The Federal Trade Commission (“FTC”) and the Colorado attorney general have filed separate lawsuits challenging the proposed acquisition by The Kroger Company (“Kroger”) of Albertsons Companies, Inc. (“Albertsons”). Two features of the complaints in these cases are noteworthy: first, they show the continued focus by antitrust authorities on “no-poach” agreements (agreements between competing companies not to hire each other’s employees) and a willingness to go after these agreements however they come to light—including during the course of a merger investigation. Second, they show a heightened interest in looking at labor markets and potential harm to workers in merger review—and a willingness to bring cases asserting such harm.
In a complaint filed Feb. 26, 2024, the FTC along with eight states and the District of Columbia, sued to block the pending acquisition by Kroger of Albertsons, alleging that the mega-merger between two of America’s largest supermarket chains would “eliminate competition and raise grocery prices for millions of Americans, while harming tens of thousands of workers.” The complaint parses out separate counts alleging that the acquisition (1) “may substantially lessen competition in local markets for the sale of food and grocery products at supermarkets,” and (2) that it “may substantially lessen competition for labor.” The FTC also filed a companion administrative complaint on the same date.
The FTC filed its complaint less than two weeks after Colorado Attorney General Phil Weiser filed suit in Colorado state court seeking to block the proposed transaction. In Colorado, Kroger operates 148 stores under the King Soopers and City Market banners, and Albertsons operates 105 stores under the Safeway and Albertsons banners. Notably, the Colorado complaint alleges that before they agreed to the acquisition, the two companies had entered into “no-poach” and “non-solicitation” agreements, which the complaint calls a “naked restraint of trade” and asks for a penalty of $1 million against each company.
Although it is fairly common for state attorneys general to join with the FTC or DOJ in a merger challenge, it is unusual (although not unprecedented) for a state to file a separate case, as happened here.
While much could be said about the Colorado and FTC complaints, our focus below is on two specific features: (1) allegations involving alleged “no-poach” agreements; and (2) allegations about labor market harm, including how such markets may be defined in a merger case.
COLORADO ALLEGES NO-POACH AGREEMENTS ARE A PER SE VIOLATION; FTC ALLEGES THE CONDUCT HELPS ESTABLISH MARKET DEFINITION
The Colorado and the FTC complaints assert that the two companies entered into “no-poach” agreements (or that they coordinated) prior to the proposed deal.
The Colorado complaint claims that the companies entered into an agreement under which Albertsons would not hire away Kroger employees during a strike led by the United Food and Commercial Workers (“UFCW”) against Kroger in Colorado in 2022. Albertsons had temporarily avoided labor unrest by agreeing to an extension of relevant collective bargaining agreements, thereby allowing for continued negotiations with the UFCW; Kroger had not agreed to any extension. The purpose of the no-poach agreement, according to the complaint, was to allow Kroger to hold the line against the union and “stay strong.” Through the no-poach agreement, the companies allegedly agreed to restrain Kroger workers from finding alternative employment at Albertsons during the strike. (The benefit to Albertsons, presumably, was that if Kroger was able to “stay strong,” Albertsons would also be able to “stay strong” in its own negotiations with the union.) According to the complaint, Albertsons made reference to a similar agreement between the companies in Portland, Oregon, in 2019.
Similarly, the FTC complaint alleges that the two companies entered into agreements to coordinate their positions on labor prior to the now-challenged merger. Although heavily redacted, the public version of the FTC complaint refers to the strike in Colorado and successful coordination in Portland as well as other unsuccessful attempts at coordination by the companies. The FTC complaint uses the instances of attempted and actual coordination to show that the parties compete for unionized labor and that unions are (in the absence of coordination) able to play the two companies off each other to improve wages, benefits and working conditions. If the proposed acquisition takes place, the FTC alleges that this competition for union workers would be extinguished.
“No-poach” agreements have been a focus of increased antitrust enforcement from the Department of Justice (“DOJ”), the FTC and state regulators for the past several years.
The legality of agreements not to hire away employees and not to solicit customers can vary depending on factors such as whether they are ancillary to a legitimate business transaction or collaboration, their scope and duration, and whether they are reasonably necessary to protect legitimate business interests. In most cases, the government has taken aggressive action against “naked” no-poach agreements that are not ancillary to, for example, the sale of a business, and has showed skepticism that such no-poach agreements serve a legitimate business purpose that does not otherwise result in injury to workers.
Recent enforcement actions have focused on the use of no-poach agreements in several key industries, including tech, health care and franchise agreements. For example, in 2010, the DOJ brought an enforcement action against several large tech companies over an alleged conspiracy to not hire each other’s employees. The companies settled with the DOJ and agreed to not engage in this sort of agreement in the future.
Likewise, the DOJ has been active in no-poach agreements arising out of franchise relationships. In 2018, the DOJ investigated major fast-food chains over alleged no-poach agreements, and a number of companies agreed to settle. The DOJ’s investigation led to follow-on private litigation brought by the employees themselves which is still in the courts.
In 2020, the DOJ settled with several health care employers including Duke University and UNC-Chapel Hill over allegations that they entered into unlawful no-poach agreements not to hire medical faculty at their respective competing, geographically proximate campuses.
Lastly, the DOJ initially brought criminal indictments against several private practice health care providers for no-poach offenses but eventually moved dismiss the criminal cases without comment. This was an interesting development given the background of the DOJ’s repeated warning that no-poach agreements are a per se violation of the Sherman Act. (Per se violations of antitrust laws, such as price-fixing and bid-rigging, are generally brought as criminal cases.) Some antitrust lawyers have speculated that the DOJ’s decision to drop criminal proceedings against the health care providers is a sign that the DOJ is abandoning criminal enforcement when it comes to no-poach. Notably, in the recently filed challenge, the FTC is silent as to whether successful coordination by Kroger and Albertsons on labor amounts to a per se violation. But the Colorado complaint specifically alleges the no-poach agreement is a per se violation, although the state is pursuing it in a civil case.
LABOR MARKETS IN MERGERS: THE FTC TAKES A BIG STEP FORWARD
Historically, the impact of mergers on labor has been a “blind spot” in antitrust enforcement. This blind spot developed notwithstanding the fact that antitrust laws reach two kinds of conduct: conduct that harms consumers and conduct that harms suppliers (including workers, who supply labor).
Due to a growing body of empirical work that has examined the impact of mergers on things like wages and employment, this tendency to overlook labor market competition has been changing in recent years in both Republican and Democratic administrations. As Professor Eric Posner has written: “Recent studies have shown that many labor markets are concentrated, and that wages, as one would predict, are lower in concentrated labor markets than in competitive labor markets. Moreover, concentration is far more serious in labor markets than in product markets; wage suppression is much more significant than price inflation.”
In 2019, former FTC Chair Joseph Simons noted that his agency and the Justice Department’s Antitrust Division “are now devoting more attention to competition in labor markets and how certain conduct, including mergers, may impact competition in those markets.” In 2021, DOJ successfully sued to block Penguin Random House’s proposed acquisition of Simon & Schuster by alleging, among other things, that the acquisition would be likely to depress author pay (although the authors involved, it should be noted, were the writers of best-sellers). Most recently, the agencies released new Merger Guidelines that, for the first time, expressly discuss labor markets.
The FTC complaint is notable in that it continues the trend of focusing on workers. It alleges that the two companies compete against each other for workers by various means, including: locally monitoring each other’s wages and benefits, attempting to match or exceed competing wage and benefit offers, promoting or offering bonuses or other inducements to retain high performing workers and trying to poach grocery workers from each other.
Interestingly, the FTC states in the complaint that “[t]he same tools used to assess the effects of a merger of sellers can be used to analyze a merger of employers as buyers of labor.” It then proceeds to do just that and to employ these tools to allege that the merger is illegal.
In terms of market definition, the FTC complaint alleges that the relevant market is union grocery labor. It alleges that unions are able to play the two companies off each other in collective bargaining negotiations, and have done so in the past, to secure better wages and benefits. Critically, it distinguishes union jobs from non-union jobs as part of the definition of the relevant labor market. This parallels the distinction the FTC draws between supermarkets and other alternatives in defining the product market.
In terms of geographic markets, the FTC alleges that the competition for union workers is localized. Again, this parallels the allegation that supermarkets compete locally for shoppers. The FTC goes on to apply a parallel version of what is called the “hypothetical monopolist” test to the labor market and to invoke a similar presumption that the merger is illegal in the labor market as it does in the product market.
LOOKING AHEAD
Federal and state antitrust enforcers are paying increased attention to labor and labor markets. The recent actions filed by the FTC and Colorado to block Kroger’s acquisition of Albertsons are important developments in this respect. In its complaint, the FTC has included a cause of action alleging that the proposed transaction is illegal under the federal merger laws because of its impact on the labor market. For its part, Colorado has included allegations that an earlier “no poach” agreement between the two companies is per se unlawful and is seeking significant monetary penalties.
While the vast majority of mergers do not raise competitive concerns, the Kroger-Albertsons cases teach two important lessons that companies and counsel should be aware of when competitive concerns are present. First, antitrust authorities are now looking beyond consumer harm in merger investigations and are actively considering the impact of the transaction on labor and labor markets. The FTC challenge to Kroger-Albertsons alleges harm to workers who are part of a union, but labor markets are not limited to union workers and future challenges could and likely will focus on other labor markets. Past FTC and DOJ inquiries have, for example, included registered nurses and best-selling authors. Second, during a merger investigation, the antitrust agencies may discover prior anticompetitive conduct that they may decide to go after. Given the increased attention being paid to the labor side by the agencies, “no poach” agreements will likely remain high on the antirust radar.
