In this article from The Threshold, the authors recap a panel on theories of labor harm in mergers, sponsored by the Mergers and Acquisitions Committee of the American Bar Association Section of Antitrust Law.

On 8 March 8 2024, the Antitrust Law Section hosted a webinar panel titled “Mergers that Create a Better Workplace? Some Practical Considerations Raised by Guideline 10 of the 2023 Merger Guidelines Addressing Potential Impacts on Workers.” Craig Malam, a principal at Cornerstone Research, moderated the panel, which featured David Berger, a professor of economics at Duke University; Beatriz Marques, an assistant attorney general (AG) at the Office of the New York State Attorney General; Taylor M. Owings, a partner at Wilson Sonsini Goodrich & Rosati; and Noah Phillips, cochair of the antitrust practice at Cravath, Swaine & Moore.

After introducing the panel, Dr. Malam described how in recent years the U.S. antitrust agencies—the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC)—have increasingly expressed concern about the impact mergers have on labor markets. In particular, he noted that the agencies have voiced concerns that merged firms may have increased monopsony power that can be used to suppress worker pay.

The panelists discussed important considerations for companies considering transactions regarding assessment of the potential effects of mergers on workers—with a particular focus on the distinctive features of the labor market that can make it difficult to analyze and quantify the effects of a merger on competition—the role of unions, and recent relevant cases involving theories of harm relating to labor markets.

Dr. Malam noted that in recent years, the antitrust agencies have voiced concerns that merged firms may have increased monopsony power that can be used to suppress worker pay.

Professor Berger provided an overview of several economic factors that are important to consider for evaluating the impact mergers have on labor markets that may not be present in product markets. These include high switching costs and “positive assortative matching”—i.e., the preference of the most productive workers to be employed by the most productive firms. He further noted that non-wage considerations are often as important or more important than wages for workers and, given the merger guidelines explicitly contemplate “total compensation” as crucial in evaluating mergers, described that this will make profitability metrics used in hypothetical monopolist tests more complicated to deploy.

Ms. Owings discussed the role of unions in advocating for labor issues, and their implications for investigating the impacts of transactions. In particular, she described how unions often speak with more political power than individual workers on labor concerns, and have the ear of federal agencies, local politicians, and stakeholders. Ms. Owings referenced the recently challenged Kroger/Albertsons proposed merger as a timely example because the FTC cited union objections to the merger in its complaint. In that case, the FTC appears to be arguing that the proposed merger reduces union bargaining power, limiting the ability of the union and the striking workers to direct customers to competitors’ grocery stores. Ms. Owings also noted that parties should take caution when advancing proposed labor-saving efficiencies as benefits of the merger and be clear that any reduced demand for labor does not reflect an exercise of the combined firm’s market power.

Non-wage considerations are often as important or more important than wages for workers, and . . . this will make profitability metrics used in hypothetical monopolist tests more complicated to deploy.

Ms. Marques provided additional context about potential harms mergers may have on labor markets when discussing the Kroger/Albertsons proposed merger. Ms. Marques highlighted the Colorado AG’s complaint to block the Kroger/Albertsons proposed merger, which referenced a long history of conduct concerns, including no-poach and non-solicitation agreements between Kroger and Albertsons. She also discussed how the antitrust laws have always, in principle, covered labor markets and commended the federal antitrust agencies’ revised guidelines as a welcome update that offers improved guidance to potential merging companies on labor issues. Ms. Marques also noted the agencies are in the process of revisiting the Hart-Scott-Rodino (HSR) merger filing requirements, including to add new requirements pertaining to firms’ labor practices. Such new requirements followed the New York AG’s effort, together with twenty other states, to broaden the scope of required information.

Mr. Phillips discussed how the antitrust agencies have considered theories of harm relating to labor markets in the past. During his tenure as a Commissioner of the FTC, Mr. Phillips acknowledged that the FTC considered a theory of harm based on labor markets when assessing the Lifespan-Care New England proposed merger in 2022. He and Commissioner Christine Wilson determined the evidence in that case did not support pursuit of such a theory and would have added unnecessary complexity to the enforcement action to achieve the desired antitrust enforcement—i.e., the parties abandoning the merger based on the product market challenge. Mr. Phillips further explained that the agencies must balance utilization of limited agency resources with advancing new or less common theories of harm.

Unions often speak with more political power than individual workers on labor concerns, and have the ear of federal agencies, local politicians, and stakeholders.

President Biden has said that he wants to be most “pro-union president in history,” Mr. Phillips remarked during the panel, which may suggest increased investigations and enforcement on labor market grounds. With more focus on labor markets during merger review, the agencies are likely to become more efficient in analyzing potential harms to labor markets and develop suitable analytical tools for labor-related theories of harm.