Antitrust Deal Cops to Peek at Worker Abuses, Stirring Backlash

Regulators probing whether a merger could lead to harmful consolidation will soon look to an untested proxy: companies’ history of labor law violations.

The proposal is part of a revamp of the Hart-Scott-Rodino form, which merging companies file with the government to obtain antitrust approval of deals valued over $111 million. Under the changes, the companies would need to disclose their five-year history of citations from the Department of Labor’s Wage and Hour Division, the National Labor Relations Board, and the Occupational Safety and Health Administration.

They would also need to share their employees’ job categories and geographical information on where workers may overlap post-merger.

The effort to expand what information companies must disclose to antitrust enforcers is part of a broader push by the Federal Trade Commission and the Justice Department to consider the impact on labor markets from mergers and acquisitions.

But observers say the labor law disclosures, announced in June, aren’t backed by evidence, while the broader revamp threatens to quadruple companies’ compliance time. The bold effort could slow more deals, including the vast majority of HSR-reported transactions that have no competitive issues, agency watchers predicted. Comments on the proposal are due Sept. 27.

“Until there’s some demonstration that the correlation is a strong one between labor practices and safety, I think it’s an overreach,” said Douglas Ross, a professor at the University of Washington School of Law and former DOJ antitrust attorney.

The agencies defended the changes, arguing that “if a firm has a history of labor law violations, it may be indicative of a concentrated labor market where workers do not have the ability to easily find another job,” according to the proposal.

That isn’t the end of the inquiry, but it can give the agencies a window into how employers compete for workers—not just on salary, but the quality of their workplace and other non-price factors, said an FTC official, speaking anonymously to discuss pending rulemaking. But the official cautioned that the disclosure requirement wasn’t an attempt by either the FTC or DOJ to penalize companies for labor violations.

Data Gap

Unsafe workplaces or union busting may not seem like behavior that should warrant antitrust scrutiny. Congress passed the Sherman Act more than a century ago, while antitrust enforcers have turned their focus to labor market concentration only in the last few years.

The changes proposed in the HSR form, and the first-ever inclusion of specific labor market considerations in the draft merger guidelines announced in July, are the most significant institutional changes reflecting that new frontier.

But the relatively new consideration of labor antitrust issues means that researchers are still playing catch-up. Only a few academic papers have tried to grapple with the correlation between labor market concentration and labor law violations, said Yue Qiu, a finance professor at Temple University. Qiu co-wrote a 2021 working paper about wage inequality and labor rights violations.

“If they want to use this approach, we need more credible evidence,” Qiu said. “At this moment, in the literature, people don’t know much about this.”

Qiu’s paper found that “local industry wage increases are associated with decreases in the prevalence and severity of labor-rights violations caught by federal agencies.” But it demurred on the correlation between market concentration and increased violations, saying there “may” be a connection and that “some evidence” shows higher worker power decreases labor violations.

One of the benefits to proposing the HSR changes is that the volume of filings will hand enforcers massive amounts of granular labor data on industries across the country, the FTC official said. The agencies received nearly 2,500 HSR forms in 2022, according to the FTC.

That gives the agency comprehensive data on how employees move between companies, and sets it apart from academics who can’t usually collect that much information.

Out of Options

The FTC has found that competition for workers plays out in a variety of nonwage dimensions, the FTC official said.

“One way you can compete is being really shitty to your workers,” agreed Sanjukta Paul, a labor and antitrust professor at the University of Michigan Law School. Part of the FTC’s mission is promoting fair competition, she added.

Aaron Sojourner, a labor economist and senior researcher at the W.E. Upjohn Institute for Employment Research, also said companies that offer unsafe workplaces are exercising their market power, just like they would if they held back wages. Sojourner was one of the other co-authors of the 2021 working paper, along with Ioana Marinescu, now an economist at the Justice Department’s antitrust division.

“There are costs to providing safe and healthy work sites, and you can shade on those costs, produce without providing workers with safe and healthy workplaces to which they have a legal right,” Sojourner said. Refusing to recognize workers’ right to collective action under the National Labor Relations Act is another example, he said.

If a market were heavily concentrated, workers wouldn’t have the option to go elsewhere, he said. That’s why companies’ history of violations could be telling, Sojourner said—it may illustrate concentration in a market that otherwise looks healthy.

“In a setting where the employer has more market power, the workers have worse outside options, are less able to leave and less able to make a credible threat to leave, and it’s easier to push them into a corner,” he said.

‘Fire Truck’ Signal

But Ross, the University of Washington professor, argued the new requirements on companies are justified by thin evidence.

“It makes sense that if you have concentration on the buy-side, you might have lower wages or poorer working conditions,” he said. But “until someone comes up with something empirical, this is one view against another.”

Deals attorneys who handle HSR notifications and shepherd mergers through the review process are “scratching our heads” about the value of disclosing labor law violations, said Amanda Wait, a former FTC attorney and the head of Norton Rose Fulbright’s US antitrust practice. There must be more effective metrics to understand the level of concentration in a labor market, she said.

“This is like trying to figure out if there’s a fire in the building, and looking for the fire truck to show up outside,” Wait said. A company could have OSHA violations for a number of reasons, not all of them related to the fact that it faces limited competition for workers, she added.

The agencies have asked for similar information in the past when probing the effects of a deal, but never in the initial disclosure. The HSR form is the first step in a merger review, and the DOJ and FTC can always begin a more comprehensive investigation—the so-called “second request"—where they ask for more comprehensive tranches of company documents and data.

It seems like the agencies are trying to turn HSR forms into “a mini second request,” Wait said. “That’s not the purpose of the HSR.”

The form is meant to serve as a screening tool, she added, “not a subpoena.”

The labor violations disclosure—on top of a raft of other changes—will make compliance with HSR requirements more time-consuming and expensive for merging companies, said Brian Concklin, a partner at Clifford Chance, calling them “a significant burden on companies.”

It’ll be especially painful for “some of the less sophisticated or mid-market companies, that aren’t able or don’t have the finances to put in a process to collect this info in a systematic way on an ongoing basis or in an upfront manner,” Concklin said.