Large companies like Walmart, McDonalds, and Amazon have been the target of labor rights organizations’ scrutiny for years because of their employment conditions.[1] While these practices continue and arguably violate labor laws, many of these companies’ actions may also fall afoul of federal and state antitrust laws as well. Recent evidence shows labor markets across the country are heavily concentrated.[2] More specifically, they may be guilty of abusing their power as the sole or primary buyer of labor in many markets—also called “monopsony power”—to extract more from their employees at lower wages than a competitive market would allow. These anticompetitive practices may contribute to stagnating and falling working class wages[3], declines in skilled labor[4], and rising inequality between labor and capital share of income.[5]
The harm from a company’s employment practices can be well understood by metaphor: imagine an auto mechanic shop in a rural area, one of maybe a few looking for auto workers. The market for labor is constrained geographically by the commuting distance of workers, and constrained also by those willing and qualified for the job. Imagine there are 10 auto workers looking for work, and 3 open jobs. If other employers are not hiring, the mechanic can hold down wages well below the competitive wage. Even if 7 qualified people refuse to work at the lower wages, the employer gains more from wage savings than the loss from not having as large a hiring pool. This wage depression is the main harm antitrust scholars assert in a monopsony market.[6]
But there are more reasons antitrust laws were created[7] and prices are not the only issue in the labor market. In a labor monopsony specifically, there are many more potential harms than the price of labor. Requiring open availability, late posting of schedules, last minute schedule changes, on-call scheduling, last minute offer of hours, and erratic weekly income are all additional ways that a labor monopsonist can unfairly squeeze workers without directly lowering the per-hour wage they pay. A monopsonist may also push people into part time work instead of full-time work, essentially forcing a seller of labor to give a discounted product.[8]
Leading scholars now suggest the harms of labor concentration should be considered by the DOJ and FTC when considering mergers[9] and Sherman Act[10] enforcement, potentially halting mergers and banning certain abuses.[11] However, State Attorneys General also have power to enforce antitrust violations under both the Sherman Act[12], and often under their own laws.[13] This power is especially important in light of the Twombly decision which sharply limits the ability of private individuals to bring effective antitrust suits.[14] Attorneys General should use their power, when possible, to stem the poisonous effects of worker abuse and society-wide inequality discussed above because they are often the only ones able to do so. To this end, State Attorneys General should consider the following theories on which an antitrust case against a monopsonist employer might be based.
Theory 1 — No-Poach under Sherman §1 — All Employees
A Sherman §1 cause of action requires two things: 1) an agreement; 2) an unreasonable restraint of trade. The strongest cases of restraint of trade are outright horizontal price fixing contracts, but these are rarities because of their well-known per se illegality.[15] Most agreements in restraint of trade today are agreements to exclude competitors from the market in some other way. The battle here is to determine whether a given action is in fact a “horizontal restraint of trade.” If it is not, the practice is considered under the more lenient “Rule of Reason” analysis. [16] For a company’s employment practices, the restraint of trade applies to people. Thus, the measure is whether an employer is excluding other employers from participating in the labor market for workers.
A no-poach agreement is an archetypal exclusive agreement in restraint of trade under §1 of the Sherman Act. It asks other companies to agree not to hire away the primary company’s employees. Some AGs already treat these agreements as unlawful per se because they are such clear horizontal restraints on trade.[17] No-poach agreements have been hot antitrust issues for a wide variety of companies and industries from tech[18] to fast food.[19] Moreover, many AGs have brought successful actions or investigations into these agreements.[20]
No-poach agreements are more common among executives and high-skilled workers[21] largely because these workers often have greater access to proprietary information.[22] However, they are now appearing more prevalently in low-skilled and unskilled labor contracts as well.[23] Thus, while it is more likely these agreements will be found in worker contracts like in Amazon’s two new HQ2s in New York and Virginia, they may also be found in warehouse worker contracts in New Jersey. Evidence has not yet surfaced on whether Amazon uses these agreements in either case and is unsurprisingly sparse for other companies as well. However, even without evidence of a written contract, a combination or “conspiracy in violation of the Sherman Act may be found in a course of dealings or other circumstances as well as in any exchange of words.”[24] To pursue this theory, an AG needs more than just proof of “parallel business behavior”[25] but needn’t go so far as to produce a document showing a no-poach agreement. Recent settlements encouragingly suggest companies are not yet willing to litigate this issue aggressively.
Theory 2 — Non-Compete under Sherman §1 —Franchisees
Non-compete clauses in contracts may offer a similar angle on liability to what no-poach agreements do, except that they may not be so obviously an agreement between competitors. Antitrust law has a much more complicated relationship with purely vertical restraints of trade, like those between an employer and employee.[26] One promising theory for liability is non-compete clauses in franchise agreements which forbid franchisees from hiring each other’s workers. Under this theory, a company and its franchises essentially organize a “hub and spoke” simulacra of a §1 horizontal restraint of trade through vertical franchise-no-hire-agreements and non-competes signed by their employees.[27] While this most obviously applies to companies like McDonalds which are well knows franchisors, it may also apply to companies like Amazon which recently rolled out a franchise-like program to expand its delivery logistics operations called “Amazon Delivery Service Partners.”[28]
In 2016, New York State settled with the sandwich chain Jimmy John’s to discontinue using non-compete agreement that prohibited their employees from working in competing establishments within a two-mile radius for 24 months.[29] In July 2018, a District Court in Illinois refused to dismiss a §1 Sherman Act claim against Jimmy John’s for this same non-compete arrangement.[30] It appears thus that courts are willing to enforce or at least entertain claims like these against franchised organizations in the labor market.
This claim will not cover non-competes issued to direct employees of most companies, in large part because the antitrust laws does not consider the actions of a company upon itself to be agreements in restraint of trade; instead they are “unitary actions” immune from §1.[31]
Theory 3 — Non-Compete under Sherman §2 — Warehouse Workers
These non-compete agreements, however, may be actionable outside the context of franchises under §2 of the Sherman Act instead. A single firm may still be liable for non-compete agreements with its employees if it is part of an attempt to gain or maintain a monopoly. This claim requires a showing of 1) monopoly power and 2) the willful acquisition or maintenance of that power.[32]
The jurisprudence offers two common ways to show monopoly power: first, simply show a dominant market share of around 90%[33]; or second, show power through direct evidence of anticompetitive price control.[34] Recent research suggests labor markets are increasingly concentrated,[35] and big companies like Walmart, Amazon, or Costco, in many geographic markets are the only employer of certain laborers like warehouse workers. There is mounting evidence for example that Amazon or Walmart’s presence in a labor market significantly decreases wages for warehouse workers. [36]
As for willful maintenance of that monopoly power, the non-compete clauses, that many companies make their low wage workers sign, should qualify as attempts at maintaining a monopoly over the labor pool.[37] While these clauses are obviously unenforceable, they are still exercises of intimidation and power over low wage workers without legal knowledge or representation. [38] Monopsonization arguments already face an uphill battle in the enforcement environment because they are rare but even more because they usually consist of a company complaining that another company is driving down prices, which is ostensibly good for the consumer. Here, however, the argument about unfairly suppressing wages with unfair contractual tactics may be just enough to convince a judge to make new favorable precedent in the monopsony space. Non-competes, or no-poach agreements especially, would be a good analogy to prior law on monopoly under §2.
Theory 4 — Salary Sharing under Sherman §1 — Subcontractors
Finally, and least likely, if a company is found to be sharing its wage data with its subcontractors as a way to ensure they don’t stray from the prevailing artificially low wage which a company maintains in a labor submarket, there may be a §1 violation. A 2001 case, Todd v. Exxon Corp., held that exchange of price data can be applied to labor monopsonists.[39] It is unlikely that most major companies will have done this, given that the Justice Department and FTC published guidelines in 1996 on specific procedures to avoid antitrust liability in price sharing.[40] It is, however, still a theory to be aware of because the guidelines were originally published in reference to healthcare data sharing before Todd. While some Human Resources thinkers have caught the change in context,[41] and it is likely the major company’s HR department caught up to the state of law in this space, because monopsony is not yet a huge issue in labor markets, it’s possible some companies have missed the bandwagon.
Endnotes:
[1] See e.g. Shona Ghosh, Peeing in trash cans, constant surveillance, and asthma attacks on the job: Amazon workers tell us their warehouse horror stories, Business Insider, available at https://www.businessinsider.com/amazon-warehouse-workers-share-their-horror-stories-2018-4; also Mike Papantonio, McDonald’s Gets Busted for Huge Labor Abuses, https://trofire.com/2018/03/24/mcdonalds-gets-busted-for-huge-labor-abuses/; also Erin Johansson, Fighting For A Voice Walmart Workers Speak Out Despite Systematic Labor Abuse, http://www.jwj.org/wp-content/uploads/2013/12/130520fightingforavoice.pdf
[2] See generally José Azarand, Ioana Marinescu, Elena and Marshall Steinbaum, Labor Market Concentration (December 15, 2017) available at SSRN: https://ssrn.com/abstract=3088767 [Hereinafter: Azar et al. Labor Market Concentration]
[3] Middle class wages went up only 3% for middle class since 1979 and declined 1% for the bottom quintile. See Jay Shambaugh et al., Thirteen facts about wage growth, Brookings Institute, (Sep. 25, 2017) available at https://www.brookings.edu/research/thirteen-facts-about-wage-growth/.
[4] Market concentration suppresses labor income, increases the gap between capital and labor wealth, and may suppress productivity as skilled workers decline jobs and unskilled workers decline to build skills and qualifications. See Naidu, Suresh and Posner, Eric A. and Weyl, Eric Glen, Antitrust Remedies for Labor Market Power at 2 (February 23, 2018). Harvard Law Review, Forthcoming; University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 850; U of Chicago, Public Law Working Paper No. 665; Columbia Law and Economics Working Paper; available at SSRN: https://ssrn.com/abstract=3129221
[5] Rising industry concentration and falling labor share of income are coordinated. See Autor et al., Concentrating on the Fall of the Labor Share, American Economic Review: Papers & Proceedings 2017, 107(5): 180, 184.
[6] Naidu, Posner, and Weyl, supra note 3 at 3.
[7] See e.g. 21 Cong Rec. 2457 (Statement of Sen. Sherman) (“It is the right of every man to work, labor, and produce in any lawful vocation and to transport his production on equal terms and conditions and under like circumstances. This is industrial liberty and lies at the foundation of the equality of all rights and privileges.”).
[8] As customers, we can’t demand a 70% discount on a plate of pasta at an Italian restaurant just because we’re feeling peckish. The waiter would rightly scoff at us. Unless we were the only customer they ever had, then the story might change. Labor monopsonists are allowed to do just this to their workers, forcing people who want full time work, to set aside prime work hours in the day for the chance of work, without being paid for reserving that time. They are left on call, being paid only for the few hours the employer wants, despite setting aside more time.
[9] Clayton Antitrust Act of 1914, Pub. L. No. 63-212, 38 Stat. 730 (codified as amended at 15 U.S.C. §§ 12-27, 29 U.S.C. §§ 52-53 (2012)) (Generally what mergers are governed under).
[10] Sherman Antitrust Act of 1890, Pub. L. No. 51-647, 26 Stat. 209 (codified as amended at 15 U.S.C §§ 1-7 (2012)).
[11] See generally Naidu, Posner, and Weyl, supra note 3
[12] The Sherman Act, allows remedies when enforced by the US federal government or by private individuals. See Sherman Act, 15 U.S.C. §1-7. More importantly here, the Hart-Scott-Rodino Act amends the Sherman Act to allow for State Attorneys General to bring actions on behalf of their citizens under a theory of parens patriae. See 15 U.S. Code § 15c(a). This theory is generally used for actions to protect abused children, etc. but Congress emphatically chose to make this remedy available from the Sherman Act to protect workers from corporate antitrust abuses.
[13] For example, in the six states with more than five Amazon fulfillment centers, most have state antitrust acts that supplement or mirror federal antitrust laws:
California has 16 fulfillment centers; — A California Cartwright Act violation requires “a combination of capital, skill or acts by two or more persons” to achieve an anticompetitive end. Here “unilateral action by a market participant, even though aimed at the same anticompetitive end, is not prosecutable under the Cartwright Act, absent coercion” This is potentially smaller in scope than Sherman. See 1 CA Antitrust and Unfair Competition Law § 2.02 (2018);
New Jersey has 11 fulfillment centers; — New Jersey Antitrust Act says “[t]his act shall be construed in harmony with ruling judicial interpretations of comparable Federal antitrust statutes and to effectuate, insofar as practicable, a uniformity in the laws of those states which enact it.” See N.J.S.A. § 56:9-18;
Pennsylvania has 8; —Unfair Trade Practices & Consumer Protection Law: Tit. 73 §§201 - Pennsylvania doesn’t even have an antitrust law does even less than federal antitrust law, the closest thing is more of a consumer protection act against fraudulent practices. See 73 P.S. §§201-1 – 201-9.9 available at https://www.attorneygeneral.gov/wp-content/uploads/2018/02/Unfair_Trade_Practices_Consumer_Protection_Law.pdf;
Florida has 7; — Their Antitrust Act of 1980 directly mirrors the Sherman Act. See 33 Flor. Stat. 542 available at http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0500-0599/0542/0542.html;
Tennessee has 6; — Tennessee antitrust laws seem to mostly track and even expand on federal antitrust liability in some spaces. See 1889 Tenn. Pub. Acts 475-76, 1891 Tenn. Pub. Acts 428-30, 1897 Tenn. Pub. Acts 241-42, and 1903 Tenn. Pub. Acts 268; See also Clark L. Hildabrand, Interactive Antitrust Federalism: Antitrust Enforcement in Tennessee Then and Now, 16 Tenn. J. Bus. L. (2014) (explaining the interaction of Tennessee laws allows indirect purchaser liability, getting around Illinois which is more expansive than federal law for individual liability) available at https://trace.tennessee.edu/transactions/vol16/iss1/4;
Texas has 6; — A 1983 antitrust act updated the old 1889 act but didn’t provide much helpful supplement for labor claims. The act mirrors Sherman except in a few additions for exclusive dealing which only apply to sale of goods, not purchasing, thus they can’t help with a monopsony argument beyond what federal laws provide. See Tex. Bus. & Com. Code § 15.05(a)-(c).
[14] See generally Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (Requiring specifically pleaded facts to support a “plausible” claim to survive a 12(b)(6) motion to dismiss. Without government investigative and subpoena power it is often hard for private individuals to find plausible facts before discovery to survive dismissal).
[15] Broadcast Music, Inc. v. CBS, 441 U.S. 1, 19-20 (1979) (Horizontal agreements are per se illegal because they, "always or almost always tend to restrict competition and decrease output.").
[16] See e.g. California Dental Assn. v. Federal Trade Commission, 526 U.S. 756 (1999) (describing both the abbreviated “Quick Look” and the full Rule of Reason, and explaining that when anticompetitive effects of restraints are far from intuitively obvious, the rule of reason demands a more thorough enquiry into the consequences of those restraints.)
[17] Letter to Donald Clark Secretary of the Federal Trade Commission, Attorneys General of California, Connecticut, the District of Columbia, Illinois, Massachusetts, Minnesota, Mississippi, New York, Oregon, Pennsylvania, Rhode Island, and Washington Competition and Consumer Protection in the 21st Century Hearing Project No. P181201 Antitrust/Competition Issues, 7 (Oct. 10, 2018) [Hereinafter “Letter from State AGs”].
[18] Press Release, California Attorney General Kamala Harris, Attorney General Kamala D. Harris Reaches $4 Million Settlement with eBay over Anticompetitive “No-Poach” Agreement with Intuit (May 1, 2014) available at https://oag.ca.gov/news/press-releases/attorney-general-kamala-d-harris-reaches-4-million-settlement-ebay-over
[19] Press Release, Washington Attorney General Bob Ferguson, AG Ferguson Announces Fast-Food Chains Will End Restrictions on Low-Wage Workers Nationwide (July 12 2018) available at https://www.atg.wa.gov/news/news-releases/ag-ferguson-announces-fast-food-chains-will-end-restrictions-lowwage-workers
[20] Press Release, New York Attorney General Barbara Underwood, 11 AG Coalition — Investigates No-Poach Agreements at National Franchises (July 9, 2018) available at https://ag.ny.gov/press-release/ag-underwood-part-11-ag-coalition-investigates-no-poach-agreements-national-franchises
[21] Letter from State AGs supra note 16, at 6.
[22] In 2010, the Justice Department stepped in to stop 6 major tech companies from entering into no-poach agreements for skilled tech employees. Press Release, Department of Justice Office of Public Affairs, Justice Department Requires Six High Tech Companies to Stop Entering into Anticompetitive Employee Solicitation Agreements (Sept. 24 2010) available at https://www.justice.gov/opa/pr/justice-department-requires-six-high-tech-companies-stop-entering-anticompetitive-employee
[23] Id at 6-7.
[24] American Tobacco Co. v. United States, 328 U.S. 781, 809-810 (1946); see also Eastern States Retail Lumber Dealers Assn. v. U.S. 234 U.S. 600 (1914) (“conspiracies are seldom capable of proof by direct testimony and may be inferred from the things actually done”); see also generally, Interstate Circuit v. U.S. 306 U.S. 208 (1939).
[25] See generally, Theatre Enterprises v. Paramount Film 346 U.S. 537 (1954).
[26] Phillip Areeda, Antitrust Analysis: Problems, Text, and Cases 584 (Louis Kaplow & Aaron S. Edlin eds., 7th ed. 2013) (“Skepticism of vertical restraints has steadily eroded in the courts and the general trend of the courts has been toward the rule of reason.”).
[27] See generally Toys "R" Us, Inc. v. F.T.C., 221 F.3d 928 (7th Cir. 2000) (explaining the theory and illegality of the “hub and spoke” model of trade restraints).
[28] See https://logistics.amazon.com/
[29] See Press Release, New York Attorney General Eric Schneiderman, A.G. Schneiderman Announces Settlement with Jimmy John’s to Stop Including Non-Compete Agreements in Hiring Packets (June 22, 2016) available at https://ag.ny.gov/press-release/ag-schneiderman-announces-settlement-jimmy-johns-stop-including-non-compete-agreements.
[30] See Butler v. Jimmy John's Franchise, LLC, No. 18-cv-0133-MJR-RJD, 2018 U.S. Dist. LEXIS 128149 at 16-23 (S.D. Ill. July 31, 2018).
[31] Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 769 (1984) (“[I]t is perfectly plain that an internal ‘agreement’ to implement a single, unitary firm's policies does not raise the antitrust dangers that § 1 was designed to police.”).
[32] Sherman Act, 15 U.S.C. §2.
[33] United States v. Aluminum Co. of America, 148 F.2d 416, 424 (2d Cir. 1945) (a market share of ninety percent "is enough to constitute a monopoly; it is doubtful whether sixty or sixty-four percent would be enough; and certainly thirty-three per cent is not"); also, Todd v. Exxon Corp., 275 F.3d 191, 208 (2d. Cir. 2001) (Using the same standard).
[34] See, e.g., Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 307 (3d Cir. 2007) ("The existence of monopoly power may be proven through direct evidence of supracompetitive prices and restricted output."); Conwood, 290 F.3d at 783 n.2 (noting that monopoly power "'may be proven directly by evidence of the control of prices or the exclusion of competition'" (quoting Tops Mkts., Inc. v. Quality Mkts., Inc., 142 F.3d 90, 9798 (2d Cir. 1998))).
[35] Azar et al. Labor Market Concentration, supra note 2 (see especially Figure 1).
[36] What Amazon Does to Wages, The Economist, Jan. 10, 2018 (“After Amazon opens a storage depot, local wages for warehouse workers fall by an average of 3%. In places where Amazon operates, such workers earn about 10% less than similar workers employed elsewhere.”); see also Eunice Hyunhye Cho et al., National Employment Law Project, Chain of Greed: How Walmart’s Domestic Outsourcing Produces Everyday Low Wages and Poor Working Conditions for Warehouse Workers, (June 2012).
[37] “Noncompetes…cover a full 14 percent of workers without college degrees” Matt O’Brien, Even Janitors have noncompetes now, The Seattle Times (Oct. 19, 2018) https://www.seattletimes.com/explore/careers/even-janitors-have-noncompetes-now/; Amazon got in PR trouble in 2015 including an 18 month non-compete clause in its hourly workers’ contracts before pledging to remove it under public pressure. However, message boards and anecdotal stories from hourly workers suggest the non-compete is still in use today. See Jana Kasperkevic, Amazon removes crazy non-compete clause from hourly workers’ contracts, Business Insider, https://www.businessinsider.com/amazon-removes-non-compete-clause-for-hourly-workers-2015-3; see also e.g., 18 month non-compete at Amazon, Blind, https://www.teamblind.com/article/18-month-non-compete-at-Amazon-cfggCEc3.
[38] Spencer Woodman, Exclusive: Amazon makes even temporary warehouse workers sign 18-month non-competes, The Verge (Mar. 26, 2015), available at https://www.theverge.com/2015/3/26/8280309/amazon-warehouse-jobs-exclusive-noncompete-contracts (Quoting Charlotte Garden, University of Seattle Law Professor, that Amazon is “having workers sign a contract that is very likely to be unenforceable…Knowing that people who have been working for 10 and 11 dollars an hour are not going to be able to hire a lawyer to fight for them later on.")
[39] 275 F.3d 191, (2d. Cir. 2001) (Extending the logic of an earlier case that exchange of price data can be a §1 claim under “Rule of Reason” but not Per Se illegality. United States v. United States Gypsum Co, 438 U.S. 422 (1978)).
[40] See Statements of Antitrust Enforcement Policy in Health Care (Aug. 1996) available at https://www.justice.gov/sites/default/files/atr/legacy/2007/08/14/0000.pdf
[41] Joanne Sammer, Agenda: Compensation: Avoiding Antitrust Violations, Society for Human Resource Management (May 1, 2013) available at https://www.shrm.org/hr-today/news/hr-magazine/pages/0513-salary-surveys2.aspx