Antitrust Law Daily Congress hears testimony on competition in labor markets
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Tuesday, October 29, 2019

Congress hears testimony on competition in labor markets

By Peter Reap, J.D., LL.M.

Witnesses from the FTC, Justice Department, and academia spoke on noncompete agreements, occupational licensing, no-poach agreements, and labor monopsony in mergers.

In Antitrust and Economic Opportunity: Competition in Labor Markets, a hearing before the House Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law today, witnesses from the FTC, Department of Justice Antitrust Division, universities, and think tanks expressed their views on noncompete agreements, occupational licensing, no-poach agreements, and labor monopsony in mergers.

FTC Commissioner Phillips. Commissioner Noah Joshua Phillips noted in his statement to the subcommittee that state occupational licensing regimes often empower members of professions to erect barriers around themselves. While that may be good for incumbents, shielding them from competition, it is bad for consumers and for vulnerable workers who are trying to launch careers in these professions. He noted as an example that "[w]hen the North Carolina Board of Dental Examiners tried to ban low-cost teeth-whitening services sold at drugstores, the Federal Trade Commission pushed back on antitrust grounds." The Supreme Court agreed, holding that "state action immunity" only applies to state professional boards where there is (1) a clear state policy to displace competition and (2) active state supervision.

No-poach agreements, by which two or more companies agree to restrict hiring or recruitment efforts, have also been targeted by the FTC for they impede labor mobility, Phillips said. In 2016, the FTC and Justice Department released Antitrust Guidance for Human Resource Professionals, which addressed concerns like no-poach agreements and put firms on notice that they may face criminal or civil liability. Non-compete agreements, although they can serve good purposes like incentivizing investment in workers and protecting trade secrets, also reduce labor mobility. The FTC is putting together a workshop to examine non-competes in which it will consider both the competition and consumer protection implications of different kinds of non-competes.

Recently, scholars have brought increased attention to the notion that labor monopsony concerns deserve more attention from antitrust regulators, according to Phillips. As a result, the FTC has now made it standard practice to screen for harms from enhanced labor monopsony power as part of every merger review.

Antitrust Division’s Doha Mekki. Doha Mekki, Counsel to the Assistant Attorney General of the Justice Department’s Antitrust Division, observed that the Antitrust Division takes enforcement action where mergers are likely to create or enhance monopsony power at the expense of workers. "For example, in 2016, the Division filed a successful lawsuit to block the proposed merger of Anthem and Cigna, two companies that compete in the sale of health insurance. The Division alleged, among other things, that the merger should be blocked because it would allow the merged firm to suppress reimbursement rates to providers." Further, in the past year and a half, the Division has developed important new specifications for Second Requests and Civil Investigative Demands to determine whether a transaction will create or enhance labor monopsony.

Mekki’s prepared remarks also detailed the Antitrust Division’s enforcement efforts no-poach and wage-fixing agreements. Naked no-poach and wage-fixing agreements are indistinguishable from and eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers, she said. Although she was unable to comment on the status or timing of the investigations, Mekki stated that the Division has a number of active criminal investigations into naked no-poach and wage-fixing agreements.

The Division has devoted substantial advocacy resources to studying labor matters and public education. The Antitrust Guidance for Human Resource Professionals educates and informs human resource and business professionals about how antitrust law applies to hiring and compensation decisions, Mekki noted. Moreover, in Seaman v. Duke University, the Division filed an unopposed motion to intervene in private class action claims accusing Duke University’s medical school and several related entities of violating federal antitrust law through a mutual no-hire agreement with the University of North Carolina School of Medicine. Moreover, on September 23, 2019, the Antitrust Division hosted a full workshop on competition in labor markets.

Washington Assistant Attorney General Rao. In his written remarks, Assistant Attorney General Rahul Rao of the Office of the Attorney General of the State of Washington’s Antitrust Division highlighted his work on the office’s initiative to end the nationwide use of no-poach clauses in franchise agreements. According to Rao, this initiative has eliminated no-poach clauses—restrictive provisions on labor mobility and competition—from over 150 corporate chains, representing about 160,000 locations in the United States, and positively impacting millions of workers. "By restricting franchise entities’ ability to hire or recruit new employees, no-poach provisions decrease competition for the labor of franchise employees. This decrease in competition for labor has the potential to lead to reduced opportunities and stagnant wages. It can also diminish competition for better benefits and working conditions."

The Washington office has investigated hundreds of franchise systems, and are still actively investigating a little over 100 companies, Rao said. As Washington Attorney General Bob Ferguson has stated, our "goal is to end no-poach practices. Period." We are confident we are nearing the point where we can say we have achieved our goal, he said.

Rao also stated that the Washington office has received and investigated consumer complaints regarding non-compete clauses in employment agreements with low wage workers. These non-compete agreements or clauses prevent employees from one business from leaving and working for or starting a competing business and deprives workers of the right to use their labor as they see fit. The office is currently looking at non-compete agreements with low wage or low skilled workers, because such restrictions protect no legitimate business interest of the employer.

On the topic of monopsonisation, Rao observed that "[m]onopsonists, like monopolists, have the potential to cause inefficiencies and distort competition that would otherwise fairly dictate appropriate pricing. In the labor monopsony context, appropriate pricing is better known as wages." In order to evaluate properly labor market effects, enforcers should consider gathering information from human resources departments earlier and more often in merger review.

Other testimony. The subcommittee also heard testimony from Ms. Sanjukta PaulAssistant Professor of Law, Wayne State University; Dr. Ioana MarinescuAssistant Professor, University of Pennsylvania School of Social Policy and Practice; Dr. Evan StarrAssistant Professor of Management and Organizations, University of Maryland Robert H. Smith School of Business; Mr. Richard MastersSpecial Counsel, National Center for Interstate Compacts; Dr. Kate BahnDirector of Labor and Market Policy and Economist, Washington Center for Equitable Growth; and Dr. Robert TopelIsidore & Gladys Brown Distinguished Service Professor of Economics, The University of Chicago Booth School of Business.

MainStory: TopStory AcquisitionsMergers Antitrust FranchisingDistribution AntitrustDivisionNews FederalTradeCommissionNews

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