DOJ Forces $85M End to “Long-Running Conspiracy” to Suppress Poultry Wages

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Three poultry processors and a consulting firm that circulated wage information among them have entered a consent decree with the Department of Justice to end a “long-running conspiracy to exchange information about wages and benefits for poultry processing plant workers and collaborate with their competitors on compensation decisions,” a violation of the Sherman Antitrust Act. The poultry companies — Cargill Inc. and Cargill Meat Solutions Corp., Sanderson Farms Inc., and Wayne Farms LLC – agreed to pay nearly $85 million. In addition to the payment, the producers must submit to antitrust monitoring for 10 years.

The decree brings a halt to the exchange of compensation information and deceptive conduct toward chicken growers designed to lower their compensation. The DOJ charged two of the poultry processors – Sanderson Farms, which was just acquired via joint venture between Cargill and Continental Grain Co., and Wayne Farms, owned by Continental – with violating the Packers and Stockyards Act. The companies engaged in deceptive practices via a “tournament system” which pit chicken growers against each other to determine their compensation. Jonathan Meng, meanwhile, president of the data firm Webber, Meng, Sahl & Company, is banned from the industry for his role as information broker for the producers.

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Cargill is a privately held, multinational corporation based in Minnetonka, Minn. The corporation’s major businesses are trading, purchasing and distributing grain and other agricultural commodities. In 2021, Cargill generated revenue of about $134.4 billion. In the meat and poultry processing industry, Cargill’s $20 billion in revenue in 2021 put it in third place behind Tyson Foods Inc. ($43 billion) and JBS USA Holdings, Inc. ($39 billion) and one notch ahead of Sysco Corp. ($18 billion).

Just days before the settlement, Bloomberg Law reporter Dan Papsucn wrote, Sanderson Farms was acquired for $4.5 billion via joint venture between Cargill and Continental Grain Co. Wayne Farms was already owned by Continental. The acquisition combined the third and sixth-largest companies in U.S. chicken production to form the new Wayne-Sanderson Farms company. Before they were merged, Sanderson Farms and Wayne Farms annually were generating approximately $3.56 billion and $2.2 billion, respectively.

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The DOJ’s investigation continues into the activities of several unnamed co-conspirators.  The government’s suit was filed in federal court in Maryland (U.S. v. Cargill Meat Solutions Corp., et al., No. 1:22-cv-01821 D. Md.).

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Increased Federal Attention

The poultry industry case demonstrates that the antitrust law enforcers at DOJ, in addition to those at the Federal Trade Commission, remain dedicated to increasing competition in such concentrated labor markets. Worker mobility is something President Biden has promised to protect. FTC Chairwoman Lina Khan is considering new regulations to ban non-competes and to target them with enforcement actions, according to Wall Street Journal reporters Dave Michaels and Ryan Tracy.

Agreements entered without the cloak of legitimate competitive concerns by employers are called “naked” agreements. In 2016 DOJ and FTC jointly declared that naked wage-fixing or no-poaching agreements were per se illegal under antitrust laws. If the agreement is separate from or not reasonably necessary to achieve a larger legitimate collaboration between the employers, the agreement is deemed illegal without any inquiry into its competitive effects. Legitimate joint ventures (including, for example, appropriate shared use of facilities) are not considered per se illegal under antitrust laws. For these legitimate ventures the DOJ advocates the “rule of reason” or “quick-look analysis.” Also in 2016, DOJ said it would proceed with criminal actions against naked wage-fixing or no-poaching agreements.

Of course, support for the legitimacy of non-competes and no-poaching agreements splits along party lines. Sometimes the issue isn’t whether the agreements should be eliminated, but who should eliminate them. The question becomes: Is this the purview of the federal government or is it up to state legislatures?

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Private Litigation

Private actions are another consideration for employers. Auto repair chain Jiffy Lube, which is owned by Shell Oil Company, recently agreed to pay $2 million to settle claims that it used illegal no-poaching agreements which prevented franchise owners from hiring current or recent employees of other Jiffy Lube franchises. The settlement will be shared among 1,250 hourly workers in the Philadelphia metropolitan area in Pennsylvania, New Jersey and Delaware.

According to the class action complaint, Jiffy Lube used these agreements to suppress wages and prevent workers from achieving better terms of employment. Employees had to wait six months after leaving one Jiffy Lube shop before attempting to work at another, according to the terms. Workers sued claiming this was a violation of the Sherman Antitrust Act.

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The case was filed in U.S. District Court for the Eastern District of Pennsylvania (Victor Fuentes v. Royal Dutch Shell PLC, et al., Case No. 2:18-cv-05174, E.D. Pa.).

Employers Beware

As these cases demonstrate, many employers don’t realize (or may not care) that these types of arrangements can be considered anticompetitive or that their employment agreements can create substantial antitrust liabilities. In addition to public and private litigation, restrictive employment agreements can tank business deals. Imagine your M&A deal craters when a buyer discovers you have a no-poach agreement with competitors.  You might not have seen it as problematic until your prospective buyer walks away because of the risk and your once promising deal is over.

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Employers and business owners who wish to protect themselves when employees leave for new positions need to be careful how they go about building their defenses because doing it wrong can mean both civil and criminal charges against corporations and individuals, as these cases illustrate. Critical questions need to be answered in employment agreements and business deals. Is the employer – such as a franchisor – trying to stop intramural poaching within its own system, effectively causing vertical restraint? Or is it trying to legitimately protect itself from losing employees to competitors, or horizontal restraint? These are questions best addressed by counsel with a sophisticated understanding of antitrust law, employment agreements, and mergers and acquisitions.

Article By Jennifer M. Oliver of MoginRubin

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