July 12, 2018

In Effort to Increase Employees’ Bargaining Power, U.S. Senators Petition Federal Antitrust Agencies to Revisit Benchmarking Guidelines

On June 28, 2018, U.S. Senators Elizabeth Warren and Cory Booker sent a letter to the heads of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) requesting those agencies to revisit their guidance on information exchanges and benchmarking in order to facilitate wage transparency. Senators Warren and Booker want to help employees negotiate fair salaries from employers that historically have had more “detailed information about wages” and benefits than employees seeking work with competitive pay. In particular, the Senators asked the agencies to reconsider their guidance on the so-called information exchange “safety zones,” which insulate many information exchanges between competitors from the antitrust laws so long as certain conditions are met. The letter suggests that the agencies should amend those requirements to ensure information from compensation surveys is equally available to employers and employees so the “strong information advantage that employers currently maintain over their employees” is removed. The Senators believe such a change would boost labor market competition and improve workers’ salaries.

Agency Guidance on Benchmarking

The so-called “safety zone” guidance referenced in the letter originally appeared in the 1996 Statements of Antitrust Enforcement Policy in Health Care (the “Health Care Statements”), which were published jointly by the DOJ and the FTC and related specifically to health care providers’ participation in surveys of prices for health care services. As set forth in the Health Care Statements, under the agencies’ benchmarking rules, “[t]he Agencies will not challenge, absent extraordinary circumstances, provider participation in written surveys of (a) prices for health care services, or (b) wages, salaries, or benefits of health care personnel” if each of the following conditions are satisfied:

  • The survey is managed by a third party (e.g., by a trade association).
  • The information provided by the survey participants is based on data more than three months old.
  • There are at least five providers reporting data upon which each disseminated statistic is based, no individual provider’s data represents more than 25 percent on a weighted basis of that statistic, and any information disseminated is sufficiently aggregated such that it would not allow recipients to identify the prices charged or compensation paid by any particular provider.

The agencies’ purpose for establishing a safety zone was to balance the “provider’s individual interest in obtaining information useful in adjusting the prices it charges or the wages it pays in response to changing market conditions against the risk that the exchange of such information may permit competing providers to communicate with each other regarding a mutually acceptable level of prices for health care services or compensation for employees.” Information exchanges falling outside of the safety zone are not unlawful “per se,” but they will be subject to greater antitrust scrutiny. Significantly, the Health Care Statements specifically contemplate that “public, non-provider initiated surveys” that do not otherwise meet the safety zone requirements may not raise competitive concerns because “such surveys could allow purchasers to have useful information that they can use for procompetitive purposes.”

In practice, courts and the federal antitrust agencies routinely look to the safety zone requirements first articulated in the Health Care Statements to judge whether information exchanges among competitors in other industries pose competitive concerns. For example, the safety zone requirements frequently are applied to information exchanges that occur within industry trade associations where the information exchanged relates to prices, costs, margins and other competitively sensitive business information. The DOJ specifically has blessed information exchanges that comply with the safety zone requirements for motor carriers that wanted to exchange model contract provisions with one another, and for utility companies that wanted to exchange credit information about their customers to recover on delinquent accounts.

The Senators’ Concerns About the Safety Zones

In their letter, Senators Warren and Booker expressed concerns that the current safety zone policy advantages employers over workers because the safety zone removes any antitrust concerns that might previously have prevented employers from exchanging detailed salary information with one another. In contrast, individual workers (and particularly those who are not organized in labor unions) are too dispersed to seek similarly detailed information they can use in salary negotiations with employers. In the Senators’ view, this “[keeps] workers in the dark about their compensation relative to others’ with similar experience and abilities” so that they are “unable to negotiate effectively for the wages and benefits that are commensurate with their value to the firm.” In addition to increased market concentration for employers, reduced union membership and declining geographic mobility for workers, the Senators expressed concerns that these information asymmetries between employers and workers lead to stagnant market wages, particularly for low- and middle-income workers.

The DOJ’s No-Poaching Policy

While not directly related to its information exchange safety zone guidelines, the DOJ recently began taking more serious steps to combat deflated worker salaries that result from so-called “no-poach” agreements between competing employers not to hire away one another’s employees. Such agreements always have been “per se” unlawful under the federal antitrust laws (meaning courts and the antitrust authorities do not entertain arguments from employers that their agreements have procompetitive benefits), but the DOJ’s new antitrust chief, Makan Delrahim, has indicated that the DOJ will begin prosecuting such cases criminally, which could result in prison sentences for individual employees who facilitate them. Indeed, the DOJ recently confirmed it is investigating criminal antitrust conspiracies relating to no-poach agreements in the health care industry. In addition, at the state level, several state attorneys general recently sent a letter to eight fast food chains in their respective states questioning the franchises’ practices relating to no-poach agreements that restrict franchisees from recruiting or hiring from other outlets in the same chain.

Similar to the Senators’ concerns about employers’ information exchanges, the federal and state enforcers’ concern with no-poach agreements is that they decrease competition in the employer labor market, which has the potential to decrease employees’ mobility and wage growth potential.

Between the federal and state enforcers’ renewed focus on no-poach agreements and the Senators’ interest in amending the benchmarking guidelines, it is clear that groups on both sides of the political aisle are looking at how the antitrust laws can be interpreted to benefit individual employees and not just the firms that employ them.

What This Means for Employers

While the Senators’ letter does not signal that an immediate change in the agencies’ safety zone policy is on the horizon, it does indicate that certain political groups are frustrated by the information asymmetries they believe the safety zone policy facilitates. In particular, while compliance with the safety zone rules minimizes the potential that competing employers will be able to use one another’s wage and benefit information to form tacit agreements to decrease wages, wage surveys do provide detailed market information to employers that is not available to employees. Senators Warren and Booker clearly believe these surveys (along with other market factors) contribute to a growing gap in bargaining power between employers and employees.

While the safety zone guidelines do not require that survey information be made publicly available, doing so may further decrease an individual employer’s or a trade association’s risk that its information exchanges will be labeled anticompetitive. While historically the risk has been low that the federal antitrust agencies will pursue an information exchange case where the competing companies took careful steps to comply with the safety zone requirements, those same companies may risk private lawsuits to the extent workers or organizations advocating on behalf of workers believe their information exchange practices are unfair and anticompetitive. Whether or not these potential lawsuits raise antitrust claims – or indeed, whether they are meritorious or not – they can pose significant burdens and expenses on the businesses that have to defend them.

Managing Risk

As with most areas of antitrust and employment law, when deciding whether and how to participate in industry surveys, employers and trade associations must carefully balance their business goals against potential litigation risks. Even with long-standing guidance from the antitrust agencies, the rules surrounding information exchanges remain nuanced and complex. Companies or individuals who have questions or concerns about competitor communications and information exchanges should consult legal counsel. 

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