(CN) – Profit-sharing agreements between four Southern California supermarket chains during a labor dispute must be evaluated for antitrust violations, the 9th Circuit ruled Tuesday.
In the summer of 2003, grocery juggernauts Vons, Albertsons and Ralphs formed a multiemployer bargaining unit to negotiate labor contracts. Food 4 Less later joined the unit as well.
Anticipating unions’ use of “whipsaw” tactics in which one member would try to break the multiemployer bargaining unit through selective strikes and picketing, the chains entered into a Mutual Strike Assistance Agreement. This contract stipulated that any grocer earning revenues above its historical share relative to the other chains during a strike would reimburse other grocers with 15 percent of those funds.
Vons workers in Southern California tested the agreement with a strike in October 2003. Albertsons and Ralphs locked out their union employees the next day, but the picketers focused their efforts only on Albertsons and Vons.
The strike broke after 20 weeks, and Ralphs paid $83.5 million to Vons and $62.5 million to Albertsons.
During the walkout, California brought Sherman Act claims against the grocers. California agreed not to pursue a full rule-of-reason analysis theory if the grocers agreed to plead only a nonstatutory-labor exemption to the Sherman Act.
In a 2-1 vote last summer, a three-judge panel of the 9th Circuit ruled that the agreement violated antitrust laws even if it reduced prices for consumers by reducing labor costs. The court agreed to an en banc rehearing and heard arguments in March.
Affirming its original ruling in part on Tuesday, the 11-judge court noted that the agreement does not qualify as a nonstatutory labor exemption.
“The agreement to share revenues during and shortly after a labor dispute does not play a significant role in collective bargaining, nor is it necessary to permit meaningful collective bargaining to take place,” Judge Ronald Gould wrote for the majority. “The [revenue-sharing provision] does not relate to any core subject matter of bargaining, namely wages, hours, and working conditions, but rather relates principally to the relative revenues of the grocers in the market and the temporary, artificial maintenance of those revenues.”
“While we stop short of endorsing the concept that as a strict rule the non-statutory labor exemption can only arise in a case involving restraint of terms directly relating to labor, that the restraint here is primarily a product market restraint does not encourage application of the non-statutory labor exemption,” he added.
But the majority continued that the agreement required further analysis.
“The unique features of the arrangement among the grocers – its limited duration and the existence of other significant external competitors in the market – and the uncertain effect these features had on the grocers’ competitive behavior and incentives during the revenue-sharing period render any anticompetitive effects of the [agreement] not obvious,” Gould wrote.
In a brief concurring opinion, Judge Raymond Fisher agreed to remand but expressed his “strong doubts that the grocers’ profit sharing agreement left them with an undiminished incentive to compete.”
Chief Judge Alex Kozinski, Judge Richard Tallman and Judge Johnnie Rawlinson dissented. Citing decisions by the 2nd and D.C. Circuits, the judges found that the revenue-sharing agreement does not violate the Sherman Act.
“When unions pay benefits to striking workers, their collusive actions are protected by the state,” Kozinski wrote.
“To protect the collective bargaining process, employers too must be allowed to share losses without fear of antitrust liability, which is the very point of the non-statutory labor exemption,” he added.
“Worst of all, we may never be able to correct this error,” the dissent continues. “Strikes are costly endeavors for everyone involved, and introducing the additional threat of antitrust liability – with its protracted litigation, unpredictable rule of reason analysis and treble damages – will no doubt force employers to think twice before entering into a revenue-sharing agreement in the future.”
Judges Stephen Reinhardt, Mary Schroeder and Susan Graber also wrote a partial dissent, coming in direct opposition to Kozinski’s theory of the case.
“The profit sharing agreement’s indeterminate duration and less-than-total domination of the market are immaterial to an analysis of an agreement that inherently violates the antitrust laws,” Reinhardt wrote.
“Because a battle royale of economic experts in the courts is unnecessary and because defendants’ profit sharing agreement can readily be determined to violate the antitrust laws under the intermediate standard, I would reverse the district court’s denial of summary judgment to plaintiff and hold that the profit sharing agreement violates section 1 of the Sherman Act,” he added.
The court remanded the case to the Central District of California to determine any Sherman Act violations.
Ralphs and Food 4 Less are subsidiaries of Kroger Co. Vons is a subsidiary of Safeway Inc. Albertsons is a subsidiary of Supervalu Inc.