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Ninth Circuit Holds Labor Dispute No Excuse For Anticompetitive Profit-Sharing Agreement Among California Supermarkets

Posted  September 7, 2010

The U.S. Court of Appeals for the Ninth Circuit has held that a profit-sharing agreement among the grocery store defendants in California v. Safeway, Ralph’s, Von’s, Albertson’s and Food4Less violated the Sherman Act, despite the supermarkets’ defense that the agreement was intended to respond to a labor dispute, not to eliminate competition.

The Court of Appeals reversed the district court ruling, and held that the State of California was entitled to summary judgment on its claim for a declaratory judgment against the defendants – the three largest supermarket chains in Southern California – for engaging in a violation of the Sherman Act.  The court held that the agreement, which was designed to split profits according to each stores’ historic shares of the market during a labor dispute, was inherently anticompetitive and was not excused by the non-statutory labor exemption.

According to the Court, the supermarkets collectively accounted for 55-64% of the Los Angeles-Long Beach metropolitan market, and 66-75% of the San Diego metropolitan market.  Defendants argued that the profit-sharing agreement was pro-competitive and did not violate the Sherman Act because it was intended to operate for a limited period, it did not include 100% of the market participants, and it allowed the grocery chains to aid competition in the labor market by lowering employee wages and benefits.

The Court rejected each of these supposedly pro-competitive justifications, stating:

“We find it difficult to believe that any individual with a rudimentary knowledge of antitrust law would seriously contend that if the defendants agreed to share profits for a limited period for their mutual economic benefit, there would not be a violation of § 1 of the Sherman Act—at least in the absence of some extraordinary circumstance.”

The Court also noted that “driving down compensation to workers is not a benefit to consumers cognizable under our laws as a ‘pro-competitive’ benefit” and that the “primary objective of our nation’s laws [is] to protect the rights and interests of working persons.”

After determining that the agreement was “patently anticompetitive,” the Court then addressed defendants’ final claim that the agreement, even if anticompetitive, should be exempt from liability according to labor laws because it concerned the employers’ bargaining position in a labor dispute.

The Court rejected defendants’ final claim, holding that the non-statutory labor exemption did not apply because “profit sharing is not needed to make the collective bargaining process work” and thus “defendants’ profit sharing agreement lies completely outside the matters regulated by labor law.”

Tagged in: Antitrust Litigation,

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