In the State of California v. Safeway, Inc. (“California v. Safeway”), the United States Court of Appeals for the Ninth Circuit answered the question of whether the non-statutory labor exemption excused a profit-sharing agreement that would ordinarily violate the antitrust laws. The Court found that the exemption did not excuse the agreement, because the functioning of the collective bargaining process did not require it. Instead, the agreement constituted “an economic weapon used by the employers in their efforts to prevail in a labor dispute.”
The Sherman Act prohibits price-fixing agreements, with an exemption for collective bargaining with labor unions. Although Congress has never enacted such an explicit statutory antitrust exemption for employers, the Supreme Court has found that such a parallel exemption is implicit in the collective bargaining regime.
In California v. Safeway, however, the Ninth Circuit ruled that this implicit employer exemption has a limited scope and only applies where the agreement plays a traditional role in collective bargaining and enables the collective bargaining process.
The case arose out of the bitter 2003-2004 Southern California grocery workers strike against Safeway, Albertson’s, and Ralph’s/Kroger. In order to prevent the labor union from adopting a challenging bargaining strategy, the employers not only agreed to bargain as a group, but also to “share profits” during the strike.
California filed a lawsuit against Safeway, et al., alleging that the profit-sharing agreement violated Section 1 of the Sherman Act. The trial court denied the defendants’ motion for summary judgment based on the non-statutory labor exemption and held that the implied antitrust exemption for employers only extends to agreements “needed to make the collective-bargaining process work.” Therefore, agreements to split profits, allocate market share, or engage in other conduct not directly related to bargaining itself stretches the nonstatutory labor exemption too far.
The Court of Appeals for the Ninth Circuit affirmed this ruling.
Regarding violation of § 1 of the Sherman Act, the Ninth Circuit stated that it does not feel entirely comfortable to apply a strict per se approach to this case, because unlike previous cases in which the United States Supreme Court has found per se violation of § 1, in this case defendants’ profit sharing was for a short period of time and defendants were not the only firms of their kind operating in the relevant market.
The Court held that the profit-sharing agreement violated § 1 of the Sherman Act, because defendants did not demonstrate how their agreement had any “precompetitive effects.” Defendants asserted that their agreement served a precompetitive purpose by reducing the labor costs and increasing their chances of winning the labor dispute. The Court found the defendants’ argument unpersuasive, reasoning that “[r]educing workers’ wages and benefits is hardly an objective that would justify a violation of our antitrust laws or a benefit so substantial to the public as to overcome the deleterious consequences of anticompetitive conduct.”
The Court then proceeded to address the defendants’ principal contention: that since they entered into this agreement in anticipation of a labor dispute, they had not violated antitrust laws, given the applicability of the non-statutory labor exemption.
Summarizing the history of antitrust and labor laws and their potential conflicts, the Court mentioned the logic behind the non-statutory labor exemption. “It would be difficult, if not impossible, to require groups of employers and employees to bargain together, but at the same time to forbid them to make among themselves and with each other any of the competition-restricting agreements potentially necessary to make the process work or its results mutually acceptable” (citing Brown v. Pro Football, Inc., 518 U.S. 231, 237 (1996)).
The Court asserted that “[n]ot every restraint on competition that employers and employees might impose through the collective bargaining process is immune from antitrust review.” An exemption from the antitrust law is appropriate where “the conduct at issue plays such a traditional role in collective bargaining.” The Court found such a traditional role arises in cases where questions are “ordinarily resolved by, or even susceptible to resolution by, the application of labor law principles” and where agreements are “needed to make the collective bargaining process work.”
The Court found that the defendants’ profit-sharing conduct does not play a traditional role in collective bargaining and is unnecessary to make the collective bargaining process work. On the contrary: “defendants seek an exemption in order to permit them to engage in unlawful conduct in order to help them defeat their employees’ collective bargaining representatives who are engaging in perfectly lawful conduct,” the Court concluded. Accordingly, agreements to split profits, allocate market share, or engage in other conduct that is not directly related to bargaining itself will fall outside the exemption.