groups of employers to bargain as multi-employer groups - a result which would frustrate the objective of the labor laws. In Brown, the Supreme Court held that the NFL’s unilateral imposition of certain terms after reaching an impasse in bargaining with the players’ union was a well-recognized procedure in the collective bargaining process and therefore was exempt from the application of the antitrust laws.

Quoting language from the Brown decision, the Ninth Circuit stated that the test to determine whether this exemption shielded conduct of multi-employer bargaining units from the antitrust laws was whether the antitrust exemption would “make the collective bargaining process work.” In this case, the Ninth Circuit declined to extend this implied exemption to the agreement between the grocers to share profits during the period of the strike since, according to the Ninth Circuit, the conduct at issue was not the type of activity that labor law practice traditionally recognized as essential to collective bargaining.

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