Almost one year has passed since the Supreme Court’s unanimous antitrust decision in NCAA v. Alston. That well-publicized decision affirmed the District Court’s rejection of the NCAA’s limits on education-related compensation paid to student athletes as well as the NCAA’s implicit request for the Court to create a judicial antitrust exemption for college athletics, much like the judicially-crafted antitrust exemption for Major League Baseball, also the topic of much media coverage as of late.
As predicted (see our previous coverage of the Alston case at https://www.law.com/thelegalintelligencer/2021/04/12/high-court-hears-argument-in-historic-ncaa-antitrust-case-on-college-athlete-compensation/ and https://www.law.com/thelegalintelligencer/2021/06/24/us-supreme-court-reins-in-the-ncaa-in-narrow-ruling), the repercussions of Alston continue to be felt in the sports world, particularly coupled with the NCAA’s announcement of new rules regulating the ability of college athletes to profit from their name, image, and likeness (“NIL”). In the wake of Alston, minor league baseball clubs have sued challenging the antitrust exemption for baseball. And renewed federal legislation, now from Sen. Bernie Sanders, has been introduced potentially threatening that exemption. College athletes have brought claims under the FLSA in the Eastern District of Pennsylvania, challenging the “amateurism” rationale for refusing to compensate college athletes as employees. See Johnson v. NCAA, 556 F.Supp.3d 491 (2021). Athletes have alleged that NCAA eligibility is now a business or property interest under RICO law. See, e.g., Bowen v. Adidas America, Inc., 2021 WL 371131 (D.SC. 2021). And college athletes have sought compensation for exploitation of their NIL for which they were not permitted to be compensated under then-applicable NCAA rules, which prohibited any such remuneration absent some waiver from the NCAA. See House v. NCAA, 545 F.Supp.3d 804 (N.D.Cal. 2021).
However, the impact of Alston has not been limited to college athletics or even professional sports. Some 20 court decisions since the decision in Alston has been handed down have cited to the Supreme Court’s opinion, the vast majority of which are outside of the sports context. For example, Alston’s impact can be observed in three recent decisions relating more generally to antitrust and the labor markets, and involving familiar claims of covenants not to compete and price-fixing.
In two cases from the past year, Illinois federal courts have been called on to evaluate agreements between competing employers not to solicit or hire each other employees. In Conrad v. Jimmy John’s Franchise, LLC, 2021 WL 32682339 (S.D.Ill. 2021) plaintiff (on behalf of himself and a putative class) alleged that a “no-poach” provision in the Jimmy John’s Franchise Agreement effectively prohibited employees from switching between rival locations, in violation of Sherman Act Sec. 1. From 2014-2018, Jimmy Johns included some form of a “no-poach” clause in its Franchise Agreement, though the specifics of these provisions changed over time. The crux of plaintiff’s claim was that, absent such a no-poach agreement between competitors, franchisees would otherwise face competition and be forced to increase their wages to match competing locations or else risk losing employees to that competing location.
There, the district court confronted Alston in evaluating the appropriate standard of review for the no-poach agreements at issue. On the one hand, horizontal covenants not to compete are usually evaluated on a per se or even the so-called quick look analysis which was addressed unfavorably in Alston. However, where such covenants are ancillary restraints to a legitimate business purpose, such abbreviated review is not appropriate. Thus, as in Alston, because the no-poach agreements at issue were ancillary to bigger picture franchise agreements (which do produce pro-competitive benefits), the no-poach agreements at issue were appropriately assessed under the full Rule of Reason Analysis. The Jimmy Johns court noted that Alston answered the “question this Court punted at the motion-to-dismiss stage” namely whether the Rule of Reason applied in a monopsony case involving no-poach agreements. (The Court went on to find that, because of the individualized inquiries that would be necessary under a full Rule of Reason analysis, that the plaintiffs’ claims were not appropriate for class treatment.)
In DeSlandes v. McDonalds US LLC, 2021 WL 3187668 (N.D.Ill. 2021) the Court confronted similar no-hire provisions in McDonalds’ franchise agreements in another putative class action. There, the parties also disagreed about the appropriate standard of review, the defendants again seeking a more fulsome application of the Rule of Reason. Again, distinguishing between naked restraints of trade as opposed to a convenant not to compete with some pro-competitive benefit, the Court concluded in that case, too, that the restraint was not naked, having appeared in a franchise agreement that was ancillary to legitimate pro-competitive business purposes. Citing the Supreme Court’s NCAA decision, the McDonalds court noted that the ancillary restraints alleged fell within Alston’s “great in-between” of restraints that were not so clearly legal or illegal on their face that they could be resolved with a “quick look.” Even horizontal agreements restraining trade will receive the benefit of more detailed Rule of Reason analysis if incidental to a legitimate pro-competitive benefit, particular if that benefit is central to the product itself existing, whether that product is the NCAA or the operation of nationwide franchises with the efficiencies and consumer benefits attendant to them.
In sharp contrast to these two opinions applying the Rule of Reason in the wake of Alston stands is the district court decision denying the motion to dismiss the criminal indictment in US v. Jindal. 2021 WL 5578687 (E.D.Tex. 2021). At issue in Jindal (another case capturing headlines recently for reasons discussed below) were allegedly naked agreements to fix wages in the physical therapy market. There, Defendants were alleged to have conspired with owners of competing physical therapy staffing companies to reduce and fix wages. Again, at issue was the appropriate standard of review for such a covenant not to compete, but this time an additional wrinkle applied – as a criminal case, the Court’s analysis of whether the claims were to be analyzed under the Rule of Reason or viewed as per se illegal (or given some other intermediate level of review) had far greater implications for defendant Jindal than the potential for civil damages (even after trebling). Rather, the Court faced a motion to dismiss on the basis that only per se violations of the Sherman Act were subject to criminal prosecution – therefore, if the wage-fixing conspiracy alleged were to be assessed under the Rule of Reason, criminal prosecution may have been unavailable.
Relying once again on Alston – but interestingly this time focusing primarily on Justice Kavanaugh’s blistering concurrence in Alston – the Jindal court concluded that the wage fixing at issue was, at its core, price fixing. Relying on the concurrence which observed that “[p]rice-fixing labor is price-fixing labor” whatever other labels apply, the Court concluded that wage fixing, appropriately viewed as price fixing, was a per se violation of the antitrust law, and therefore, appropriate for criminal prosecution. Unlike the franchise agreements at issue in Jimmy Johns and McDonalds, here there was no business justification, no benefit to consumers, from the agreement between competitors regarding the applicable labor market.
It is, of course, striking to note that the criminal case against the Defendants in that case proceeded to trial – and a recent acquittal by the jury. This is an important reminder of the multiple interests and forces at play in antitrust law, and the difficult balance that must be achieved. Under Alston, restraints in the labor market may be viewed by courts as naked and indefensible or ancillary and requiring more in-depth analysis, with severe consequences for defendants flowing from that determination. But even so, juries steeped in practical realities can and should create a limit on the expansion of criminal prosecution of labor market conspiracies. The Court may well have deemed the wage restraints alleged in Jindal as per se violations; nevertheless, for at least one jury of peers, the conclusion appears to have been a bridge too far.
Almost a year old, Alston’s repercussions continue to be felt, far outside of the confines of sports. Its holding has impact even in the world of criminal justice, and it will continue to be front and center with the renewed antitrust focus on labor markets. More than just compensation for student athletes is on the line; some argue their very freedom is at stake. Stay tuned.
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