Labor

Competition policy can help protect workers while ensuring the marketplace rewards fair competition on the merits, not exploitation

For decades the consumer welfare standard of antitrust ignored harms to workers from monopoly and unfair competition, or, even worse, treated harms to workers as cost savings or efficiencies that could benefit consumers. During this era, employers across many types of labor markets were given virtual carte blanche to use unfair competitive practices ranging from concentration-increasing mergers to coercive contracts to exploit workers and deny them workplace rights.

In labor markets, as in our other issue areas, the Open Markets Institute approach to competition policy works to enact rules of fair competition that structure markets and corporations so that competition takes place on the merits, not who has the most power. In labor markets, this means rebalancing power towards workers and ensuring that businesses compete on a level playing field where all respect labor rights.  

I.               Merger policy

Throughout the consumer welfare era, economists preached that labor markets were highly competitive, meaning workers had lots of choices among employers. These employers, the theory went, would compete with each other, bidding wages up.  However, recent research has made it clear that few employers actually face this vigorous competition. Rather, because most if not most workers are limited in their choice of employer, corporations have the power to suppress wages. Permissive merger policy during the consumer welfare era has further lowered this competition for labor.

In addition, excessive merger activity during the consumer welfare era encouraged other types of harms to workers beyond reducing competition. For example, many workers lost their pensions or were laid off due to leveraged buyouts. Others suffered more subtle losses, as corporations turned away from organic growth through internal investment and innovation to focus on growth through wasteful acquisitions (often followed soon after by divestitures) and paper growth. Organic growth leads to increased investment and higher wages. Mergers often lead to layoffs.

Our work on merger policy, including numerous amicus briefs, popular essays, and agency comments, aims to right the upside down world of consumer welfare and restore labor to a primary concern of antitrust. Our public comment on the DOJ and FTC’s 2024 draft merger review guidelines encapsulates our approach to merger policy.

II.             Non-compete clauses and other coercive labor contracts

Corporations have also subjected increasingly large numbers of workers to non-compete clauses that prevent workers from changing jobs to work for the employer of their choice or to start their own business. These contracts drive down wages, reduce the formation of new businesses, and trap workers in jobs where they may be subject to unsafe working conditions, discrimination, and abuse. Moreover, they are imposed on workers, not negotiated: only 10 percent of workers negotiate over their non-competes, and one-third are presented with them after only accepting their job offers. Non-competes, imposed by powerful corporations on individual workers, are the kind of unfair competitive strategies that antitrust enforcement should be targeting.

 In March 2019, the Open Markets Institute led a coalition that formally petitioned the Federal Trade Commission to use its authority under the FTC Act to issue a rule prohibiting non-compete clauses in all labor contracts as an unfair method of competition. On April 23rd the FTC enacted a non-compete rule that followed our recommendation to totally ban the contracts for all workers, with very limited exceptions. The rule is currently help up by legal challenges. We have continued to support the FTC through amicus briefs and popular writing, while supporting policies at the state level to enact non-compete bans.  

In addition to non-competes, which are imposed by employers on workers, the Open Markets Institute has also done work to end similar anti-labor coercive contracts, such as no-poach agreements between corporations. Under no-poach agreements, employers agree not to recruit or hire each other’s employees. These contracts have been particularly pernicious in fast food franchises, where power corporations like McDonald’s have banned their local independent franchisees from “poaching” workers from each other. Our chief economist co-authored a study, accepted by the Review of Economics & Statistics, demonstrating the harmful effects of these contracts on workers. In addition, our legal team has filed amicus briefs in no-poach cases including a case against McDonald’s no-poach agreements.

III.           Misclassification and control without responsibility

Another type of restrictive contract is used to deny workers employment rights. These contracts, known as “vertical restraints” in antitrust jargon, deny the freedom of ostensibly independent business owners to compete as they see fit. Instead, vertical restraints force independent businesses like fast food franchisees and independent contractors to follow the price, supplier, operating hours, and other policies dictated by the corporation. Like non-competes, these contracts are imposed, not negotiated.  

One purpose of these coercive contracts is to misclassify employees as independent contractors: control through contracts acts as a substitute for control through traditional employment. Thus, misclassification through vertical restraints allows corporations to avoid following the minimum wage, workers comp, union, and other laws that protect workers. Today, so-called “gig” companies are the prime example of vertical restraint abuses: instead of employing drivers, companies like Uber & Lyft tell drivers what price to charge, which customers to serve, and more to control drivers as if they were employees. A loss of labor rights is the result.

A related use of vertical restraints is to “fissure” the workplace, by placing a third party between workers and the corporation that controls their working conditions. The primary example here is franchising, where companies like McDonald’s minutely prescribe every aspect of business operations by contract, leaving franchisees little freedom over their business, including their wage policies. McDonald’s workers, while they are not misclassified, have no legal recourse against the corporation that dominates their working lives, only against the small business franchisee. Franchisees, caught in the middle, have neither the freedom of truly independent businesses nor the legal rights of employees.

Abuse of vertical restraints give unscrupulous companies a competitive advantage over companies that follow employment laws and recognize their workers’ rights. Open Markets has taken the lead in fighting against unfair vertical restraints, including, writing numerous academic papers, public comment and testimony, and popular essays.

IV.          Independent worker rights

The antitrust agencies and federal courts have a shameful history of attacking organizing and collective action among individual professionals and independent contractors. Instead of focusing on the trusts and large corporations, as the antitrust laws have instructed them to, they have interpreted the labor exemption from antitrust narrowly, extending the exemption only to workers in traditional employment relationships. In recent decades, the FTC has sued doctors, ice skating coaches, music teachers, and even church organists for concerted action. In 2017, the FTC, along with the Justice Department, filed an amicus brief opposing the City of Seattle’s law granting collective bargaining rights to ride-hailing drivers.

The Open Markets Institute has pushed for a broad interpretation of the labor exemption that would allow independent workers and other small market participants to act collectively without risking antitrust prosection.

Publications