California v. Safeway: Antitrust Risks Of Employer Mutual Aid Assistance Agreements

On July 12, in California v. Safeway,1 the Ninth Circuit Court of Appeals, sitting en banc, held that a mutual strike assistance agreement among four supermarket chains was subject to challenge under the "rule of reason" standard. The court held that a revenue-sharing provision of the agreement at issue was not protected by the nonstatutory labor exemption to the antitrust laws, but overturned a prior decision that had summarily condemned the agreement under the so-called "quick look" standard. The more lenient rule-of-reason standard requires courts to consider the full competitive impact of a challenged agreement, taking into account the collective bargaining context of the agreement. Companies considering mutual strike assistance agreements should carefully consider the antitrust risks of such agreements, structuring those agreements to minimize their antitrust risks.

Background

The case arose from a 2003 collective bargaining negotiation between the United Food and Commercial Workers (UFCW) union and a multiemployer collective bargaining unit composed of three Southern California supermarket chains. Faced with threats of selective strikes, the three supermarkets and a related supermarket whose labor agreement was set to expire entered into a mutual strike assistance agreement. The agreement stated that the supermarkets would lock out union employees within 48 hours of a strike and included a revenue-sharing provision (RSP) that required the supermarkets to pool revenues earned during a strike and share them according to prestrike market shares. The RSP was intended to level the negotiating playing field by blunting the effects of whipsaw tactics by the union. By its terms, the agreement would only take effect upon the commencement of a strike or lockout and would automatically terminate two weeks after the strike or lockout ended.

The unions struck one of the employers in early October 2003, and the other two employers locked out their UFCW employees within 48 hours of the start of the strike. In response to the lockout, the unions picketed all companies until late October when, in a demonstration of their whipsaw tactics, the unions pulled pickets from one of the companies in an effort to increase pressure on the others. Pursuant to the agreement, the supermarkets shared revenues earned during the period of the strike.

The state of California sued the supermarkets, alleging that the RSP violated federal antitrust law. In rulings on...