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March 26, 2013

Labor Union Did Not Violate Antitrust Laws Through Job Targeting Program Subsidizing Employers' Bids for Steel Erection Jobs

By Tobias J. Gillett, J.D., LLM.

Nonunion steel erectors could not pursue antitrust claims against a union over a job targeting program under which the union subsidized union employers' bids for certain jobs, even though the judicial exemption for allegedly anticompetitive conduct engaged in as part of the collective bargaining process did not apply, because the union's agreements with employers were not horizontal group boycotts subject to the per se rule and because the agreements did not have the anticompetitive effect necessary for a claim under the rule of reason, the federal district court in Boston has ruled (American Steel Erectors, Inc. v. Local Union No. 7, International Association of Bridge, Structural, Ornamental & Reinforcing Iron Works, March 25, 2013, Stearns, R.).

Local Union No. 7, International Association of Bridge, Structural, Ornamental & Reinforcing Iron Works ("Local 7") represents steel erection workers in eastern Massachusetts. In or around 1990, Local 7 established a job targeting program called the Market Recovery Program ("MRP"), which subsidized the bids of unionized contractors applying for certain jobs by paying the difference between union wages and lower wages earned by nonunion workers.

Under the MRP, employers would withhold dues from members' paychecks and pay them to Local 7, which would deposit them into the MRP fund. The MRP deduction obligation applied to all contracts for which Local 7 supplied unionized labor, including those subject to the Davis-Bacon Act, which requires contractors working on federally-funded projects to pay workers no less than the wages paid to corresponding classes of workers on similar projects, and bars kickback of any portion of wages subject to the Davis-Bacon Act.

Five nonunion steel erectors filed suit, asserting that Local 7 had conspired with participating employers through the MRP to exclude non-union erectors from a significant portion of the Boston-area steel erection market, and engaged in various coercive tactics in violation of the labor laws to support that effort. The district court granted summary judgment to Local 7 on the labor law claims and an aspect of the antitrust claims. However, the First Circuit reversed, and a jury concluded Local 7 had committed labor law violations. In the present case, the district court addressed Local 7's renewed motion for summary judgment on the antitrust claims.

Nonstatutory exemption. The court explained that courts have crafted a nonstatutory exemption to the antitrust laws to give effect to the federal labor laws. The exemption protects "alleged anticompetitive conduct [that] is anchored in the collective-bargaining process, concerns only the parties to the collective bargaining relationship, and relates to wages, hours, conditions of employment, or other mandatory subjects of collective bargaining." Local 7 argued that the MRP fit within the exemption because it was funded by workers' wages and implemented through a bargained-for union-administered agency, with subsidies paid to employers under the terms of agreements negotiated with the employers. Moreover, other circuits had concluded that similar programs had fallen under the exemption.

The plaintiff erectors, however, contended that the wages used to fund the MRP here were taken from wages subject to the Davis-Bacon Act, and that the MRP deductions violated the Davis-Bacon Act's anti-kickback provision. In response, Local 7 distinguished the voluntary MRP deductions from those involuntarily extracted from union members' wages.

However, the court observed that the First Circuit had directed it "to consider the entirety of the alleged activity when determining the applicability of the nonstatutory exemption." Regardless of the legality of the MRP, the jury had concluded that Local 7 had entered into agreements that had violated Section 8(e) of the National Labor Relations Act. Since Local 7 had thus "stepped outside the collective bargaining process to combine with non-labor organizations to gain an unlawful competitive advantage for its members," its actions were not protected by the nonstatutory exemption.

Antitrust liability. Even if the exemption did not apply, however, Local 7 contended that neither the 8(e) agreements nor the MRP would constitute group boycotts or a conspiracy to monopolize under the Sherman Act. The court observed that the agreements at issue involved parties at different levels of the steel erection market, with the union as a supplier of labor and the employers as subcontractors. The agreements were therefore vertical agreements to be judged under the rule of reason, in the court's view. Even under a conservative measure of the relevant market, the 8(e) agreements represented only a fraction of a percent of the market, "nowhere near the percentage impact necessary to make out an exclusionary claim under the rule of reason."

Nonetheless, the plaintiff erectors argued that the agreements should be considered group boycotts of the kind judged per se illegal in the Supreme Court's 1959 decision in Klor's Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207. However, the court noted that the case here involved a vertical restraint, not a horizontal restraint, and the per se rule only applied to horizontal restraints. Since the 8(e) agreements were between Local 7 as a supplier of labor and the employers as suppliers of steel, and thus the parties did not compete with each other, no horizontal restraint existed and a rule of reason analysis applied. Moreover, the 8(e) agreements did not have the kind of preclusive effect, in terms of denying the plaintiff erectors the ability to compete in the market, that was ordinarily a "principal concern in the per se cases."

The court also rejected the argument under the rule of reason that, since Local 7 had a collective bargaining agreement containing MRP provisions with an employer association that performed 70 percent of the steel erection work in the New England market, Local 7 had "significant market power that it use[d] to unfairly stifle competition." The members of the employer association had to compete with each other and employers not part of the association for jobs, and had to underbid all competitors. The price to consumers would be the winning bid, regardless of the MRP subsidy.

Although proof of detrimental effects "can obviate the need for an inquiry into market power," the plaintiff erectors did not demonstrate the necessary injury. The plaintiffs had pointed to the jury verdict as proof of harm, but that verdict only showed harm to the plaintiffs themselves, not harm to competition, and the antitrust laws protected competition, not competitors.

Moreover, the plaintiffs had not demonstrated that the MRP was the result of a conspiracy between Local 7 and the employers. Local 7 had a series of agreements with erectors, but the plaintiffs had not shown that the employers had "acted collusively in entering into the job targeting agreements, rather than engaging in independent, if parallel, conduct."

Even assuming a collusive agreement, the plaintiffs had not shown that the agreements had any unlawful anticompetitive effect. The MRP funds did permit employers to make lower bids, but they were not so low as to be considered predatory—not "below an appropriate measure of [their] costs." Although the agreements had an effect on competition, the court considered that effect to be "pro-rather than anticompetitive," by permitting MRP employers to submit lower bids in reliance on lower labor costs, resulting in lower prices. The MRP merely involved union members agreeing to work for lower wages than those negotiated under the collective bargaining agreement in order to make their employers more competitive. The court saw "no principled distinction between a union worker's agreement to pay dues to the MRP to preserve his job and a nonunion worker's agreement to work for a lower wage to save hers."

Since the plaintiffs had not "demonstrate[d] an unlawful anticompetitive effect of any of Local 7's accused conduct," the court granted summary judgment to Local 7 on the antitrust claims.

The case is Civil Action No. 04-12536-RGS.

Attorneys: Carol Chandler (Stoneman, Chandler & Miller) for American Steel Erectors, Inc. Burton E. Rosenthal (Segal Roitman, LLP) for Local Union No. 7, International Association of Bridge, Structural, Ornamental & Reinforcing Iron Works.

Companies: Local Union No. 7, International Association of Bridge, Structural, Ornamental & Reinforcing Iron Works; American Steel Erectors, Inc.

MainStory: TopStory Antitrust MassachusettsNews

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