Companies Must Weigh Worker Impact Under New Merger Guidelines

The effect of corporate mergers on workers will be included for the first time in the guidelines set by US agencies for deal review, breaking from decades of antitrust enforcement.

The draft guidelines, released Wednesday by the Federal Trade Commission and Justice Department, amplify the regulators’ heightened focus on using antitrust law to police labor markets.

If finalized, the new guidelines promise to upend some dealmaking and could spur regulatory challenges.

“I expect more labor market cases. There’s also a deterrence effect,” Florian Ederer, a Yale University economics professor, said. Companies weighing deals “will have to think more seriously about what would this do to competition in the labor markets,” he said.

The long-awaited proposal would replace more permissive guidelines issued in 2010 and 2020 and set a higher bar for mergers and acquisitions. The agencies promulgate the guidelines to explain their views on the competitive effects of dealmaking and to inform the M&A approach taken by deal attorneys, companies and courts.

Workers’ attempts to switch jobs can be harder than consumers’ product shopping “due to the process of finding, applying, interviewing for, and acclimating to, a new job,” the DOJ and the FTC said.

“The Agencies will consider whether workers face a risk that the merger may substantially lessen competition for their labor,” they said in the proposal. In such cases, “that reduction in labor market competition may lower wages or slow wage growth, worsen benefits or working conditions, or result in other degradations of workplace quality.”

The new methods of analysis would apply to “buyers” of labor—employers—in addition to purchasers of raw materials and other inputs, although labor markets are often particularly vulnerable to concentration, the agencies said.

“Do you think you’re better off when you have employers competing for your labor? Do you think you’re better off when employers compete in order to give you better benefits or better training?” a senior Justice Department official said during a Tuesday briefing.

“We think the answer to that is yes, and it’s an important dimension of competition, and it’s well within the scope of the antitrust laws,” the official said.

The FTC and the DOJ often examine merging firms’ ability to freeze or cut wages, utilize more leverage in negotiating with employees, or “generally degrade benefits and working conditions without prompting workers to quit,” they said in the draft guidelines.

Under the proposal, employers cannot use benefits in other non-labor markets to justify harm to labor markets. That means a company can’t argue that a loss of labor market competition is offset by cheaper products or faster service.

The agencies are “responding to new data regarding increased market concentration and the declining labor share of output,” said Laura Phillips-Sawyer, a University of Georgia School of Law antititrust professor. “As union membership has declined in the United States since the 1970s, there hasn’t been countervailing pressure from organized labor to protect wages and working conditions.”

‘Labor Matters’

The DOJ and the FTC have already been wielding their antitrust authority against what they see as anti-competitive workforce effects.

“Labor matters,” FTC Commissioner Alvaro Bedoya said in a statement accompanying the draft guidelines. “Most of us put food on the table by selling our labor.”

In the 133 years since the Sherman Act was passed—and the 109 years since the Clayton Act—only one merger has been stopped because of its effect on competition for labor, Bedoya noted, referring to a deal involving Simon & Schuster.

DOJ’s antitrust division blocked that merger last year—after Bertelsmann SE subsidiary Penguin Random House moved to acquire its publishing competitor—over concerns it would harm the labor market by decreasing the advances paid to popular authors.

The FTC has embarked on an ambitious rulemaking process to ban nearly all noncompete agreements, due to the pacts’ harm to competition. Approximately 30 million Americans are subject to such agreements, the agency estimated.

The FTC also has floated several labor-focused requirements in recent proposed changes to the forms companies must file when doing deals worth more than $111 million.

The agency proposed a requirement that companies disclose whether they’ve been the subject of recent penalties or adverse findings from the Occupational Safety and Health Administration, the National Labor Relations Board, or the Department of Labor’s Wage and Hour division.

The draft guidelines will be open to public comment for 60 days.