Summary

The Federal Trade Commission (FTC) and Department of Justice (DOJ) have taken steps to update the Merger Guidelines and overhaul the premerger notification process, each with a sharpened focus on the effect a merger may have on labor markets.

The Upshot

• On July 19, 2023, the DOJ and the FTC jointly released the 2023 Draft Merger Guidelines for public comment. The Draft Guidelines include an analysis of the effect of the proposed merger on workers for the first time and make clear that parties to a transaction cannot use a merger’s benefits in a product or service market to offset harm to labor markets.
• The release of the Draft Guidelines follows on the heels of the recent publication by the FTC, with the concurrence of the DOJ, of a Notice of Proposed Rulemaking (Proposed Rule) aiming to revamp premerger notification filings and the process implementing the Hart-Scott-Rodino (HSR) Act.
• Among other major changes, the Proposed Rule contemplates new disclosures related to a merger’s competitive impact on labor markets.

The Bottom Line

Companies will need to consider the impact of potential mergers on labor markets. The proposed changes signal the intent of the Agencies to review the impact of proposed transactions on labor markets and could result in additional merger challenges where proposed transactions have the potential to negatively affect worker mobility, wages, and/or benefits, even if the merger may result in benefits for consumers.

On July 19, 2023, the FTC and DOJ jointly released the long-awaited 2023 Draft Merger Guidelines (Draft Guidelines) for public comment, which signal a number of changes in the merger review process. The Merger Guidelines, which are intended to increase transparency by explaining how the agencies undertake substantive merger review, were first released in 1968 and have been updated several times. The Horizontal Merger Guidelines were most recently updated in 2010 and the Vertical Merger Guidelines were last updated in 2020. The 2023 Draft Guidelines combine the Vertical and Horizontal Guidelines and are the first to identify that the Agencies will analyze the antitrust impact on labor markets when reviewing mergers, stating “[j]ust as they do when analyzing competition in the markets for products and services, the Agencies will analyze labor market competition on a case by case basis.”

FTC Commissioner Alvaro Bedoya, joined by Chair Lina Khan and Commissioner Rebecca Kelly Slaughter, issued a statement highlighting the focus of the Draft Guidelines on labor markets. The statement is unequivocal that the Draft Guidelines “will make the consideration of workers…a priority in merger enforcement” and explains that, if a transaction substantially lessens competition in a labor market, it cannot be saved by purported benefits to a product market. In other words, “a merger that may substantially lessen competition for workers will not be immunized by a prediction that predicted savings from a merger will be passed on to consumers.”

The Draft Guidelines describe labor markets as having characteristics that can exacerbate the competitive effects of a merger between competing companies due to “high switching costs and search frictions due to the process of finding, applying, interviewing for, and acclimating to a new job.” In addition, the match between an employer and an employee can narrow the range of employers competing for workers. Specifically, the employer’s demands for the experience, skills, and availability of an employee must match with the worker’s own desires for a certain wage or salary, benefits, a reasonable commute, and a suitable working environment. The Draft Guidelines explain that these features may put firms in dominant positions and the Agencies will “examine the merging firms’ power to cut or freeze wages, exercise increased leverage in negotiations with works, or generally degrade benefits and working conditions without prompting workers to quit.” The Draft Guidelines note that, where a merger lessens competition for labor, that reduction “may lower wages or slow wage growth, worsen benefits or working conditions, or result in other degradations of workplace quality.”

The Draft Guidelines are open to public comment until September 18, 2023, after which the Agencies will review the comments received and finalize the new Merger Guidelines.

The release of the Draft Guidelines follows last month’s announcement of a sweeping overhaul of the premerger notification process. On June 27, 2023, the FTC, with the collaboration and concurrence of the DOJ Antitrust Division, published a Notice of Proposed Rulemaking (Proposed Rule) proposing significant changes to the premerger notification form and associated instructions, as well as the premerger notification rules implementing the Hart-Scott-Rodino (HSR) Act, that will require filing parties to devote significant additional resources to completing the form. See our full Alert on these changes here.

The HSR Act and its implementing rules require that parties to reportable mergers and acquisitions (generally, transactions that exceed a certain minimum value, currently $111.4 million) submit premerger notification to the Agencies, which involves completing HSR Forms and providing required documents, and waiting a specific period, usually 30 days, before closing the transaction. During the waiting period, the agencies may investigate the transaction for compliance with antitrust laws. Among other significant changes, the Proposed Rule contemplates an entirely new section in which parties to a transaction must provide information regarding the transaction’s impact on the labor market.

Within a proposed new “Competition and Overlaps” section of the HSR Form, parties to the transaction would have to provide information about employee job categories and geographical information where workers may overlap post-merger as well as worker and workplace safety information. Parties would be required to sort employees into job categories based on Bureau of Labor Statistics criteria and disclose their five largest classifications of workers. They would also be required to identify the top geographic zones where their workforces operate, based on the Economic Research Service of the Department of Agriculture (ERS), a system for delineating local economies. Specifically, for the five largest employee job categories, parties would be required to list the overlapping ERS-defined commuting zones from which employees commute and the total number of employees within each commuting zone. This disclosure requirement is intended to capture sufficient information to identify any potential labor market concerns. In other words, agency review of labor market conditions would focus primarily where both worker classification and geographic location overlap. In addition, parties would have to identify any penalties or adverse findings issued by the U.S. Department of Labor’s Wage and Hour Division, the National Labor Relations Board, or the Occupational Safety and Health Administration in the previous five years as well as any pending matters before those bodies.

This attention to labor markets is consistent with increasing attention to labor markets within antitrust law, as we’ve reported here and here. These proposed changes would allow the Agencies to review the impact of proposed transactions on the labor market with heightened scrutiny and could result in additional merger challenges where proposed transactions have the potential to negatively impact worker mobility, wages, and/or benefits. Consequently, a transaction’s impact on workers should be top of mind for companies contemplating a covered merger or acquisition.

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