All Things Newz
Law \ Legal

$85 Million Poultry Processor Wage-Fixing Settlement Provides Valuable Antitrust- And Privacy-Related Compliance Lessons For HR Professionals – Antitrust, EU Competition


Key Points

  • As part of the antitrust agencies’ public commitment to
    investigate and prosecute competitive harm in labor markets, the
    DOJ Antitrust Division fined three major U.S. poultry processors
    and a data consulting company a total of $84.8 million for
    violating federal antitrust laws by allegedly conspiring to fix
    employee wages and benefits.

  • According to DOJ’s civil complaint, for more than 20 years
    the poultry processors collaborated secretly in determining
    compensation and other benefits and—directly with one another
    and indirectly with the help of a data consultant—exchanged
    detailed, identifiable, current and forward-looking information
    about employee wages and benefits. DOJ asserted that both the
    information exchange and direct collaboration constituted
    independent violations of the Sherman Act.

  • DOJ alleged harm in the market for primary poultry processing
    plant employment, a cluster of workers that may perform different
    tasks for poultry processors but, according to DOJ, have common
    attributes and skills that separate them from workers outside of
    poultry processing. In this alleged market, DOJ appears to have
    measured market shares by determining the relative shares of total
    jobs in this space employed by the processors and concluded that
    these processors had more than 90 percent of poultry plant workers
    in the United States and, in some geographic regions, at least 80
    percent of these types of jobs.

  • If approved by the court, in addition to prohibiting the
    offending conduct, the proposed settlement would ban data
    consulting firm, WMS, including its president individually, from
    distributing or otherwise facilitating the exchange of
    competitively sensitive information in any industry. The defendants
    would be required to grant both the court-appointed monitor and the
    DOJ broad access to their records and facilities for 10 years to
    ensure compliance with the terms of the settlement and to prevent
    future violations.

  • This settlement came on the heels of Wayne Farms completing its
    $4.5 billion acquisition of Sanderson Farms, which was also
    reviewed by DOJ. Although it seems that a private action about
    alleged wage-fixing may have triggered DOJ’s investigation into
    the labor issues, the broad-based document production associated
    with DOJ’s investigation of the merger undoubtedly enhanced
    DOJ’s position. This case makes clear that companies engaging
    in M&A should make sure to assess the potential impact to
    workers in addition to their typical competitive analyses.
    Companies also should add labor and employment issues to their
    standard antitrust compliance programs and provide antitrust
    training to HR and other personnel that set worker
    compensation.

  • While this was an antitrust case, the settlement also serves as
    a reminder to companies of the risks that they face when managing
    employee personal data. In particular, the sharing of
    disaggregated, unblinded information regarding company employees
    can open up a company to data privacy risks.

The Alleged Poultry Processor Conspiracy and DOJ
Settlement

On July 25, 2022, the Department of Justice (DOJ) filed a civil
antitrust complaint against three of America’s
largest poultry processors and a data consulting firm and at the
same time filed a proposed consent decree resolving the claims in
the complaint. Cargill, Sanderson Farms and Wayne Farms (the
processors), which employ over 90 percent of all poultry plant
workers in the U.S., agreed to pay a combined $84.8 million fine to
settle allegations that they conspired to suppress poultry plant
workers by secretly sharing wage and benefit information in
violation of the Sherman Act.1

According to the complaint, the processors engaged in a
20-plus-year long conspiracy to share confidential employee wage
and benefit information, and collaborated on decisions about
current and future worker compensation.2 A data
consulting firm, WMS, and its President G. Jonathan Meng, both
named in the complaint, facilitated the exchange. Specifically, DOJ
alleged that the defendants and unnamed co-conspirators shared
“current or future, disaggregated, or identifiable in
nature,” which enabled processors to collaborate on salaries
and bonuses paid for specific salaried position by plant and
location, including planned future increases.3

To remedy the alleged violations, in addition to the collective
$84.8 million fine, the settlement prohibits the processors from
engaging in any of the offending conduct, including sharing
competitively sensitive information about employee compensation.
The settlement provides DOJ and a court-appointed monitor
broad-based access to company facilities, records and personnel for
10 years, including the submission of periodic compliance reports.
The parties must also submit compliance reports to a
court-appointed monitor, who may hire consultants to help ensure
that the parties comply with the settlement and antitrust laws, all
at the parties’ cost.

The settlement also forbids WMS and its President, Jonathan
Meng, from offering services that would facilitate the exchange of
competitively sensitive information, including through surveys, in
any industry, not just primary poultry processing. As
background, WMS is a national data consulting firm that specializes
in human resource consulting.

Labor & Employment Issues Are in the Antitrust
Cross-Hairs

The current leaders at both antitrust agencies have promised to
investigate and enforce antitrust violations involving labor and
employment as vigorously as other antitrust violations. DOJ
Assistant Attorney General Kanter, for example, warned recently
that “[H]arm to workers is an antitrust
harm.”4 Likewise, Federal Trade Commission Chair
Lina Khan promised heightened scrutiny: “[W]e are redoubling
our commitment to investigating potentially unlawful transactions
or anticompetitive conduct that harm workers. In particular, we
must scrutinize mergers that may substantially lessen competition
in labor markets, recognizing that the Clayton Act’s purview
applies to product and labor markets alike.”5

The agencies have not been shy about pursuing labor market
antitrust violations criminally either. Since the start of
2021, DOJ has obtained several indictments for wage fixing (i.e.,
agreeing among competitors to fix employee compensation) and
“no poach” agreements (i.e., agreeing to not solicit
and/or hire competitors’ employees). These cases have
implicated a variety of industries including aerospace engineers,
senior-level health care executives, therapists, school nurses and
home health care workers.

All this is to say that companies should treat antitrust issues
on the labor and employment side with the same seriousness that
they do on the business side. To that end, here are practical
take-aways from the poultry processor case:

Parties that have parallel employees should evaluate
labor-related antitrust issues as part of mergers and acquisitions
(M&A)-related antitrust diligence
. Companies
doing strategic deals should evaluate the potential impact to
competition for employees as part of their standard pre-deal
antitrust analyses. Theoretically, a merger could harm any type of
employee from executives down to low-skilled temp workers.
Practically, though, the risks may be greatest at the lower rungs
of the wage scale. The poultry processor conspiracy, for example,
implicated lower-paid, skilled processing plant employees such as
“live hangers” (who grab, lift and hang chickens for
slaughter), butchers and plant mechanics, not white collar
managers. While we have yet to see the antitrust agencies challenge
a merger based solely on harm to employees, DOJ’s challenge to
the Penguin Random House/Simon & Schuster merger (the trial of
which began on August 1) comes close.6 There, DOJ
alleged that the merger would lead to lower fees and advances paid
to authors (who are independent contractors), but, importantly, did
not allege that the prices of books would increase. It is not hard
to imagine a future merger challenge premised exclusively on harms
to employees.

DOJ’s complaint offers insight about how the
agencies may define antitrust labor markets
. In its
complaint, DOJ clustered all poultry processing jobs—whether
salaried or hourly and regardless of whether these workers
performed different tasks within the supply chain—into a
single market for primary poultry processing labor. In these
situations, the allegations focus on buyer (or monopsony) power,
not market power in the sale of goods or services, but still relies
fundamentally on substitution. But testing “substitution”
in labor is complicated by factors such as location, family,
broader macroeconomic conditions, company- or industry- specific
conditions, and the relative infrequency of switching jobs. DOJ
justified its approach for three primary reasons: First, from the
workers’ perspective, they would view another poultry processor
as a close substitute because the working conditions, tasks and
skills are similar. Second, conversely, from a poultry
processor’s perspective, it would likely consider a candidate
working a similar job at a different poultry processor as a close
substitute. Third, DOJ clustered all of these jobs into a single
alleged market much like the treatment of groceries into a market
for supermarkets. In this case, DOJ’s case was easier because
it had a body of specific information exchanges covering repeated
but common ranges of jobs.

This approach may be more difficult in a merger context, though.
DOJ cited to a version of the traditional product market test:
could a single employer of all primary processing jobs profitably
lower wages or benefits by a small but significant amount? But
skills acquired in one industry may be transferrable to other
industries. This is common with managers and C-suite executives,
among others. Here, DOJ focused on workers involved in poultry
processing, which excluded workers outside of this supply chain
(including workers in beef and pork processing plants). But it
would not be difficult to imagine a situation where, in response to
a reduction in wages, a worker takes a job that requires lesser
included skills but offers a better working environment, or where a
worker invests in training to take a higher-paying job in a
different industry. Consequently, employers may want to conduct
departure interviews, consistent with applicable laws, to learn
where departing employees take their next post.

Merging parties’ documents in merger
investigations can be scrutinized for other antitrust
violations
. Notably, this action came only days after
Wayne Farms completed its acquisition of Sanderson Farms. DOJ
closely scrutinized the deal, including by investigating whether
the deal would result in lower wages and benefits for poultry plant
workers. DOJ closed its investigation at the last minute despite
reports that it was considering bringing a suit.7 While
reports indicate that a 2019 private wage-fixing suit—and not
the Wayne Farms/Sanderson Farms deal—brought this conduct
into light and that DOJ did not condition the approval of Wayne
Farms/Sanderson Farms on the settlement,8 the timing is
hard to ignore.

Whether the settlement was connected to the Wayne
Farms/Sanderson Farms merger investigation or not, this close
connection serves as a reminder that the agencies can and will
scrutinize merging parties’ documents for existing, independent
antitrust violations. In in-depth merger investigations that are
subject to the Hart-Scott-Rodino (HSR) Act, the merging parties are
required to submit voluminous documents from a range of key company
decision-makers, including, among other things, presentations,
analyses, reports, emails, text messages, chats and other similar
documents. The agencies have always scrutinized party documents for
evidence of cartel behavior such as price-fixing and bid-rigging.
Now, merging parties can expect the same scrutiny for labor issues,
including wage fixing, anticompetitive benchmarking or information
sharing activities, and overly-restrictive non-compete agreements
with employees.

HR professionals and other employees who set wages
should receive antirust guidance and training just like employees
who set pricing and quantity receive
. Employees
responsible for pricing often receive antitrust guidance and
training about a range of topics, including price-fixing and
bid-rigging, communicating with competitors, trade association
meetings, information-sharing and benchmarking, competitive
intelligence, mergers and acquisitions and competitor
collaborations. These topics also apply to HR professionals and
other employees responsible for setting wages, and perhaps more-so.
And the importance of antitrust training may be greater because the
issues are newer and may not be familiar for those employees.

Compensation benchmarking remains an area of
risk
. Compensation benchmarking has long been a
source of antitrust risk; this is just a recent example. While
there are some good rules of thumb—e.g., use a third party to
manage the benchmarking study, include five or more competitors,
none of which can represent 25 percent or more of the data,
aggregate and blind the output, etc.—these approaches are not
panaceas. Indeed, the alleged conspirators in the poultry
processing conspiracy used some of these elements to create the
outward appearance that they were complying with the antitrust
laws. When in doubt, it is best to consult antitrust counsel before
embarking on a compensation benchmarking study.

Data Privacy Risks Can Arise Too When Sharing Employee
Data

While this may be an antitrust action, it contains some
important lessons for handling personal data that companies should
pay close attention to. In general, companies can only collect and
process personal data of employees that is necessary and relevant
to their job. This can include resumes, references, payroll
information, medical files, employment contracts, compensation and
benefits, and performance reviews. Various state laws extend
specific privacy protections to employee data, such as
Connecticut’s law for workstation and email privacy, and
federal agencies may have recommended guidance for handling
employee data, such as the Equal Employment Opportunity
Commission’s (EEOC) recent guidance to help employers ensure
their employee assessment algorithms avoid violating the Americans
with Disabilities Act (read more on this guidance here).

By sharing disaggregated, unblinded employee data, the poultry
processors in this case also ran the risk of violating data privacy
laws. Depending on the jurisdiction, the processors might have
separate obligations to safeguard employee data, likely requiring
either the consent of the employees themselves or a legitimate
business purpose. Some states have passed comprehensive data
privacy laws, namely: the California Consumer Privacy Act (CCPA),
Virginia Consumer Data Privacy Act (VCDPA), Colorado Privacy Act
(CPA), Utah Consumer Privacy Act (UCPA) and the Connecticut Data
Privacy Act (CTDPA). Businesses may also find themselves subject to
international data privacy regulations, such as the European
Union’s General Data Protection Regulation (GDPR). These laws
may impose additional obligations, such as requiring businesses to
enter into contracts with service providers with whom they disclose
their employees’ and other individuals’ personal
information. Laws like the CCPA might require a business to provide
notice to employees at collection of their personal information,
and may also hold obligations for third parties a business shares
information with, limiting what that third party is able to do with
the information. At the time of this writing, these CCPA
requirements for employee data are set to expand after January 1,
2023. Violations could mean enforcement from agencies (such as the
California Privacy Protection Agency), state attorneys general or,
in some cases, individual private actions. Companies that have not
already done so should conduct an assessment to find out what types
of data they hold and what data privacy laws they may be subject
to, as part of their data management and benchmarking
practices.

Footnotes

1. U.S. v. Cargill Meat Solutions Corp. et al,
1:22-cv-01821 (D. Md. 2022), available at https://www.justice.gov/opa/press-release/file/1521611/download.

2. Id. at 2.

3. Id. at 6.

4. J. Queen, DOJ Antitrust Head: No ‘Chickenshit
Club’ Despite Losses, Law360 (Apr. 21, 2022), https://www.law360.com/competition/articles/1486196/doj-antitrust-head-no-chickenshit-club-despite-losses?nl_pk=262ac0d4-bcda-41ec-974b-3eb6fff15803&utm_source=newsletter&utm_medium=email&utm_campaign=competition&utm_content=2022-04-22.

5. Lina Khan, Making Competition Work: Promoting
Competition in Labor Markets (Dec. 6, 2021), https://www.ftc.gov/system/files/documents/public_statements/1598791/remarks_of_chair_lina_m_khan_at_the_joint_labor_workshop_final_139pm.pdf.

6. https://www.justice.gov/opa/pr/justice-department-sues-block-penguin-random-house-s-acquisition-rival-publisher-simon.

7. Continental Grain-Cargill/Sanderson Farms: As
Investigation Nears 11-Month Mark, DOJ Still Weighing Whether to
Sue to Block the Deal, The Capitol Forum (Jun. 29,
2022).

8. M. Acton, Comment: With $85 million poultry-processing
settlement, US DOJ scores much-needed win in labor markets, mLex
(Jul. 25, 2022).

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



Source link

Related posts

Renters’ Reform Bill – The End Of No Fault Evictions? – Landlord & Tenant – Leases

Horace Hayward

Which business structure is right for you? – Corporate and Company Law

Horace Hayward

California Department Of Financial Protection & Innovation Settles With “Buy Now, Pay Later” Company – Financial Services

Horace Hayward