Employing Antitrust: Spotlight on Labor Markets in the Digital Economy
While antitrust issues in the employment context have often been overlooked, they have been pulled firmly into the spotlight recently in the US by a renewed enforcement focus by US federal and state antitrust agencies and political initiatives to expand protections for employees. The US Department of Justice recently hosted a joint workshop with the US Federal Trade Commission about antitrust regulation in the employment market. This was the first in a two-part series, with the second part on non-compete provisions yet to be scheduled by the FTC. It is the first major attempt by the DOJ and FTC to unify their enforcement efforts in this area since their joint DOJ and FTC Antitrust Guidance for Human Resource Professionals was issued in 2016. Employment-related antitrust issues have also fully entered the political arena, including via US Senator Elizabeth Warren’s recently announced labor plan in her agenda for the 2020 presidential election.
Important trends to watch
The debate around antitrust and employment has revealed several important areas for companies to watch. The Workshop revealed that the US antitrust agencies are continuing to target traditional areas of focus, as well as exploring novel issues that may arise in an employment context.
No poach agreements and the gig economy
The current enforcement focus on employment markets can be traced back to the DOJ’s no poach investigations in 2010 in the tech sector, where competition for talent is fierce and employee compensation is often one of the primary operating costs. The investigations resulted in allegations of so-called “no poach” agreements among several companies not to solicit, or “cold call”, other companies’ highly skilled employees, which the DOJ claimed amounted to per se violations of the antitrust law. The investigation resulted in civil settlements with various technology companies (Adobe, Apple, Google, Intel, eBay) and animation companies (Pixar, Lucasfilm). The DOJ has since announced its intention to criminally prosecute similar agreements (see our Insights). However, despite recent statements alluding to ongoing investigations, the DOJ has not brought any criminal cases to date.
While the DOJ continues to prioritize its enforcement against no poach agreements, there has been a divergence with state attorneys general which have been prolific in investigating the use of no poach provisions in restaurant franchise agreements. While certain state attorneys general have amassed settlements with corporate chains, the DOJ and state attorneys general have disagreed as to whether the per se rule should apply to franchise agreements. In particular, the DOJ has sought to intervene to argue that these franchise agreements should instead be treated as vertical arrangements subject to a rule of reason assessment. While the results will be played out in the courts, this disparity signals a potential divide in the approach to other sectors – most controversially, the gig economy through digital platforms such as ride-sharing. In this respect, the Workshop signalled that more broadly the authorities are looking to refine their assessment of the “gig economy” as part of their focus on digital technologies, which blur traditional market frameworks.
Other horizontal agreements on employment and compensation
The Workshop also signalled a new focus on so-called wage-fixing claims, including the possibility of criminal enforcement. Wage-fixing generally refers to agreements on a range of compensation terms between companies competing on the employment of similarly situated employees, even if the companies do not compete in the same downstream product markets. Enforcement could create significant risk for companies sharing compensation-related information.
Democratic FTC Commissioner Rohit Chopra submitted a letter in advance of the Workshop urging the DOJ to criminally prosecute wage-fixing arrangements, following promises to do so in the joint guidance in 2016. Chopra further linked the need for wage-fixing enforcement to the digital economy, noting that “today’s markets have more digital platforms that fix compensation... and generate data that can facilitate algorithmic collusion” among employers. Despite limited enforcement to date, the DOJ reiterated in remarks at the Workshop that such arrangements were still an area of focus.
Employment issues on monopsony power in merger reviews
Authorities are also coming under pressure to consider a broader range of non-traditional employment-related effects during the merger review process. Senator Warren’s proposal argues that the antitrust enforcers should block labor market consolidation which depresses wages and criticized the current system for failing to consider effects on labor markets during the merger review process. Both federal antitrust enforcers have as recently as last year noted the importance of reviewing mergers for monopsony harm in bargaining power for labor and employment contracts. Monopsony theories of harm in merger reviews can be controversial, however, as some argue that the increased bargaining power in fact reduces input costs that can be passed on through lower prices to consumers.
For example, in 2016 the DOJ blocked the merger between two major health insurers, Anthem and Cigna, based partly on the threat that the merged entity could leverage its power at the health insurance level to depress reimbursement rates for doctors and health care providers. DOJ Assistant Attorney General Makan Delrahim remarked during the Workshop that the Anthem/Cigna transaction shows the consumer welfare standard is “flexible enough to take into account harm to competition that is localized in an upstream labor market,” which seems to support the view that the DOJ would look closely at labor issues in future merger reviews.
Non-compete clauses in employment contracts
The second part of the Workshop to be held by the FTC will focus on the complex and controversial topic of non-compete clauses in employment contracts. Commissioner Chopra has been a particularly vocal supporter of FTC rulemaking to deem certain types of non-complete clauses as impermissible antitrust violations. In recent testimony to Congress, however, FTC Chairman Joseph Simons stated that the FTC cannot challenge non-compete clauses unless the companies have market power in a relevant labor market where the restraint is “purely vertical and unilateral.”
Some have suggested legislative action is needed to address non-compete issues instead. Notably, several US states have already taken legislative steps to prohibit the use of non-compete clauses within their state boundaries. Senator Warren, for example, has cited federal legislation prohibiting certain non-compete clauses as a key tenet of her new labor plan.
The thinking on antitrust issues in employment markets is continuing to evolve. Once overlooked, these topics are now firmly in the spotlight as political debates have ensued over employee rights and protections and regulators at both the state and federal level explore antitrust thinking outside of the traditional consumer welfare framework. Follow these issues closely to see how this all plays out.