Kroger-Albertsons FTC Suit Puts Labor Antitrust Loophole in Play

A narrow labor exemption to federal antitrust laws faces renewed scrutiny as a federal judge in Oregon considers the Federal Trade Commission’s lawsuit to block Kroger Co.'s acquisition of Albertsons Cos.

The FTC and a group of states have asked the court to halt the proposed $24.6 billion deal because it would, in part, hurt competition among unionized workers—a novel claim that has spurred the two largest unionized US grocery chains to raise their own untested, labor-based defense.

Last month, Kroger argued the FTC’s case is “legally defective” because the acquisition falls within an implicit exemption to antitrust law that allows employers and workers to engage in collective bargaining without triggering liability.

That exemption is typically applied to situations when multiple employers bargain with a union, and it protects parties from accusations of price fixing, according to antitrust and labor law scholars. But the Kroger case could present an opportunity for the company to widen the exemption’s scope to include mergers and acquisitions.

“I could see some courts maybe going for this,” said Rebecca Haw Allensworth, an antitrust law professor at Vanderbilt University. “It’s not a totally frivolous argument. It’s just not a conventional application of the labor exemption.”

How the court handles the exemption could also have downstream impacts on its use in other contexts, such as possible collective bargaining in collegiate athletics.

Bargaining Shield

The 1914 Clayton Antitrust Act of exempts unions from antitrust laws, but US Supreme Court cases from the 1970s formed the genesis of the “non-statutory labor exemption” that applies to employers and workers.

In its 1996 Brown v. Pro Football Inc. decision, the high court extended antitrust immunity to business agreements where multiple companies get together to bargain on a unified front. The exemption has since become a central issue in labor disputes in professional sports, coming up in cases involving the National Football League, the National Women’s Soccer League, and Major League Baseball.

Kroger is arguing that the exemption allows it and Albertsons to bargain with the United Food and Commercial Workers International Union as two separate entities, and the purchase won’t change that.

The government’s position is that the transaction “should be enjoined to prevent defendants from doing what they may already do,” Kroger said in a brief to the US District Court for the District of Oregon. “That is not what the Clayton Act requires.”

The National Labor Relations Board hit back against these arguments in an amicus brief, contending that none of the cases cited by the grocers involve a business acquisition.

They instead deal with multi-employer bargaining, which must have union consent, the board said.

‘Bubble Around Workers’

But the exemption doesn’t necessarily apply only to instances of multi-employer bargaining, law professors said.

“The statutory labor exemption puts this bubble around workers in the bargaining process,” said Eric Posner, a professor at the University of Chicago Law School. “The nonstatutory labor exemption recognizes that sometimes it’s in the workers interest or the interest of labor law to allow employers to enter that bubble.”

Marshall Steinbaum, an assistant professor of economics at the University of Utah, said that the exemption could also be applied in situations outside of bargaining, such as labor disputes involving conditions of employment.

If Kroger and Albertsons said the purchase is taking place to support collective bargaining, that situation might fall within the exemption—but that’s not what they’re arguing, Steinbaum said.

“They’re claim is that collective bargaining already works and the merger won’t harm it, he said. “That’s different.”

Ultimately, both professors said they don’t believe Kroger’s labor exemption argument will hold up before Judge Adrienne Nelson, a Biden appointee.

“There’s no way you could argue that an otherwise illegal merger is legal because of the labor exemption,” Posner said, adding that unions can be disbanded or decertified after the deal is complete.

“If the unions lose their power, then now you’ve got this big company with all this market power over vulnerable workers,” he said.

Steinbaum said it’s possible that the Oregon federal judge won’t address Kroger’s labor exemption arguments and instead decide to block or allow the merger based on other factors.

The FTC is examining the acquisition through an in-house litigation process, but Kroger and Albertsons have sued the agency in Ohio federal court, claiming the proceedings are unconstitutional.

“This is very much a test case for the FTC and their project to bring antitrust law to address power in the labor market,” Allensworth said.

Broader Application

Other cases involving the exemption could be looming.

Given its long history in athletics, sports lawyers have suggested that a collective bargaining agreement could be the solution to the NCAA’s significant antitrust woes. The association has been hit with numerous lawsuits alleging it is illegally restraining competition for college athletes by restraining transfers and retaining control of their name, image, and likeness, among other policies.

The parties to one class action are attempting to settle the litigation through an agreement that would award athletes $2.8 billion in damages and guarantee that colleges share at least 20% of their media revenue with them.

Getting a labor exemption for college sports may not be as easy as for professional teams because the NCAA and schools refuse to recognize the players as employees. This question could stretch the non-statutory exemption’s limits, Steinbaum said.

The FTC has historically held the position that independent contractors and other non-employee workers wouldn’t receive the exemption’s antitrust protection, but last year, Democratic FTC Commissioner Alvaro Bedoya came out in support for gig workers’ efforts to negotiate collectively.

The US Court of Appeals for the First Circuit also held in 2022 that a group of Puerto Rican jockeys who went on strike as contractors to demand better pay were immune from their employer’s antitrust lawsuit.

“The whole point of the exemption is to protect things that are in an agreement and things that are designed to facilitate the agreement happening,” Steinbaum said.

The case is FTC v. Kroger Co., D. Or., No. 3:24-cv-00347.