Current Issues in Sports Law The Fromm Institute OVERVIEW OF CLASS 03 The Intersection of Antitrust and Labor Law in Collective Bargaining In the two previous classes we have developed a working knowledge of antitrust and labor law, and observed how these two legal areas influence the structure and operation of professional sport leagues. Today we will study how the underlying policy of these two distinct areas can conflict in the sports context, and how the judiciary has resolved this conflict. I. The Intersection of Antitrust and Labor Policy In Professional Sports Labor law encourages collective activities by workers in order to achieve greater bargaining power concerning their employment. These bargaining results by the union are finalized in a collective bargaining agreement with the employer (CBA). At the same time, antitrust law discourages in fact punishes collective activities by business that has an unreasonable anticompetitive effect on the consumer market. Generally, these two areas operate in peaceful coexistence. However, there is an area of turbulence that arises prominently in the context of professional sports leagues: May the team owners collectively negotiate and agree to the terms of the CBA? After all, the teams are competitors with each other, both on and off the field. 1 1 An example of off- field competition is team bidding for free agents; generally, the player selects the team that offers the highest salary. 1
The CBA contains many economic rules that bind the employers to common activity and directly affect competition between them. For example, in the CBA all the owners agree to conform to a single standard for draft rules, minimum rookie salaries, sharing of revenues with the players, salary caps, and free agency. Is there an antitrust exemption for this collective agreement between the owners, expressed through the CBA, which insulates the owners side of the collective bargaining process from antitrust attack? 2 To understand this issue, we need first to understand the employment relationship and a bit more about the nature of provisions included in the CBA. 3 II. Employment in the Four Professional Leagues Each league is a private association of the member teams. 4 The teams are bound together by the League Constitutions, as supplemented by Playing Rules and other documents that create the complete contract between all the teams. Each team has separate ownership, and operates as an independent business, subject to compliance with the league rules. Each team is the employer of its own players, not the league. The employment relationship is created in a contract that is individual to each player. However, the preponderance of the employment conditions are established league-wide by the collective bargaining agreement. Interesting the most significant term of the employment agreement is the salary of the player, set by individual negotiations with the team. 5 2 Recall that the Clayton Act and Norris- LaGuardia only provided an exemption for labor organizations. 3 The CBAs are public documents, and it is worth looking at one on- line just to get a sense of their complexity. The NBA CBA, for example, is over 500 pages long. Google can find them easily. 4 The NHL, NBA, and MLB each have thirty member teams; the NFL has 32 teams. The NHL, NBA, and MLB each has one or more teams located in Canada; the NFL does not. This fact has interesting employment and tax law considerations. 5 There are provisions of the CBA that do affect the salary, such as minimum salary levels, and league sharing of revenues by players prescribed in the CBA. These provisions vary by league. The aspect of professional sports that leaves salary to individual agreement, rather than proscribing compensation rates in the CBA, differs sports from the standard industrial model. 2
The league CBAs are extremely inclusive, addressing virtually every aspect of the employment relationships. Included, for example, are provisions addressing the rights to medical care, workers compensation, procedures for discipline, substance abuse policies, free agency, rookie salaries, revenue sharing, salary caps, 6 retirement plans, and rules for draft eligibility. These provisions are all mandatory subjects for collective bargaining under the NLRA. In the negotiations, the players are represented by their players association. The owners are either represented by the Commissioner s office, or by a committee of owners and management. As the CBA is technically between the players association, on behalf of the players, and the individual teams as the employer, it is necessary for the owners engage in what is called multi-employer bargaining, where the teams collectively designate a bargaining representative, and all teams agree to be bound by the negotiated terms of the final CBA. 7 III. What is the Problem? We saw that the combination of the Clayton Act, the Norris- LaGuardia Act, and Supreme Court decisions, affords the labor unions a statutory exemption from antitrust law for their labor activities; 8 this includes collective bargaining. However, Congress has never provided an antitrust exemption for employers who form employer associations to collectively bargain their labor agreements with unions. As the provisions of the agreement specifying industrywide terms of employment are binding on all employers, the competitive effect of those common agreements could be an antitrust violation by the employers. Common sense suggests that multi-employer bargaining is a constructive and necessary approach 6 MLB is an exception to this. There is no salary cap in baseball, principally due to the strong bargaining position of the players union. 7 This model is utilized in many industries. An example is the construction industry, where all contractors in a market agree to a common union contract. This enables employees to move between jobs through the hiring hall, and know they will be working under the same work rules and benefits plan. 8 See the summary of these statutes in Class 01 Overview. 3
in many industries. 9 In the professional sports leagues, it is a necessity. There have to be common labor rules for all the teams and players. Although a necessity, can competitor teams agree to act in parallel on important economic matters? Is this agreement not an antitrust violation? IV. The Non-Statutory Labor Exemption Courts have recognized the paradox that would occur if unions could negotiate a multi-employer CBA, then turn around and sue the employers for antitrust violations. 10 As a solution, the courts have crafted a limited exemption for multi-employer bargaining that is intended to resolve this problem. In recognition of the necessity for multi-employer bargaining, and the federal labor policy favoring bargaining generally, courts have subordinated the application of antitrust laws to the application of federal labor policy encouraging the collective bargaining process, as long as the bargained-terms are mandatory subjects under the NLRA. As stated by Supreme Court Justice Breyer in Brown v. Pro- Football 11 : As a matter of logic, it would be difficult, if not impossible, to require groups of employers and employees to bargain together, but at the same time to forbid them to make among themselves or with each other any of the competition-restricting agreements potentially necessary to make the process work or its results mutually acceptable. Thus, the implicit [non-statutory] exemption recognizes that, to give effect to federal labor laws and policies and to allow meaningful collective bargaining to take place, some restraints on competition imposed through the bargaining process must be 9 Multiemployer bargaining accounts for more than 40% of major collective-bargaining agreements, and is used in such industries as construction, transportation, retail trade, clothing manufacture, and real estate, as well as professional sports. See Appendix A in Brown v. Pro- Football, 518 U.S. 231 (1996) 10 A second category of antitrust complainant is third parties affected by the agreement, such as yet- undrafted high school and college athletes. 11 See note 8, supra. 4
shielded from antitrust sanctions. It should be stressed that this exemption is a slight misnomer; it is really a judicial deferral to federal labor policy. By choosing not to apply the antitrust laws to collective bargaining, the courts permit the statutorily mandated collective bargaining process to work. And the courts defer to the NLRB as the administrative agency that is the guardian of this process. Because the courts are deferring, rather than exempting, when the process is no longer effective, or other factors suggest there should be recourse to the antitrust laws, the courts are free to disregard the exemption. 12 There has been significant sports litigation over the legal question of when that deferral should occur, and when it should cease. For example, determination of when the exemption ceases to apply becomes important when negotiations break down, and a strike or lockout ensues. 13 First, we will look in greater depth at the judicial history of this nonstatutory labor exemption. V. Judicial History of the Non-Statutory Labor Exemption The first significant judicial discussion of the intersection of labor and antitrust policy regarding collectively bargained contracts occurred in a 1945 case involving an illegal agreement between a union and electrical contractors. 14 In this case, an electrical workers union located in NYC negotiated a multi-employer agreement with manufacturers and contractors located in NYC. As part of the CBA, these local manufacturers and contractors agreed to do business only with manufacturers and contractors that employed the union s members. The operative effect was to exclude all manufacturers and contractors outside of NYC from doing business in NYC because 12 We will call this an exemption as that term is well embedded in the case law and academic writing on the subject. 13 Such as the work stoppage in the NFL and NBA in 2011. 14 Allen Bradley Co. v. Local Union No. 3, Intern. Broth. Of Elec. Workers, 325 U.S. 797 (1945) 5
they did not have an agreement with the NYC based union. An out of state manufacturer sued the union under the Sherman 1. 15 The Court felt that the restriction, although contained in a collective bargaining agreement, was in reality a scheme to control all the electrical contracting business in New York City. The Court held that the antitrust laws apply to unions when they combine with employers and with manufacturers of goods to restrain competition in, and to monopolize the marketing of, such goods. The Court found that the union was a party to a scheme of price fixing and market allocation, hidden within a CBA. The Court identified the only union interest in the constraint was the indirect prospect this anticompetitive scheme would increase employers profits, a portion of which would be realized at the union level by higher salaries; this was not sufficient motivation. Implicit in this 1945 decision, is the suggestion that under the proper circumstances, antitrust policy should defer to labor policy. If the purpose of the bargained provision were to further the parties interest concerning a mandatory subject of bargaining, such as common rules for worker safety, then a judicially crafted antitrust exemption for the collectively bargained agreement would be available. In 1965, the Court decided a case that firmly placed the nonstatutory labor exemption into the lexicon of the antitrust/labor law universe. 16 The case involved a multi-employer group 17 consisting of three categories of meat retailers: Small butcher shops, grocery stores, and large grocery chains, all of whom served meats. The CBA was with seven local affiliates of the Amalgamated Meat Cutters and Butcher Workmen of North America, ( Meat Cutters ), bargaining as a single group. 15 Suit could well have been brought against the manufacturers in NYC as well, but the plaintiff chose only to sue the union. 16 Local No. 189, Amalgamated Meat Cutters & Butcher Workmen v. Jewel Tea Co., 381 U.S. 676 (1965) 17 The multi- employer group operated under a trade association, Associated Food Retailers of Greater Chicago, Inc. 6
The existing CBA only permitted the sale of meat by all stores between 9 a.m. and 6 p.m. The larger stores wanted to change this provision to permit nighttime self-service sales of pre-packaged meats. The smaller butcher shops wanted to sustain the present daytime sale policy, as they were only open during the day. So the employers had differing views, depending on their business model. The Meat Cutters union insisted on retaining the daytime restriction for two reasons: The hours-restriction limited the length in the workday for its members. It also eliminated the ability of the grocery chains to sell prepackaged meat at nighttime by workers who were not union members. The plaintiff was a large grocery store, Jewel Tea. Jewel Tea strongly advocated for nighttime sales during the labor negotiations, but upon pressure from the union, acquiesced to retaining the hours restriction in the final CBA. Shortly after the CBA was signed, Jewel Tea brought suit against the unions and the multi-employer group, seeking invalidation under 1 and 2 of the Sherman Act. The gist was that the unions and other employers had collaborated in the bargaining process to prevent the retail sale of fresh meat before 9 a.m. and after 6 p.m., causing an economic loss to Jewel Tea. After trial, the trial judge determined that the hours limitation was a valid subject of mandatory bargaining, and that the small grocers and meat packers unions had not conspired. The trial court stated that, even in self-service markets, removal of the limitation on marketing hours either would inaugurate longer hours and night work for the butchers or would result in butchers' work being done by others unskilled in the trade. Thus, the trial court concluded, the unions had imposed the marketing hours limitation to serve their own labor interests respecting conditions of employment, and not as a conspiracy to protect the market share of the smaller butcher shops. Six justices of the Court agreed that the hours restriction, as part of a collective bargaining agreement, should be protected by national labor policy encouraging such bargaining, and therefore exempt 7
from challenge under the antitrust laws. Thus, Jewel Tea could not utilize the antitrust laws to attack the provision. 18 Think of the facts this way: If all meat retailers in a market agreed on their own not to sell meat at night, that would be a possible Sherman 1 violation. There would be a clear adverse effect on the consumers choice for buying meat. However, as this agreement as to hours of sale is achieved in collective bargaining pursuant to the federal labor law, the employer restriction is exempt from antitrust attack. The interest in protecting labor policy is afforded greater importance than the free market policy of antitrust. Under both scenarios, the net economic effect on the consumer is the same. This doctrine, firmly established in Jewel Tea, is referred to as the non-statutory labor exemption (NSLE). 19 VI. Application to Professional Sports The concept of exempting mandatory terms contained in collective bargaining agreements from antitrust attack is straightforward. Mapping the contours of this exemption in various fact patterns is difficult. The preponderance of cases where these patterns arise involves professional sports. In class we will explore the following questions, by visiting actual sports cases: 1. Must there be evidence of specific bargaining over the provision in question, or is sufficient that the provision is part 18 Interestingly, the majority justices split 3-3 on the analysis of the issue. The three- judge plurality felt that the courts should balance the relative importance of the hours provision to the union against the effect on the product market making it more difficult for customers to purchase meat after hours. The other three justices in the majority, led by Justice Goldberg, felt the inquiry ends if the provision is a mandatory subject of bargaining; effect on the product market should not be considered and no balancing is indicated. This latter view has become the position of the Court in 1995, as we will see in Brown v. Pro- Football, infra. 19 Non- statutory is included to differentiate this exemption from the statutory exemption for labor we studied previously, found in the Clayton and Norris- LaGuardia Acts. This is a judicially crafted as opposed to legislatively crafted antitrust exemption. 8
of the CBA, without any record that the issue was even debated? 2. What happens when the CBA expires? Does the NSLE survive to immunize the old CBA provisions so long as the parties continue to negotiate? 3. If the exemption does survive the end of the CBA, is there any point in the post expiration negotiations where judicial deference to apply antitrust sanctions should no longer apply? 4. What about persons who are not parties to the CBA at the time it is negotiated, for example college athletes. Are they bound by the draft rules that specify eligibility and minimum salaries, or may they claim the CBA violates Sherman 1? 5. What happens during a strike or lockout if the union disbands, so there is no more union with which to bargain? Would the exemption expire under that circumstance? 6. In 1998 Congress enacted the Curt Flood Act. The purpose was to narrow the baseball exemption, so that it no longer applied to matters involving major league players. Thus, the holding of the Curt Flood case that baseball is generally exempt, no longer applies to the reserve clause and related labor matters. How does the NSLE affect baseball s antitrust exemption after the passage of the Curt Flood Act? The answers to these questions have a major impact on the tactics available to the leagues and the unions during labor strife. We will analyze this impact. As much of the antitrust/labor policy questions have arisen in the context of the NFL and NBA 20, we will be focusing on the labor history of those leagues. See you Tuesday! 20 Recall that, as baseball is exempt from antitrust, there has not been litigation involving the NSLE in baseball. Since the passage of the Curt Flood Act in 1998, major league baseball has not experienced a work stoppage. 9