Update July 2011: An en banc panel of the 9th Circuit reversed, holding that although the supermarket chains’ profit sharing agreement was subject to antitrust review, the panel erred in treating it as inherently anticompetitive. Because the purpose of the agreement was to support the chains in collective bargaining negotiations, and thus lower labor costs, it held that a full Rule-of-Reason inquiry was required.
The Ninth Circuit rejected a claim by major grocery chains that their agreement to share profits in the event of a strike was exempted from antitrust scrutiny by the non-statutory labor exemption, which protects the outcome of labor-management negotiations. In anticipation of a strike aimed at certain supermarkets, the major chains entered an agreement through which they would redistribute profits during a strike to the chains that lost share as a result. California attacked the agreement as per se illegal and anticompetitiveunder the Rule of Reason. The defendants argued that the agreement was exempted by the labor exemption and that it was pro-competitive because it would help them reduce labor costs in the long run, which would benefit consumers more than any short-run anticompetitive effect. The court held that the agreement was patently anticompetitive and not protected by the exemption. In the court’ s view, the agreement would obviously reduce competition among the chains in the event of a strike. The labor laws, the court held, were primarily intended to assist workers to earn high wages. The desire to reduce labor costs thus could not serve to insulate otherwise anticompetitive conduct.