California Grocers’ Action during Labor Dispute Violated Antitrust Law

August 18, 2010 ( – The 9th U.S. Circuit Court of Appeals has ruled that an agreement between California grocers to share profits during a union strike violated federal antitrust law.

The grocers contended that the precompetitive benefit of their agreement is that it increased their chances of winning the labor dispute and reducing the wages and benefits they would be required to pay to their employees, which in turn would increase their ability to lower prices and compete more effectively with other companies. They also said that because their agreement was entered into in anticipation of a labor dispute, and constitutes part of their method of dealing with such a dispute, it is excused from the application of the antitrust laws by virtue of the nonstatutory labor exemption.  

The appellate court agreed that where the conduct at issue plays such a traditional role in collective bargaining, an exemption from the antitrust laws is appropriate. However, it found that defendants’ profit-sharing conduct has not traditionally been regulated under labor law principles, nor does it raise issues either on its face or in its practical implementation that are suitable for resolution as a matter of labor law, by the National Labor Relations Board (NLRB), or by the courts that review or implement Board rulings.   

According to the court, there is no well-defined set of NLRB rules or principles that would govern the circumstances in which such conduct would be permissible, and the conduct does not involve any mandatory subject of collective bargaining. Most importantly, the court said, profit sharing is not “needed to make the collective bargaining process work.” To the contrary, collective bargaining has worked and does work quite well from the standpoint of employers without the need to engage in such basic violations of the antitrust system.  

The court found the agreement’s effect is necessarily anticompetitive, and, like any other profit-sharing agreement of limited duration among firms that control less than 100% of the market, the anticompetitive effects might be reduced to some extent but they certainly would not be eliminated. In addition, the court said driving down compensation to workers is not a benefit to consumers cognizable under our laws as a “procompetitive” benefit.   

“Depressing wages is not of societal benefit; it simply harms working people and their families,” the court said.  

It concluded: “We see no reason, even if we had the authority to do so, to set aside the ordinary principles governing antitrust law in order to unbalance the carefully developed legal structures relating to our laws governing collective bargaining; nor do we see any reason or justification for assuming the function of increasing the economic power of employers to the disadvantage of their employees.”   

According to the opinion, the three largest supermarket chains in Southern California, Ralphs, Albertson’s and Vons, along with Food 4 Less, agreed to share profits amongst themselves during the indeterminate term of, and for a short period after, an anticipated labor dispute. California filed a lawsuit against the grocers, alleging that by entering into the profit sharing agreement, defendants had engaged in an unlawful combination and conspiracy in restraint of interstate trade and commerce in violation of Section 1 of the Sherman Act.  

The 9th Circuit’s opinion is here.