Antitrust Harms in Complex Business Settings, Public Workshop on Competition in Labor Markets 5 of 7


MS. MEKKI: Can
everyone hear me? Welcome, everyone. This is the second
panel of the day. My name is Doha Mekki,
and I’ve been the counsel to the assistant attorney
general of the antitrust division since 2015, and
I’m really thrilled to introduce the panel
topic for the afternoon. This was born out of a
recognition that much of the action in the
antitrust space really has to do with restraints
occurring in — (off mic) — those of us, if I can
have a show of hands for — (off mic) — no? You probably grew up under
the — (off mic) – – framework, so you’ve
probably seen everything from – – (off mic) —
maybe you think of single firms or, you know, just
franchises, which today I think we’ll unpack that
these settings are really quite a bit more complex. And so, this panel is
designed to talk about recent cases, some
fascinating economic literature and we’ll ask
questions like what is a no-poach agreement, when
is it naked or ancillary and we’ll give special
attention to applications like franchise businesses
and the gig economy. So I’ll turn it over to
my co-moderator, Karina Lubell, and she will
introduce the panel. MS. LUBELL:
Thank you, Doha. So you all obviously —
you have a handout with detailed biographies
of all of our esteemed panelists. So I’m just going to give
a brief description of each of their
work in this area. So starting immediately to
my left is Randy Stutz, who is vice president of
legal advocacy at the American Antitrust
Institute. Randy has been closely
following competition issues in labor markets
and is responsible for the AAI’s advocacy
on the subject. He’s also written
certainly I think one of the best summaries of
the literature on labor competition to date. Next to Randy, we have
Samuel Weglein, who is a managing principal at the
Analysis Group and is a labor and industrial
organization economist who testifies and supports
testifying experts in antitrust cases with
a specialization in financial markets,
healthcare markets and technology markets. Samuel also provided
economic support to the division in its
successful lawsuit to block the Anthem/Cigna
merger Next to Samuel, we have Marshall Steinbaum,
who is assistant professor of economics at the
University of Utah, where he studies market power
in labor markets and its policy implications,
including for antitrust and competition policy. Marshall has written a
great deal on competition in various labor markets
and has taken a recent interest in labor
competition in the gig economy, one of the things
we’ll be discussing this afternoon. Next to — thank you —
next to Marshall, we have Rahul Rao, who is an
assistant attorney general for the state of
Washington in the antitrust division of the
attorney general’s office in Seattle. And he handles labor
competition matters, including investigations
and litigation into franchise no-poach
agreements, as well as investigations into
non-compete agreements. And as many of you know,
Washington State has played a leading role in
no-poach enforcement. Then we have Rachel Brass,
who is a partner in the San Francisco office of
Gibson, Dunn & Crutcher, whose practice focuses
on investigation and litigation in antitrust,
labor and employment areas. Rachel has represented a
number of franchisors, including McDonald’s,
Pizza Hut, CKE Enterprises and Jimmy Johns in
no-poach cases. And finally, at the other
end, we have Darrell Johnson, who is CEO of
FRANdata, which is a franchise-focused research
and advisory firm. He is a certified
franchise executive who has served on the
International Franchise Association’s board of
directors and known as the franchise economist. He ha franchisors,
suppliers, media companies, lenders
and privacy equity firms. So we are fortunate,
in our discussion of franchises this
afternoon, to have the franchise
economist with us. MS. MEKKI: And actually,
just before we get through our questions, I
do want to offer a broad disclaimer. And I know some of you are
going to roll your eyes thinking the DOJ is going
to give their disclaimer at their own event. But bear with us. We have a panel of experts
here, many of whom are working on live cases,
who are advising clients. And so, in order to have
a fulsome, thoughtful, honest discussion, we’re
going to give the general disclaimer that, you
know, the issues that we’ll talk about today
don’t necessarily — aren’t necessarily the
same as our employers, clients, institutions
and so forth. MS. LUBELL: So I think
we’d like to start with a little bit of background. And Marshall, I’m going
to turn to you to kick things off. Can you tell us about
some of the recent events that have triggered
interest in labor competition matters? DR. STEINBAUM: Yes. I don’t know if this
cordless microphone is — great, thank you. So I have to say it’s
very gratifying to be on this panel. I was just talking with
Ioana, that to hear the assistant attorney general
say that labor impacts of anticompetitive
arrangements or mergers are of equal footing
to consumer and output effects is, I think,
signals a departure from where antitrust has been
until pretty recently. And I think a lot of
us that have taken an interest can take pride
in that observation. I guess to sort of
explain, I mean, it’s a little bit multifaceted
how we come to be here on a panel discussing labor
impacts and its overlap with antitrust. I know I think, you know,
part of it certainly has to do with the recovery
from the Great Recession, how even — you know, so
unemployment stayed high for a long time and
economists were worried about search and matching
issues and hadn’t really focused particularly
on wages and then when macroeconomic unemployment
came down, there was a lack of understanding
of why nonetheless wage growth remained
repressed. And that turned a lot of
people’s interest towards a sort of macroeconomic
imbalance of market power in the labor market. I think kind of the inside
baseball within academic economics would say that,
you know, we have a lot of very interesting new
empirical work, empirical methods that are put to
use in labor economics and those have typically
focused on worker characteristics as
explaining outcomes among workers and those methods
are very good and very refined. But I think one of the
realizations that at least the body of labor
economists have come to is that worker
characteristics don’t necessarily reflect the
variation in outcomes among workers and that
naturally shifts focus to characteristics
of employers and characteristics of
the market, including competition in the
market for workers. And that has shifted the
attention of a lot of great applied labor
economists towards looking at issues of market power
and concentration of labor markets, other related
things like firm-specific labor supply/elasticity
that Ioana and Elena were discussing. So I guess that’s my —
oh, and then I would say there’s sort of the
political angle that, you know, I think a lot of
policymakers had been at a loss to explain the wage
stagnation and other ill employment effects using
the sorts of policy analysis tools that had
typically been directed at the labor market. And I can just say, you
know, from many of the meetings that I was in
when I was working in Washington, there was kind
of this like, oh, you know, antitrust, we
haven’t really been discussing antitrust in a
long time, at least not outside the walls of the
DOJ antitrust division. And, you know, this is
a potential kind of new area where policy has
previously not been directed and people who
are concerned about outcomes for workers have
not previously had their attention focused. And I think that gave rise
to a lot of interest on the part of political
actors outside the usual stakeholders in the
antitrust debate. MS. LUBELL: Thank you. I think it would be
helpful now if we had a brief overview of
some of the government enforcement in labor
markets and specifically the kinds of agreements
that have been challenged. So I think, Rachel, why
don’t we start with you, and if you could tell us a
little bit about federal enforcement in this area. MS. BRASS: Yeah, I won’t
spend too much time on this because I think it
was addressed with a fair amount of robustness
starting right off the top this morning. But there’ve been, at
least in recent memory, two prominent
investigations in employment antitrust, the
first being the high-tech matters that several
people discussed this morning which involved a
series of five similar bilateral agreements not
to cold call, as the DOJ described it in
its own filings. The DOJ’s position was
that those restraints were not ancillary to any
legitimate pro-competitive purpose and, as was
lamented on the economist labor market panel this
morning, on the date of the filing of that
complaint, there was also a filing of a
consent decree. So in terms of what
exactly motivated the government investigation,
there is not a great deal of transparency. But that is sort of the
bulk of what we know. More recently, there
is the government’s investigation into the
Knorr-Bremse explicit agreements on non-hiring
and wage information exchanging. That’s in the
railroad space. Two issues you can
contrast here is the first involved companies
that may or may not be horizontal competitors in
the downstream market but were alleged to be
horizontal competitors in the labor market. In the railroad case, the
companies are much more clearly competitors both
in the upstream and downstream markets. And there, the mechanisms
included not only the express agreements between
the parties, but as described in the consent
decrees, agreements to inform outside recruiters
not to solicit or poach each other’s
employees as well. MS. LUBELL: Thank you. Rahul, next I’ll turn to
you to tell us a little bit about state
enforcement in this area. MR. RAO: Yes. So the bulk of the state
enforcement in the labor competition space most
recently has been in the franchise
no-poach context. There are basically two
parallel state enforcement efforts that
are happening. One is a multistate
coalition that comprises about 14 jurisdictions, 13
states plus D.C. that have been looking into the use
of no-poach provisions in franchise agreements. That multistate coalition
has secured a number of settlement agreements
earlier this year. But I think it’s fair to
say that the bulk of the state enforcement activity
here has come from my office, the Washington
state attorney general’s office. We are also looking
at the use of no-poach provisions in
franchise agreements. Our investigation in this
space started — our formal investigation in
this space started in the early part of 2018 where
we started initially looking at fast food and
quick serve restaurants. To be clear, we don’t
think there is anything legally distinguishable
that would make fast food or quick serve companies
more liable under antitrust law. It was rather the thinking
was for employees in these industries that may
be making minimum wage and may be making below a
minimum wage, that they were uniquely vulnerable
and victimized by anticompetitive
provisions in the franchise agreements that
would have the effect of suppressing or stagnating
their wages, which is why when we decided to start
somewhere, we decided to start there. We secured a number of
settlements through the form of assurance of
discontinuances, which are just settlement agreements
that are signed by a judge in the summer of 2018. To date, as of Friday,
we have secured 85 AODs against franchisors
ranging from fast food companies to tax
preparation services to car maintenance to
salons and barbers. Our investigation
is continuing. We have a number
of CIDs out. I’m sure I have a few
signed AODs on my desk that are ready to file. And that is — that is
kind of the state of affairs. In terms of the provisions
we’ve been looking at, to just kind of build upon
what Dean was talking about earlier, no-poach
provisions take a variety of different
flavors, so to speak. We have seen no-poach
provisions that restrict hiring. We have seen no- poach
provisions that restrict the recruitment efforts,
basically soliciting or inducing employment
movement, and we have seen no-poach provisions that
restrict only franchisees from hiring from
other franchisees. We’ve seen some that
restrict sort of a franchisee from hiring
from the franchisor, either franchisor
headquarters or company-owned stores. And then, we’ve seen
no-poach provisions that just apply equally to
every participant within the franchise system
,regardless of whom they may be. We consider all of those
no-poach provisions, the connective tissue that
connects all of them is basically a restriction
that limits the ability of hiring or recruiting
decision-making by one of the entities within a
franchise system vis-à-vis an employee of another
entity within that system. MS. LUBELL: Thank you. So, you know, we’ve
heard about government enforcement in this area. But private litigation is
particularly interesting when it comes to labor
competition cases. And so, Rachel, I’m going
to turn back to you, if maybe you talk to us a
little bit about just sort of an overview of
private no-poach cases that have been filed in
the last few years and maybe describe some of
the labor competition issues that they raise. MS. BRASS: Yeah, so we’ve
seen labor competition cases in a pretty wide
sector of industries following the DOJ’s
investigation. There were lawsuits in
the high-tech space and in the animation space. There’ve been a number
of healthcare-related litigations, one involving
nurses in San Antonio, one involving
Duke and UNC. There’ve been, as I think
was suggested, more than a dozen lawsuits filed
against franchise systems or franchisors,
cases brought by NFL cheerleaders against
the NFL and others. So sort of no particular
industry or sector is immune from
these lawsuits. There’s also follow-on
litigation against Knorr-Bremse and
some of the other railroad-related cases. And they allege sort of a
broad range of misconduct and they have sort of
been resolved or been dismissed at various
stages of the litigation. Some are ongoing. Some have been settled. So common things that you
see are questions about the applicable standard
of review, whether or not that should be the per
se standard, the rule of reason standard or the
quick look standard. I would say there is no
necessarily specific or clear trend in
that regard. The decisions continue be
fairly all over the map and somewhat
fact- specific. A large number of them
have been on the motions to dismiss, which I want
to emphasize makes them allegation-specific,
not fact-specific. And so, you see
that as well. There have been — in
the railroad case, for example, a motion to
dismiss the allegations on behalf of putative absent
class members was filed and granted which found
that there was such a lack of predominance among the
potential members of the absent classes that,
while the case could proceed on behalf of the
named plaintiffs, it couldn’t proceed on
behalf of absent persons. Other decisions have
dismissed the claims on grounds such as standing
where, for example, a named plaintiff doesn’t
identify having ever applied for or sought a
position where they were restricted from movement
in any way by the alleged no-poach provision. And that’s been a
particular impairment with respect to provisions in
franchise agreements, for example, which had a
feature that I don’t think I’ve heard anyone talk
about this morning, which is that while there’s a
provision restricting mobility, it’s not a
provision that restricts mobility full stop. It’s a provision that
restricts mobility absent and employer release. And so, that’s an issue
that I think we’ll see percolating through the
litigation as well, is what is the effect and
extent at which releases were granted. They’re alleged in some,
but not all of the cases involving these
restrictions. And then, sort of the
outer end, you’ve seen, you know, classes
certified and cases settled where, in some
cases, like the high-tech case, no decision was
ever ultimately made on whether the per se or
rule of reason applied. But a class was certified,
Judge Koh finding that class-wide proof could
prove liability under either theory and those
cases were resolved, as were the animation cases. And most recently,
settlements in the Duke and UNC cases. So I would say we’re still
at, you know, a fairly nascent place in terms of
what the evolution of the case law looks like, with
a number of splits and interpretation percolating
through the system on motions to dismiss. How telling those will
be when the courts ultimately in the cases
that aren’t dismissed engage with the facts on
the ground as opposed to the allegations, I think,
you know, too early to say. MS. LUBELL: Thank you,
Rachel, Rahul and Marshall for that really
helpful introduction or background. Doha? MS. MEKKI: So this mornin
we heard a lot about the fact that the antitrust
laws apply to labor markets with equal force
as output markets for tangible goods
and services. So Randy, I’m going to
turn to you and ask a really important question,
which is what does the consumer welfare standard
require in terms of harm with respect to
labor markets. MR. STUTZ: Sure. So, can everybody
hear me okay? First of all, thank you
to the antitrust division for hosting this program,
and to Doha and Karina for putting together
this excellent panel. AAI’s been following all
these developments in labor markets and case law
going back a few years now and have called on the
agencies to host a program like this. So we’re very pleased to
see this taking shape, and it’s been
fantastic so far. The consumer welfare
standard, I think the assistant attorney general
really said it best this morning. You know, it is not —
it doesn’t mean what it literally says, that
we only care about the welfare of end-purchaser
consumers like you and me. The consumer welfare
standard protects competition throughout
the supply chain. There are plenty of
examples to back up this claim. You can look at the
Illinois Brick and Hanover Shoe indirect
purchaser role. There’s an example
where we often protect businesses in the middle
of the supply chain at the expense of consumers,
end consumers. And then certainly you
can look to Supreme Court cases like Weyerhaeuser
and Mandeville Island Farms, where causes of
action for upstream harm in input markets have
been sustained without any effort to trace through
anticompetitive effects in downstream
output markets. And then, of course, we
have the agencies and their practices. We can look at the
horizontal merger guidelines, very explicit. Example 24 discusses a
buyer power merger that inefficiently reduces
supply and causes a wealth transfer and
clearly states that it’s illegal, even if the
merger will not lead to any increase in the price
charged by the merged firm for its output. So really, you know,
one question that often arises is how effects in
upstream markets translate downstream. Oftentimes enforcement in
input markets is fully consistent with effects
in downstream markets because supply
restrictions tend to reduce output in
supply markets. And that can have
anticompetitive effects in output markets. But the important point is
that in antitrust law, we don’t require
that showing. We don’t look further. We look for harm to
the beneficiaries of competition and there are
beneficiaries all over the supply chain,
including upstream. MS. MEKKI: Most antitrust
lawyers have heard some version of the following
phrase, which is that the antitrust laws reserve
their harshest condemnation for
restraints on inter-brand competition. So Samuel, can you tell
us the difference between intra-brand competition
and inter-brand and why we’re suspicious of
restraints on inter-brand competition? MR. WEGLEIN: Yeah, sure. Thanks, Karina. And thanks again to the
division for inviting me here. I will say I mentioned
this to a colleague, that the outline that Karina
and Doha put together was longer than the field
exam I took in labor economics in 1996. But it’s been fascinating
to think about these issues. So it’s a real
pleasure to be here. So just very briefly,
inter-brand competition, I’ll use an example
outside of the sorts of industries that we’ll
really be talking about just to motivate it. Inter-brand would be Whole
Foods competing with Trader Joe’s, okay? And there, we expect
vigorous competition along multiple dimensions. It can be price. It can be non-price. It can be quality
of the produce. It can be service. It can be all
of these things. And then, we expect that. And so, any attempt
to subvert that, any lessening of that
competition is something that we would
deem problematic. Intra-brand competition in
that context would be the competition, if you will,
amongst Whole Foods stores, okay? And you will see obvious
ramifications here and there will I think be a
diversity of views as to how relevant this analogue
is in the franchise context. But within the context of
Whole Foods, we do not expect there to be
vigorous competition along all of those dimensions. And in fact, we expect
just the opposite. Store managers, for
example, are not empowered to reduce the
price of milk in their Whole Foods so that
they can compete more effectively with the
Whole Foods in the neighboring town. There may be some
competition along some dimensions like
service, right? It’s not — we don’t
ignore entirely the prospect or the
possibility that each store manager wants her
or his store to outperform the others. But it won’t be along all
of the dimensions that we expect a Whole Foods and
a Trader Joe’s to compete. So broadly, that’s
the distinction. MS. MEKKI: Horizontal
agreements can be naked or ancillary. What’s the difference? Randy? Sorry. MR. STUTZ: For me? Sure. So the naked/ancillary
distinction in antitrust law goes back to the
1890s and Judge Taft’s opinion in the
Addyston Pipe case. Put very simply, a naked
restraint is a restraint that is unadorned, not
intertwined with anything else, not part of a
broader efficiency- enhancing economic
integration. Oftentimes a naked
restraint is an agreement to do the thing that is
illegal, an agreement to fix prices or to
divide markets. But restraints can also
be ancillary, which is to say they can be part of
something broader and something pro-competitive. And the key inquiry there
is whether the restraint is sufficiently
interconnected to the broader
efficiency-enhancing integration. And the upshot of this
distinction is that when a restraint is deemed
sufficiently ancillary, it can take — it can change
the applicable liability standard with which we
consider the restraint. So in particular an
otherwise per se illegal violation like
price-fixing can be reviewed under the
rule of reason. And so, that’s the primary
upshot of the ancillary restraints distinction. It becomes less relevant
— a lot of, you know, the cases we’re going to
talk about today involve the franchise context
and vertical restraints. Most vertical restraints
are already reviewed under the rule of reason. So oftentimes the
ancillarity question just doesn’t arise or isn’t
especially important. But when you have a per
se claim or potentially a quick look claim or an
inherently suspect, a structured rule of
reason claim, the ancillary/naked
distinction becomes important. MS. MEKKI: And are there
any recent cases, and particularly no-poach
cases that have explored ancillarity? MR. STUTZ: It comes
up a fair amount. Like I said, you know,
oftentimes, particularly when there are joint
ventures and other group purchasing organizations,
joint selling arrangements, these are
the kinds of cases where ancillary restraints
questions get litigated. The hornbook sort of test
is whether the challenged restraint is part
of a larger economic integration in the sense
that it holds the promise of pro-competitive
benefits and is reasonably necessary to protect the
legitimate fruits of the main transaction. So it hasn’t directly come
up in a lot of the recent no-poaching cases that
we’ve been talking about. The arguments have been
raised — the Little Caesar’s case,
the Ogden v. Little Caesar’s involved
a no-poaching agreement where the court did rely
on the rule of reason, but on the basis that the
plaintiffs didn’t plead sufficient facts to allege
a per se or quick look violation. So it wasn’t via the
ancillary restraints doctrine that the
court got there. MS. BRASS: I think
the Deslandes v. McDonald’s case of the
recent no-poach franchise cases comes the closest. And there, as part of
the court’s analysis in determining that the per
se rule would not apply, the court looked both at
the fundamental inter- brand versus intra-brand
nature of the restraint, the fact that the
majority of the agreements under the restraint are
franchisor to franchisee and that then also
that it’s an ancillary restraint to the overall
franchise agreement. The c particularly
delineate any one of those factors as
driving the ultimate decision, but looked to
all of them to find that ultimately per se
treatment was not appropriate. I would say that, you
know, one of the places that it’s addressed
actually in a fair amount of detail is in the
Department of Justice’s inter- statement as well
as their statement on their website about their
view of how the ancillary restraints doctrine
intersects with franchise systems. In the cases it filed in
the western District of Washington, three of
the pending private litigations, the antitrust
division suggested that, at least on the facts of
those cases, what was alleged was an ancillary
restraint, went a bit further on their broader
public statement and suggested that more often
than not, although again it will be a fact-by- fact
assessment, often these restraints will be
ancillary in nature. MR. STUTZ: And so, an
important thing to keep in mind too is just
because a restraint is part of some broader
integration doesn’t necessarily mean
it’s ancillary. And part of the issue
in the Washington State cases that Rachel was
referring to was sort of this question of whether
the no-poaching agreements were likely ancillary or
likely subject to the full-blown rule of reason
as opposed to possibly a per se or a quick
look standard. And really the only way
to determine that is to actually perform the
ancillary restraint analysis and see if
there’s a functional connection between the
challenged restraint — so in this case, the no-poach
clause — and the broader franchise agreement. And so, you
know, the NCAA v. Board of regents case,
going back to the ’80s, recognizes clearly that,
you know, a restraint can be part of an
integration, but still be naked. It’s not ancillary simply
because it’s appended to a broader agreement. MS. MEKKI: We’ve talked
a bit about different restraints and we’ve sort
of mentioned in passing the rule of reason, the
per se rule and the quick look. Can we just briefly, for
the good of the audience, talk about those rules and
why they might matter for plaintiffs and defendants
in antitrust cases? Randy? MR. STUTZ: Sure. It might have been good
to start out with that. I apologize. So of course, you know,
the per se rule is the strictest antitrust
liability standard. It’s reserved for naked
horizontal agreements that always or almost always
tend to restrict competition. And the upshot of
applying the per se rule is that a plaintiff is not
obligated to prove market power or anticompetitive
effects. In a section one case,
it simply has to prove agreement. If it’s a private
plaintiff, it has to prove antitrust
injury and damages. But market power
anticompetitive effects are irrebuttably presumed. At the other end of the
spectrum is a full- blown rule of reason case. These are cases where a
plenary market examination is required. So to understand the
nature, purpose and effect of a restraint,
plaintiffs are required to define a relevant market,
prove market power in the market and prove
that the agreement is anticompetitive. And the full rule of
reason operates under a burden-shifting framework. The plaintiff has the
initial burden to prove power effects and harm
and, if it does so, the burden shifts to the
defendant which can offer offsetting efficiency
justifications. And if the defendant
succeeds in doing that, the burden shifts back to
the plaintiff to prove a less restrictive
alternative or that the agreement is on balance
anticompetitive. In the middle historically
is the quick look rule. It’s not a single rule
really and the law around quick look has evolved
quite a bit over the years. But the original premise
of quick look was that there are some agreements
which are — their anticompetitive
effects are obvious. We don’t need to inquire
into the anticompetitive effects. But there’s some attending
feature to the restraint, some novelty which might
allow a court or create a desire in a court to
peek at any possible efficiency justifications. And so, they would
perform a quick look. It would take a quick
look at any efficiencies justifications. If they were legitimate,
the case would revert to a full-blown rule
of reason case. If they were not, it
would revert to the per se rule. Since then, the court has
made clear that we don’t have just three
strict categories. The rule of reason can be
abbreviated in any number of ways. And the applicable line
from Justice Stevens in the California Dental
case is we need an enquiry meet for the case. And so, one solution has
been what’s sometimes called a structured
rule of reason or an inherently suspect
framework, pioneered by the FTC and approved by
Judge Ginsburg in the Polygram holding, which
creates — similar to the per se rule, it creates a
presumption about market power and effects. But it’s a rebuttable
presumption. So plaintiffs don’t have
to prove market power, don’t have to prove
anticompetitive effects. But defendants offered
an opportunity to provide efficiency
justifications. MS. MEKKI: So I want to
shift now to talking about franchises
in particular. They are fascinating
business models and undoubtedly some of the
most interesting no-poach cases of late relate
to restraints in the franchise world. So Darrell, I want
to turn to you. At a high level, can you
describe what a franchise business model is,
some common ownership structures and sort of
give us a sense of the business? MR. JOHNSON: Doha, I’d
be happy to, and good afternoon. I have the luxury of being
here as a researcher and FRANdata, who sits in the
central nervous system of the franchising, we’re
the objective third party that deals with the
business model and looks at it and understands
it and explains it. And it’s confusing. As recently as the last
hour, somebody asked me about the Starbucks
franchise and Starbucks is actually not a franchise. We have a lot of
misunderstandings about what is and what isn’t. And what we’ll do here is
we’ll focus entirely on the business format
franchise model and I’ll give you a quick
understanding of it and then show you
where there’s some misconceptions that go
along that apply directly to I think what we’re
talking about here. First of all, business
format, there are three tests under the FTC
franchise rule that constitutes a franchise
for FTC rule purposes and precipitates a whole
series of regulatory responsibilities
on the franchisor. And those three rules are
that it’s the use of a trademark. And in that, let me give
you a quick example. Most of you here have your
personal physician and your personal physician,
I’m guessing you don’t know offhand who he or she
actually is a part of. It’s just your
personal physician. That’s an individual. The brand is
the individual. In the case of either
urgent care or worried about where one of your
parents is going — whether they’re going to
have aging at home and you want somebody to be in
there with them that maybe has some medical
experience, you care about the brand. You don’t care about the
individual that goes in there as much as does
this brand have a good reputation to be able to
deliver the service that you expect. That’s where franchising
lives, is in that brand distinction. And that’s where the
trademark requirement is the driving
force behind it. The other two rules,
one is that there’s consideration between two
entities, between the franchisee, in the case of
the licensed user of that brand, and the franchisor
who has the third responsibility, which is
significant control over the method of operation
of that franchise because they have brand risk
associated with it. And therein lies a lot of
the rub that you in this room represent on one
side or the other. Franchising is found
anywhere in the U.S. where there’s rapid growth
and that brand component has value. There’s over 220 sectors. There’s 3,800 active
franchise brands in the U.S. today. And now, let me give you a
sense of where there’s a distinction and somewhat
of the misunderstanding of how some of this
is actually used. A lot of the anti-poaching
issue was precipitated by the Princeton study. FRANdata provided the
research information with which that study was done. One of the principal, in
fact I think the central tenet of that, is that
anti-poaching clauses exist to reduce
employee turnover. I will tell you that
in the roughly some twenty-some years of begin
involved directly in the research business with
franchising, I’ve never heard a franchisor
say that. By in large, the reason
they have had anti- poaching clauses in their
agreements is to enforce proper training at the
franchisee level under the significant control of the
method of operation of that franchise business. Now, I’m not here to argue
that that’s right or wrong or that it’s the
majority of the time or a less amount of time. But I will tell you that
most of the time that provision is to protect
the method of operation wherein a franchisee who
chooses not to do any training and just poaches
the employees of another franchisee, it’s to try
and force, as part of the training program, force
better training of employees across all of
the franchise system. So that is just an example
I think of where we see a lot of the distinctions
and the misunderstanding of franchising. One other thing I’ll
note is just the sheer complexity of once you get
inside the business model, the franchisor is
responsible for 12 functional areas of
franchising in order to execute the
business model. They look downward
from the franchisor. You have franchisees. Well, franchisees
are legal entities. They’re formed —
they’re all incorporated entities. So we think of
franchisees as people. They’re actually
incorporated entities. The owners of those
franchisees are the people who are normally —
are oftentimes assumed to be the franchisees. But the corporate
structure that they have, almost all of them
are either corporate entities, rarely
partnerships. But now you get into
the complexity of it. There could be a
single-unit franchisee with one legal entity. That legal entity may own
two units or 22 or 222 units. It may own it in one brand
or it may own it across three brands. That legal entity may —
each time the owner of that business wants to
add a new unit, they may incorporate a new entity. So you have all of these
complex structures that are existing underneath
how one franchise system operates. I’ll stop there. MS. MEKKI: Thank you. So I want to go back
something you just mentioned about sort of
to whose benefit is a no-poach clause within
a franchise agreement. Can you tell us a little
bit more about, I mean, the origins of no-poach
clauses in franchise agreements and, I mean, if
we had to think about the clauses as benefitting
someone, who is the someone? MR. JOHNSON: Yeah. Well, let me give
you some statistics. In the Princeton study,
there were – – the request by Princeton University
was to look at all franchise systems with
more than 500 franchised units. There was 156 brands that
were identified that had some type — or that
were above 500 units in operation. Of those 156, 58 percent
of them had some type of anti-poaching language
in their franchise agreements. Those anti-poaching
language elements ranged from a very passive kind
of inert statement to a very strong one. Some of the language with
some of the brands were both at the
franchisor-to-franchisee level and some of them
were from franchisee to franchisee and some of
them were from franchisee to affiliate of
the franchisor. In franchising, typically
most franchisors don’t own a lot of company
units themselves. Oftentimes in franchising,
and when I say franchising, I’m not
talking about all of the big guys. I’m talking about the
3,800 minus the 156 that had more than 500 units. The vast majority of them
operate with few company units because one of
the primary reasons to franchise is to use
other people’s money. So that’s how they get
started, is to push down the responsibility for
the capital formation to the franchisee. And because of that,
there’s typically no conflict at all between
the franchisor and the franchisee, at least from
a competitive standpoint. There are always
exceptions. If you’ve seen one
franchise system function, you’ve seen one. They all have a little
nuanced difference to them. And I will say, as a
publicly traded company, Regis Corporation in the
haircare industry, they have company brands,
brands that are only company units. They have brands that are
only franchised units. And I think they have
a little bit of each. So you have a lot of mix
of all of those different things going on. But typically those
agreements, some of which go back 20, 30 years in
the early formation of it and it was — early on
was largely driven between franchisor and franchisee. Today it’s largely between
franchisee and franchisee for the purpose of
things like training. MS. MEKKI: Samuel
— oh, I’m sorry. MR. RAO: Doha? MS. MEKKI: Go ahead. MR. RAO: I’d like to build
a little bit off of what Darrell was talking about. So in our investigation,
we’ve looked at hundreds of franchise systems. And for the purposes of
this public discussion, I’m going to back out
everything that I can’t talk about because it’s
in an early phase of the investigation. But of the ones that I can
generally speak about, we’ve looked at upwards of
130 or over 150 franchise systems. It is not an identical
set to what was in the Princeton paper, in part
because there were some companies on the Princeton
list that do not have a presence in Washington
and there are a lot of entities that are below
what the threshold was for the Princeton list. From that macro view, we
have seen that about 65 percent of those franchise
systems had some form of no-poach provision, which
means 35 percent didn’t. In talking to the counsel
and discussing, you know, our investigation and
our enforcement efforts, we’ve heard basically a
repeat of a couple of similar refrains with
respect to how these no-poach provisions
got into the franchise agreement and what
their purpose is. The first thing that we
heard off the bat within the first few sentences
of almost every call is we’ve never enforced
these provisions. We’ve never enforced them
and we actually have no idea how they got into
the franchise agreement. The second refrain, which
it sounds a little bit incredible but I actually
find it plausible, is we did not even know this
provision was in our franchise agreement. This is boilerplate
language. We just adopted it. The first we heard about
this was when you sent us a civil investigative
demand. So from my take, I
mean, the way I’ve been describing it and the way
— I have no reason to disbelieve any of what has
been told to me, is that for a lot of the franchise
systems today that have these no-poach provisions,
they’re essentially vestigial organs. It’s literally
like an appendix. Like it’s there. You don’t know
how it got there. You don’t know what it
does and you’re happy to get rid of it if it
causes a problem. And that’s essentially
what we have been seeing. So about 65 percent. That percent has been
relatively consistent throughout the
various phases of the investigation, whether
we’re looking at a smaller number or if we’re looking
just at fast food or if we’re looking at the
current amount that we have right now across
multiple industries. MR. JOHNSON: I could
confirm that in many, many cases. We’re talking about a
regulatory document that has evolved through the
practice of law firms who have specialized in
franchising over decades. And by in large, it’s
always been additive. We found something new
that we can do, they add it. They don’t subtract. And over time,
they’ve evolved. We have an inventory
library of regulatory documents, largest in the
world, probably 65,000 documents. I can assure you that some
of those clauses are back 25 years ago and no one
today knew why they were there and yet new
franchisors that get started go to those law
firms and they just take the boilerplate
and drop it in. And there are a lot of
terms like that, that they’re there if in case
you may need it someday. And that’s what surprises
a lot of franchise executives when they are
confronted with a question like this. MS. BRASS: Doha,
I — excuse me. Doha, I think Darrell
makes an interesting point that’s something else I
think we’ll see wind its way through the pending
civil cases, which is that this is a regulated
industry. All of these agreements
are filed every year with FTC, with each of the
states in which the companies do business. Certain states, you know,
like Washington make clear that when you
file it, the filing and approval of it says
nothing about the state’s ability to later enforce
laws against it. Not all states say that. But I think that
differentiates this from — and may have a bearing
on the position that DOJ took. And I’m not speaking for
you at all in any way. But this is not a
provision that was sneaking around in the
dark, like so much of what we think of as
unlawful conspiracies. You know, there was
nothing secret about this. You know, if anything, you
know, it is the most open and brazen conspiracy
that has ever happened in that, you know, these
56,000 documents Darrell has described, every
single one of them was filed with the federal
government and with the state AGs. And, you know, what
implications those will have as it winds — the
cases wind their way through a litigation, I
think we’ll have to see. Depends on the state. Depends on the agreement. Depends on the law
that’s being asserted. But it is something I
think that very much differentiates these cases
from maybe something like the railroad case where,
you know, other than that it was shared with
outside solicitors, you know, it was not
something that was sort of open, notorious,
available to be scrutinized on
the public record. MS. MEKKI: There’s a lot
to unpack there that I won’t respond to
in this setting. (Laughter.) But I will
only say that we have often heard, I did not
know this conspiracy was illegal. And we have many sections
that enforce the law in regulated industries. But I take the point that
it will be interesting to see how the courts
grapple with those facts. MR. RAO: I mean, and th
one thing I would like to just add to that from the
other enforcer at the table is I don’t
necessarily disagree with the objective statement
that these were not secret agreements. They were informed
franchise agreements that are on file and regulated
with the state and shared openly with anybody
who wants to look at a franchise agreement. I think what’s interesting
about where we are now in antitrust law, which is
what’s actually really exciting about this
workshop, is that our understanding of labor
economics has been significantly evolving
over a recent — over the recent many years, and
in part because of the Princeton paper and how
that brought to bear the anticompetitive effect of
these open and notorious agreements is kind of
what has sparked the enforcement effort. So it’s not that they were
secret, or it’s not that they were open and
we were okay with it. It’s that they were open
and we just as enforcers may have just been
focusing too much on output markets and not
enough on the input markets. MR. STUTZ: And maybe —
sorry, just one more thing to add on this. (Laughter.) MS. MEKKI: I
didn’t think the franchise background question
would spark this much discussion. MR. RAO: It’s only goin
to get better, Doha. MR. STUTZ: You know, from
an antitrust perspective, of course the intent is
not relevant in terms — well, the economic intent,
if you will, is an important thing to get to. And just to go back to,
you know, your very question, which was sort
of at whose behest are these agreements being
imposed, you know, it’s important to think about
whether, you know, however they found their way into
these contracts, are they serving the interest that
Darrell mentioned in terms of promoting investment
and training or is it a way for a franchisor to
give franchisees a means to capture more of the
surplus created by their workers. And the former would be
an efficiency rationale. The latter would not. That’s just the
elimination of competition. It’s just making
people more wealthy by eliminating competition. So it’s important
to think about. You know, the analogy
that’s sometimes used is for resale price
maintenance. And, you know, the
Supreme Court in Leegin differentiated between
RPM agreements that are initiated by the
manufacturer versus agreements that are
initiated at the behest of the dealer. And there’s really not
much good justification for the latter. A dealer really benefits
from RPM by just keeping prices high and
preventing competition from discounters. So if anyone’s interested,
now would be a good time to go back and read the
amicus brief by Mike Scherer and Bill Comanor,
two AAI advisory board members, which the Leegin
court cited and discusses that point in some depth. I think it’s
relevant here. MS. MEKKI: So Samuel,
could you tell us a little bit about your view
of how we should think of competition for workers
within a franchise system? MR. WEGLEIN: Sure. Yeah, let me give a
little bit of context so that we don’t put the
cart before the horse. And let’s talk — think
about franchising as a means of
distribution, okay? So you have a spectrum or
a distribution of ways in which firms can distribute
the products that they manufacture, right? So this will be simplified
and there can be lots of permutations. But I think it’s helpful
just to set it up this way. So at one extreme, you
can have a company that designs and manufactures,
distributes, sells its product, right? So it’s a vertically
integrated firm. And from the consumer’s
perspective, from the customer-facing
perspective, one of the benefits of that vertical
integration is the firm has the ability to create
a uniform product and a uniform experience,
right, regardless of where you are. So a prime example — and
again, this is not a pure play. I recognize that — but
would be Apple, okay? Think about Apple. I walk into — I walk
into an Apple Store. I know exactly what it is
I’m going to get in terms of product, pricing,
service, all of that, experience. Then you have the
other extreme. At the other extreme,
you have firms that will produce a product,
manufacture a product and then distribute it to
distributors or directly to retailers who will sell
it largely under their own terms. And this, you know,
alludes to RPM and other things that we’ll maybe
come back to in a few moments. And here, the experience
can be far more heterogeneous, okay? So, for example, I’m in
the market for Adidas running shoes. I could go down
the street. There’s a store around
the corner called Marathon Sports. And when I go into
Marathon Sports, even before I take off my
shoes, they’ll be sizing me up in terms of am
I an over-pronator, an under-pronator,
all these things. They’ll give me
all sorts of shoes. I can go outside and run
up and down the block. Amazing customer service,
and I will pay for that, right? So I will pay a lot
for those Adidas. Then you have in the
middle you have Modell’s. Okay, I go into Modell’s
and there may be some amount of interaction with
a salesperson, largely to see if that color or that
size is available in the back. I haven’t been able to
find it in the jumble of running shoes
that is Modell’s. And so, there will be
some amount of user experience and sales and
service, but limited. And then, I
might go to T.J. Maxx where there’s
literally none. Whatever is on the rack. And this is not
a slam on T.J. Maxx, right? This is you get
what you pay for. You pay less at T.J. Maxx than you do at
Modell’s or at Marathon Sports. So franchising sits
somewhere in the middle between those
two extremes. It’s a hybrid of sorts. I’ll use as an example,
not to pick on it, not because I think there are
any no-poach agreements or anything like that, but
I’ll pick on Dunkin’ Donuts because I’m
from New England. And Dunkin’ Donuts is
perhaps closer to the vertically integrated
model than it is to the independent distributor. I walk into a Dunkin’
Donuts and I know what to expect in terms of the
variety of foods that are offered, how the
coffee will taste. It’s a very uniform
experience. And this is due, at least
in part, and Darrell might be able to speak to
this — well, certainly could speak to this better
than I can, that the terms of the franchise
agreement can be quite specific in terms of the
types of supplies that are used, inputs and so on. And in a sense, just
to invoke very briefly Oliver Williamson, the
idea is you have — I knew that would get a reaction
— and the idea is to write as complete a
contract as possible. You’re not vertically
integrated. But the idea is to get as
close to that perfect, that complete
contract as possible. And this brings us
back to this notion of inter-brand/intra-brand
competition. There is not the
expectation, the owner of the brand, of the Dunkin’
Donuts brand, is not expecting the franchises
to compete with one another on all of
the dimensions. I can’t walk into a
Dunkin’ Donuts near my house and hope to buy
the local franchisee’s grandmother’s
chili, right? That’s not a thing. That’s not — I’m
expecting a particular experience. And if I don’t get that
experience, that can have impact on the brand. And so, the franchisor is
looking intentionally, and we recognize this —
and this is true both in terms of — not just in
terms of — this isn’t just a labor thing. You know, we have
exclusive territories often. We have requirements in
terms of the supplies. The idea is to promote the
brand and not to harm the brand. And so, another thing you
won’t see, for example, at a Dunkin’ Donuts,
you won’t see a Dunkin’ Donuts offering a
promotion that’s meant to specifically
promote that store. You don’t have a coupon. That won’t be given out
that’s at this location only you can get some
sort of special deal. You may have
it regionally. But you won’t have it
at a specific location. And maybe that’s a
useful litmus test, not definitive, but that might
be a nice little litmus test where you have
specific in-store promotions that do in
fact put one franchise against another. So auto dealerships, and
maybe Darrell will say, nope, that’s not
really a franchise. Is it a franchise? MR. JOHNSON: No, it’s a
product distribution. MR. WEGLEIN: Darn, okay. But in any event, in any
event, auto dealerships, they have many common
features as franchisees. And they do promote. They do compete
vigorously on price with one another. And sales managers have
pots of money from the manufacturer that they
can use at their own discretion to compete
for your business. So the question ultimately
is does this harm the consumer, the fact
that Dunkin’ Donuts is restricted, or the
franchisee is restricted in certain ways. And the answer is
not necessarily. So some consumers, if we
lived in a world, the counterfactual without
any vertical restraint, so the franchisee could do
whatever it wanted to do. It just licensed
brand, but then could offer its own products,
its own coffee and so on. So some consumers
may be better off. They may just value the
ability to buy donuts at the lowest price
possible, regardless of their quality. They may be better off. But other consumers
will be worse off. They will not get the
coffee they expected. They won’t get the
experience that they expected. And in the long run,
consider what might happen to Dunkin’ Donuts
or what Dunkin’ Donuts might choose to do. Darrell talked about
franchises using franchising as a means
of expansion, of funding expansion and
sharing risk. And that’s
undoubtedly true. And if Dunkin’ Donuts
can’t expand without losing control of its
brand, it might choose not to franchise. And that could be a
loss of surplus, right? Today, Bob could open a
donut shop called Bob’s Donut Shop, right? But he doesn’t do that. Bob wants to license
Dunkin’ Donuts. And why does Bob want to
license a Dunkin’ Donuts instead of opening
Bob’s Donuts? It’s because he knows that
that’s what the consumer is looking for. And so, that ultimate loss
of ability to license the Dunkin’ Donuts name could
harm consumer welfare. DR. STEINBAUM: Can I
make just one comment? MS. MEKKI: Sure. DR. STEINBAUM:
Yeah, so thank you. I think that — I think
that raises a lot of important questions that
exactly motivate why this panel is taking place. I mean, for one thing, I
think there’s a lot of interesting research to
the effect that because we have permitted the types
of vertical restrains that permit the expansion of
these franchising networks that totally eliminate
any discretion that the franchisees have within
the network, I think that reflects the market power
that the franchisor has recognized and the brand
that they’re licensing, as you’ve just referred to. The upshot is that they
can — that then the one margin that is available
to them is to squeeze workers and worker pay and
hence the arrival of the no-poaching agreements and
the other restrictions that we’re discussing in
the context of antitrust enforcement now. So I think — and, you
know, to kind of put the — to wrap that kind of
discussion up, you said, you know, that if we
didn’t have the ability to use vertical restraints
in the franchising context, that would
result in a reduction in consumer welfare. Well, the whole point of
antitrust enforcement in the labor market is that,
well, we don’t allow potential benefits to
consumers to offset the harm to competition that
happens in labor markets. If we care about harm
to competition in labor markets, then it would be
an excuse that everyone would use, that, oh, well
we need this in order to benefit consumers. I don’t think that that’s
what the antitrust laws support and I don’t think
that that’s what the consumer welfare
standard is about. And I hope that a lot of
the discussion from the assistant attorney
general and others today would, you know, count
against that sort of claim. MR. JOHNSON: I’d like to
give you one more fact associated with
what you just said. Today 56 percent of all
franchised units in the U.S. are owned by
multi-unit operators. Most of the multi-unit
operations — Dunkin’ is a good example of this
— 10, 15, three, five, eight units, they are
usually contiguous units because a franchisee will
typically want to expand their territory because
their understanding of that local market
is strongest. And rather than having a
unit in this town and a unit in the next town over
or, in this case, in the District and in Arlington
and in Bethesda, they would want to have
contiguous territories. Dunkin’, as many brands
that have encouraged multi-unit sales of
units, have followed that pattern. It’s an efficiency
pattern. The point though for
purposes of labor is they’re owned by
the same entity. They’re owned by
the same operator. And it may even be two
or three legal entities embedded in this. It’s the same operator
and the same general ownership structure at
the franchisee level. And I think that’s one of
the key things when the Princeton study came
out, and there was some reference to it at the end
of further analysis that could be done. That was one of the key
things that was not looked at, at all. And yet, today the
majority of franchising is operating in the
multi-unit environment. MS. MEKKI: So we’ll come
back to what franchises, or which franchises might
find value and what those values might be for
no-poach agreements. But I want to make
sure that we cover the antitrust categorization
of the restraint. So Ra
articulated a few different like
permutations of no-poach restraints in
franchise agreements. And we had talked about
franchisee-to- franchisee restraints, the kind of
vertical restraints from franchisor to franchisee
and then there’s the franchisee-to-affiliate
categories. Rahul, can you walk us
through how we should think about those
restraints, I mean, assuming we’re in a
world where we have to categorize them as
vertical or horizontal? What are they? MR. RAO: I can tell you
how I view them, and I’m sure there would be some
debate about this at the panel. But from my perspective, I
think one of the sources of confusion with respect
to the nature of the question is, with respect
to the output market, the relationship between
a franchisor and a franchisee. The franchisor is in
the business of selling franchises. The franchisee is in
the business of selling sandwiches or burgers
or whatever it may be. So you look at it from a
consumer standpoint, it looks vertical, right? But when you’re thinking
about it from an input market, from a labor
standpoint, the fact of the matter is these
provisions restrict the ability of one of two
market players from hiring or recruiting the
same unit of labor. Both market participants
inherently want that same unit of labor. They are in direct
competition in a horizontal labor market
for an employee. It doesn’t matter what
their output market is. It doesn’t matter what
their business is. In the labor market
context, they are horizontally competing
for the same talent. The no- poach provision by
itself evidences the fact that they are
in competition. It makes no sense if they
weren’t competing for the same employee why they
would have that provision to begin with. So from a personal
perspective, as well as, you know, why we are
enforcing it the way we are, we have a very
difficult time seeing how a no-poach provision is
anything but a horizontal restraint in the
labor market. MS. MEKKI: Does anyone
want to follow up? DR. STEINBAUM: Yeah. Well, first of all, I
would just say I agree with that. I think that we have to
analyze the competition in the labor markets
reflected by the no-poaching agreement. I would also say that the
idea that it would change the competition analysis,
whether it was horizontal or vertical, seems
somewhat misconceived to me. If we competition
in labor markets just as much as
output markets, the kind of different antitrust
scrutiny for vertical restraints arises from
the economic analysis that says that vertical
restraints have potential efficiency benefits
in output markets. It says nothing about the
fact that they may be pro-competitive
in input markets. And in fact, you know,
for the reasons that Rahul just said, we would
expect that they would not be. Even if we granted that
the market structure was vertical franchisor-to-
franchisee, there’s absolutely no reason to
suspect that that would mean that any agreement
between them not to hire from one another in labor
markets would have some sort of efficiency
benefit, certainly not in labor markets and, you
know, if it’s an output market, why does that
vitiate the reduction in competition in
the labor market. MR. WEGLEIN: Well, and I
think — I mean, that’s a really good
insight, Marshall. And the fact that the
no-poach agreements are not agreements between
the franchisees — right, if it arose amongst
franchisees, then certainly it would be a
horizontal agreement. DR. STEINBAUM: Yeah. MR. WEGLEIN: The fact
is it’s a rising. So the mechanism is
clearly a vertical one, right? It’s an agreement
between a franchisor and franchisees. Now, there is reference
to competitors, for sure. The same is true, whether
implicitly or explicitly, with geographic
restrictions. But again, it’s going to
come down to what’s the motivation. And if the motivation here
is about promoting the brand, that is a vertical
concern, even if it references other
franchisees in the area. DR. STEINBAUM: Yeah. I mean, I just don’t
that there’s a difference in the competitive impact
arising from the fact that the agreement is between
franchisor and franchisee. I mean, the franchisees
are entering into that agreement because they’re
contracting with a brand where they know that
everybody else has contracted in such a way
that they’re not going to be poaching workers
from one another. So it’s just not — I
mean, you know, I can’t speak directly obviously
to the legal aspect here. But it seems kind of odd
to me that we’re having this, to some degree,
formalistic debate about whether the agreements
are horizontal or vertical premised on, first
of all, the economic assumption that the
vertical agreements benefit consumers, when
we’re not talking about the output market, and
second of all, when we’re not paying attention to
the fact that this is, you know, affecting an
agreement that reduces a competition in labor
markets, whether the formalization of the
contractual parties is that they are at
different segments of the supply chain or not at
different segments of the supply chain. MR. WEGLEIN: Yeah. I agree that the
formalistic nature of it. And by the same token,
I think if some of the stores are
franchisor-owned, to me, again, that’s not
particularly relevant. The same sort of muted
competition as between franchisees occurs
between franchisees and franchisor- owned stores. There’s the same sort of
adherence to pricing and promotion of the product
and geographic markets. So I agree with you that
the sort of formalistic debate is it horizontal,
is it vertical isn’t relevant. I think I at least see
a different sort of argument, or maybe I see
the consumer welfare standard discussion in a
slightly different way than the way you’re
describing it. I don’t have a definitive
answer, which is, you know, is there a right
answer or a wrong answer. But it feels like we’re
perhaps conflating two things. The consumer welfare
standard, the justification for pursuing
a case upstream in a labor market is to say that even
if we don’t observe a reduction in output
downstream, that’s not going to deter us
from bringing a case. So if there is impact
upstream without a commensurate impact, a
supply-side impact, right, the laborers, the workers
supply less labor and therefore the producer
produces less and so we move along — that change
moves us along the demand curve, but it’s not a
change in demand, we move along the demand curve
and the price increases because of that output. We don’t require that. That to me is the question
about the consumer welfare standard. There is a separate
question, I think, and I’m not sure those two
necessarily have to be linked, which is, well,
suppose that we have both that upstream effect
and we don’t have a supply-side effect
downstream but we have a demand-side effect
downstream. And so, because you don’t
have turnover disruptions — we heard a lot about
that from Professor Ashenfelter,
notwithstanding Darrell’s warnings not
to invoke that. But that has a demand-
side element to it as well, right? The franchisee and the
franchisor potentially are looking to avoid
disruptions to their operations because that’s
going to affect service. It’s going to
affect wait times. It’s going to
affect the quality. The fries get soggy,
things like that. These are demand-side. So it’s a different effect
than the supply side. And I’m not sure that the
consumer welfare standard or the articulation that
the assistant attorney general gave today
necessarily rules out the possibility that those
benefits downstream that are on the demand side
can’t offset or be counted against the
harm upstream. DR. STEINBAUM: Yeah. I mean, I guess what I
would just say to that is, you know, it sounds to
me like you’re saying — maybe I misinterpreted
this — that the reason why we would care about
upstream effects in labor markets is ultimately
motivated by a concern about output and economic
quality of downstream markets, even if you don’t
actually have to show effects in downstream
markets to establish an antitrust violation. If that’s what you’re
saying, I just think that that isn’t why we would
care about competition in labor markets. If competition in labor
markets is just as much the concern of the
antitrust laws as competition in output
markets, then it isn’t because we assume that
the harm to competition in labor markets would have
some sort of output effect. It’s because we care about
the welfare of workers just as much as we care
about the welfare of consumers. And if the welfare of
workers has been harmed, including through the
franchising business structure, where we have
essentially legalized vertical restraints that
permit franchisors to tell franchisees what to do in
almost every context, you know, if that’s harming
workers, and if it’s harming workers by
reducing competition for their labor, then that
is a violation of the antitrust laws. It doesn’t matter what
the output effect is. MS. MEKKI: So this is
an important point. I want to make sure that
we solicit other views. I mean, I think the
threshold question is in these no- poach cases,
assuming some form of the rule of reason applies,
there’s presumably an opportunity for the
business to offer a pro-competitive
justification. And I think we’ve heard
a little bit from Samuel and Marshall. But, I mean, where does
that pro-competitive justification lie? Does it have to be in the
labor market or can it be in some output market? MS. BRASS: Well, I think
what I hear Samuel saying is that it doesn’t have to
be one to the exclusion of the other. You may have
pro-competitive benefits in the labor market. There may also be pro-
competitive benefits in the downstream market. And it’s appropriate to
be considering both when you’re looking at alleged
anticompetitive effects. You’re not limited
to looking in the downstream, in the up or
in the downstream market, which I think would make
sense in any vertical relationship. It’s how we look at
things like resale price maintenance. It’s how we look at
things like the dual distribution models, which
are evaluated under the rule of reason. And in dual distribution,
for example, we do look both upstream and
downstream when we’re evaluating pro-competitive
and anti-competitive effects to decide if
something satisfies the rule of reason. MR. STUTZ: So one thing
w don’t do in antitrust, and I want to make
sure I’m understanding Marshall’s position
accurately, but also, you know, we don’t do
multimarket balancing. At least we don’t do that
in merger law and we don’t do it under the rule
of reason, outside of the ancillary restraints
framework. I think we can all agree
on that, or maybe not. But, you know, that’s
basically — it’s sort of a central premise
of antitrust law. It’s the choice to do a
consumer welfare standard instead of a total
welfare standard. We are not willing to
accept anti-competitive harm to one group of
market participants because it makes a
different group of market participants better off. The efficiencies,
if they’re going to overwhelm the
anticompetitive effects, have to be in
the same market. They have to make those
injured consumers better off. And this is — you know,
you can think about National Society of
Professional Engineers, the ruinous
competition defense. You know, they said if
you allow engineers to compete on price, prices
will get too low and bridges will collapse. The court said that
argument is a frontal assault on the
Sherman Act. We don’t accept
argument that, you know, it’s okay to restrain
competition because it serves some greater good. You know, in merger law,
this rule is actually spelled out in the
merger guidelines. It’s footnote 14, the
out-of-market benefits rule comes from
Philadelphia National Bank. It’s the idea that we —
you know, the language from PNB is to the effect
that we don’t do an ultimate reckoning of
social and economic debits and credits
for merger law. And the reason in that
context is that exercise is beyond the
competency of courts. That decision is left
to Congress in terms of choosing, you know,
whether to make one group, you know, subsidize
another group’s benefits by accepting
anticompetitive harm. It’s just courts are not
competent to weigh those kinds of decisions. So that’s why, you know,
in the merger guidelines, the efficiencies have to
offset the harm in the relevant market. So I think that’s a well-
accepted principle. Where it gets tricky and
difficult is when you look at some of the
ancillary restraints cases and the, you know,
cases that maybe don’t specifically invoke the
ancillary restraints doctrine but that involve
joint ventures, cases like Board of Regents and
BMI, for example. You know, there, you know,
the way I like to think of that principle is
it’s — you know, the ancillary restraints test
should sort of mirror that inextricably intertwined
test in the merger guidelines. It’s when you literally
can’t separate the two restraints, when they
are one, when they’re so fused together that the
challenged restraint is subordinate and collateral
in the sense that you can’t examine it
independently without examining the entirety
of the collaboration. That’s almost like the
exception that proved the out-of-markets
benefits rule. That’s sort of the
instance when you have no choice. But if you have a choice,
you don’t allow markets — benefits in one market to
rescue conduct that causes harm in a
different market. MR. WEGLEIN: So one thing
I just wanted to follow up on what Rachel said,
so just to be very clear, I’m certainly not ruling
out the possibility that there are these upstream
effects, right? And we’ve talked about
different motivations for no-poach agreements. There can be a turnover
effect and the turnover effect could be more about
preserving the brand, that when there’s too much
turnover, particularly within the system — we
talked about ownership within a particular area. There can be real
echo effects, right? So let’s say you have a
bunch of Dunkin’ Donuts and Dunkin’ Donuts one
loses an employee. And the most natural
place to replace that employee is from
franchise two. And so, franchise two then
poaches from franchise three and four and so on. There can be real —
you know, so that one separation can have real
effect throughout the system, as the poaching
juts continues on in an area. That’s a brand. You know, so that could
be more of a brand issue. And there, I think, you
know, the points that Marshall is raising and
that Randy is raising about where are those
benefits and should those offset, to me those are
really interesting open questions. But you do also have
certainly motivations. Randy talked about this —
Darrell talked about this. And you have motivations
that really pertain to the freeriding and to the
training, right, that the whole purpose of the
no-poach is to preserve incentives. We haven’t talked so much
about how this works. But the point would be if
I’m franchise one, I’m in Brooklyn and I do a really
good job of training my people, franchise two in
Manhattan skimps on the training. And whenever it has a
vacancy, it poaches from the Brooklyn franchise and
maybe pays a bonus that the Brooklyn franchise
can’t match because they’ve used funds to
train with high quality investment. The goal through the
no-poach is to prevent that freeriding, to
prevent the Manhattan franchise from poaching
from the Brooklyn franchise. And that preserves
the Brooklyn branch’s incentive to continue to
provide that training, which it might
lose otherwise. If poaching continued
to happen and they kept losing their investment,
they might stop providing that high-quality
investment. And there, there could
benefit to the worker as well. By preserving that and by
allowing the worker to gain what we call — I
think we talked about this in the morning —
transferrable human capital, right? We make distinctions
between firm-specific human capital and
transferable human capital. Here there’s
potential — in some instances, it’s not going
to be in every instance. But in some instances, if
you’re working, you’re learning how to fix
mufflers or replace brakes, if you’re getting
general managerial skills, these are human
capital skills that you can then transfer. The worker will be able
to benefit from that as well. And so, I don’t want to
rule out the possibility that there are also
motivations or benefits upstream and it’s
not just downstream. One just thought
experiment. I’m going to throw it out
there for people to think about. But your comment about
ancillarity and joint ventures, this took me
down a rabbit hole. I was on the Acela. So nobody could call me. It was fine. But suppose we thought
about franchise agreements as a series
of joint ventures, okay? And you have the brand. The brand brings with it
knowhow and the brand itself. And the franchisee brings
the funds, the financing and the local
market knowledge. And, you know, for some
antitrust issues and for some ancillary restraints,
it’s, to me at least, easier to conceive of why
we might countenance a restraint in the context
of a joint venture, right? You know, we’ve come
together to grow this brand in Atlanta, right? That’s out joint venture. We don’t have a
presence in Atlanta. Let’s grow the
market in Atlanta. There’s going to be lots
of interaction between us. And this maybe speaks
more to in the context of no-poach between
franchisee and franchisor or headquarters, right? So we want that
to succeed. And there’s going to be
— inevitably there’s going to be contact
between our employees. And if there’s poaching
back and forth, this joint venture won’t work and
we will not be able to dominate the donut
market in Atlanta. And so, in some respects,
I find it easier to think about the ancillarity
issues when I thought about these as
joint ventures. But I don’t
want to detail. I mean, in some sense,
it’s helpful because it gets us away from vertical
versus horizontal. And so, I found it
natural and useful in that respect as well. But we don’t need to
reorient our entire discussion around
joint ventures. MS. MEKKI: For sure. So I want to make sure
have enough time to cover the gig economy. But Samuel, just one more
question back to you on franchises. You talked about
training and freeriding justifications. Does that hold up as a
rationale in the case of relatively low-skill, high
turnover or entry-level workers? MR. WEGLEIN: Yeah. So this is another
rabbit hole maybe. But especially when you
overlay minimum wage, I think it gets complex
and interesting. So here’s the thought
experiment, okay? In the absence of a
no-poach and in the absence of a minimum wage,
suppose that my worker, without training, the
value — or the wage that they would earn is
$9 an hour, okay? Now in Massachusetts,
minimum wage I believe is $12 an hour. Don’t quote me on that. But I believe that
to be the case. And so, that floor is
binding in this instance. And so, I pay my worker
$12, even though without a minimum wage,
I would pay $9. Now suppose that as a
result of a no-poach agreement, I now have the
incentive to provide my worker with high-quality
training and investment to the point where the worker
becomes more productive and, as a result of that
greater productivity, the greater training that the
worker now has, I would, again, in the absence of a
minimum wage, I would pay them $11. So their wage without the
minimum wage, without the binding floor,
would be $2 more. But because I’m still in
Massachusetts, I still pay that person $12. So the question is here we
have a pro- competitive effect. It’s upstream. So we don’t have to get
into any of the debate about does benefit
downstream, does it counterbalance
harm upstream. Here we’ve got the
benefit upstream. But is it really
a benefit? Because the worker in
both situations, with training, with no- poach
or without no-poach is still getting the
floor, the $12 an hour. So to me, that’s a really
interesting question. I’m not quite sure how to
resolve that question. I mean, the other thing to
think about, we heard I think competing statistics
this morning about the implications of it being
do we see an effect on low-skilled workers. And I think this issue
will pertain particularly to low-skilled workers. There may be — so maybe
we don’t count that as a pro- competitive effect
because of the wage floor. By the same token,
there may not be an anticompetitive
effect, right? Where you have
geographies that are fairly local. So my alternatives as a
worker don’t really take me to the next franchise. You know, I wouldn’t
travel five miles in any event. And so, maybe the no-poach
doesn’t really have an effect or there are
many, many options. And again, that’s not
always going to be the case. Dunkin’ Donuts is
a poor example. I’m told that there’s
a Dunkin’ Donuts every mile-and-a-half
in New England. And so, that argument
might not work for Dunkin’ Donuts. But it might be true in
other circumstances. And so, you know, on the
one hand, it’s really complicated upstream
and is there a pro- competitive effect for
low-skilled, entry-level workers. There may not be a
downstream — an anticompetitive effect
going on there. MR. JOHNSON: If I may, let
me give you not upstream or downstream, because I
represent the business perspective here. But let me give you across
the street perspective. When we talk about low
wage, we talk about generally lower skilled or
under-skilled employees. The franchise business
model is largely, as it relates to those type of
workers, we always think of QSR. So let’s think about
QSR for a moment. I am now providing, and
the franchise business model does this
really well. The training
requirements, in order to meet the brand standards,
training is a really important part of the
discipline to create the consumer expectation
of consistency and uniformity, the two
hallmarks of what the franchise business
model represents to the consumer. In order to get there,
you’d have to have consistency and
uniformity. To do that, you have
to have employees that deliver consistency and
uniformity every day. In order to get that, you
have to provide training. And the training that
lower skilled, lower waged employees get
generally in franchising are around
foundation skills. And there’s starting to be
a body of analysis around this that really is
becoming meaningful. What are
foundation skills? You know, how do you work
in a team environment? Almost every franchise,
at least on the retail level, has some
level of team. Training with consumer
interaction, customer service, training around
technology, at least as it relates to POS and
things of that sort, responsibility, things
that are basically foundation skills by
which lower skilled employees build
their careers. Now, when it comes to
anti-poaching, we can think of it in the context
of franchisee A and franchisee B within
the same system. But there’s across the
street that’s a far more practical aspect of it. Franchisees of one
franchise system — think of it, say, McDonald’s and
Burger King — franchisees will actually go into
their competitors’ location, observe
employees and poach them frequently. That goes on
all the time. All the anti-poaching that
we’re talking about here is related to one system. But the actual poaching
that goes on by in large in franchise systems
is across brands. And there’s nothing that
any of this effects. So the practical aspect of
this for many in building foundation skills is
allowing those employees to actually find higher
wages and higher earnings. As I said, I’m not here
to defend the business model. But I will say that that’s
the practical implication at the employee level,
by in large, for most employees in
franchise training. MS. MEKKI: Oh, sorry. Go ahead, Marshall. DR. STEINBAUM: Yeah, I
would just — I mean, briefly to reply to that,
I think we’re making too much of the distinction
between inter-brand and intra- brand competition
when we talk about the labor market. I mean, we have
permissions for intra-brand — for
restrictions on intra-brand competition
in the case of say territorial exclusivity
in the output market. And the idea is that
by permitting the suppression of intra-brand
competition, it will enhance inter-brand
competition. But there’s no analogue
to that in the labor market that I’m aware of. And we shouldn’t use the
idea, the excuse that there’s the potential
to move to outside the system for why we should
allow the suppression of competition through
no-poaching agreements within a franchising
system, especially when there are many cases
in which the employees themselves would say, you
know, the best prospect for an outside job offer
is going to come from another franchisee, absent
a no- poaching agreement, because, you know, this is
the system that I’ve been trained on and that I’m
best equipped to work for. So to take away that
possibility and say, oh, well they could just go
across the street to a different franchise, I
think that’s, you know, practically not relevant
to the harm to competition that’s actually taking
place in the labor market. MR. STUTZ: Just two
quick things to add. You know, one, I think
it’s important to ask, you know, to what extent the
no-poaching agreement is actually inducing
increased training. So, you know, every
business has to do entry-level training
for employees. That’s an
unavoidable cost. So, you know, one — and
then when you’re dealing with, you know, workers
who are occupying very low-skilled positions,
I speak from some experience, having
worked at this kind of a restaurant in high
school, it just — for me, seeing the argument that,
you know, preventing an entry-level fast food
worker from moving to another franchise
encourages investment in a type of training that
that job requires just shouldn’t really pass the
straight face test, let alone the rule of reason. So, you know, that’s
an economics question certainly. But just to come back to
Samuel’s hypothetical of the minimum wage,
where there’s no maybe measurable damages or no
price effect, you know, another point we haven’t
talked much about is harm to non-price competition,
which the antitrust laws also protect and which is
often quite relevant in the context of these
no-poaching cases. You know, oftentimes the
reason a franchise, say a fast food franchise worker
wants to go a mile away to a different franchise
may have less to do with a pay increase and more to
do with being harassed at work, being in an
uncomfortable work environment and having a
different choice that that worker values for
non-wage reasons. MS. LUBELL: Thank you all. You know, this has been
a great discussion about franchise and obviously
there are a variety of views. And it’s a complex
business setting. So it’s no surprise. We’re running very
short on time. But we would be remiss
not to discuss one other complex business setting
when it comes to assessing antitrust
harm and that’s digital platforms and gig
economy workers. So Marshall, I’m going to
put you in the hot seat for a few minutes. And, you know, you’ve
published some fascinating work about the
relationship between the growth in the gig economy
and the labor laws. And so, I was hoping that
you could maybe briefly describe the relevant
history and then also some of the recent
empirical research in this area. DR. STEINBAUM: Sure. So I think, you know,
it’s great to have a panel that’s talking about
franchising in labor markets and also the gig
economy because, in my view, those two things
have a lot to do with one another in terms of the
evolution of the law governing both of them. So the very first thing
I ever wrote about antitrust was about a
private action against, at that time, Travis
Kalanick, the CEO of Uber. Now the case is Meyer v. Uber Technologies. This concerns — it’s
essentially a direct offshoot of the fact that,
at least at that point, Uber drivers had tried
and failed to prove misclassification as
independent contractors. So they said that they
were in fact employees, given how much control
they were under from the gig platform in 2015, late
2015 when that case was filed. Those cases had
been unsuccessful. And so, this case, this
antitrust case against Kalanick and Uber
essentially says, well, if you’re not — if the
drivers are not employees, then why does Uber have
the power to fix prices across all of these
ostensibly bilateral transactions where the
drivers are independent businesses. That’s the claim
that’s Uber’s claim in defense to employment
misclassification. Well, you know, that
immediately triggers the concern that they are
violating the antitrust laws and in particular
violating a per se ban on horizontal price-fixing
if this app that fixes prices across a bunch of
bilateral transactions is a horizontal price-
fixing arrangement. That case had a long
history of litigation. It got sent to
arbitration eventually. And now it’s about to
be arbitrated finally. Next month, I believe,
there’s going to be a hearing about it. So, you know, in all
of the time I’ve been writing and publishing
about antitrust from early 2016 to now, this case is
now finally going to be heard on the merits, at
least in arbitration. And that’s
gratifying to me. I think, you know, that
raises this question of, well, if the — have these
— the business model, the gig economy, the labor
platform that’s premised on the fact that the
workers on that platform are not employed by the
platform, then that brings into effect all of the
concerns that we might have about antitrust. So there’s price-fixing. I think there’s a good
case that the driver pay policies are more
generally even outside the ride-sharing context, that
pay policies on labor platforms amount to
vertical restraints that direct workers to supply
labor in particular geographic markets or
at particular times. These are ways of
controlling the work that workers do, ostensibly
outside the sphere of labor law where if that
degree of control were exercised, then the
workers would be in return empowered with many
rights as to hours of work, minimum wage, the
ability to collectively bargain. You know, what the gig
economic labor platforms bring about is a situation
in which the workers who are not — who do not
enjoy the rights of employees under labor law
are also, at least to date, not protected by
antitrust law vis-à-vis the anticompetitive
actions of the platform that at least directs
what they do on a day-to-day basis at work
if it doesn’t legally employ them. So there’s the
case Meyer v. Uber Technologies, and I
think there’s potential for other cases that
involve essentially scrutiny of the policies
of the gig economy platforms as to their
allocation of markets, for example. I mean, just the very fact
of the labor platform says, you know, this
driver has to serve this customer and the drivers
cannot compete over serving that customer,
you know, that could be viewed as a vertical
restraint potentially subject to
antitrust laws. The fact that the policies
penalize multi — even though the platforms
claim that they permit multi-homing on the part
of workers, the fact that, you know, in practice, if
you don’t supply a hundred percent of your labor,
at least within a given shift, to a certain
platform, you will not be eligible for the bonuses
and therefore it’d make that shift not
worthwhile. You know, that is another
restraint on competition that makes the supposition
of multi-homing really not applicable
in practice. And therefore, these
labor markets have a lot less competition going on
in them than the platforms claim is the case. I think that the issues
that Ioana raised this morning with respect to
the firm-specific labor supply elasticity can
absolutely be brought to bear on the matter of
the gig economy labor platforms. In fact, some very good
work has been to date estimating supply
elasticities to the ride-sharing market as a
whole, as well as to the individual companies who
provide ride-sharing services. You know, this idea that
the platforms have the ability to manipulate
driver pay without much loss of labor supply on
the platform gives them a great deal of market
power that raises all of the concerns about
anticompetitive behavior that we’re here
today to discuss. MS. LUBELL: I want to just
go back just because you were talking about
— using the term multi-homing and I want to
make sure that everybody in the audience
understands what that means. So maybe if you could
describe multi-homing and just within the platform
pay policies, how that provides an incentive. DR. STEINBAUM: Yeah. So multi-homing means
that a single service provider on a platform —
or I should say a single service provider could
at any given time supply their labor via one
platform for another. So if you use the
ride-sharing market, you might see that a car has
a sticker for Uber and a sticker for
Lyft in the car. And ostensibly that
means that that car is multi-homing or could be
multi- homing because that driver might be driving
for Uber or for Lyft. And, you know, in theory
what’s supposed to happen is they’re like receiving
the possibility of taking up fares from one or the
other and choosing the one that best serves them. The reality of it
is quite different. I don’t think there’s that
much multi- homing that goes on. I can tell you I for
one used to be a bike messenger and there was no
multi-homing there even though I was not a
statutory employee. You know, I basically had
to do what the dispatcher said and take the fares
that were on offer, not despite the fact that I
did not have access to the benefit of
employment status. And I think this idea that
— I mean, undoubtedly multi-homing is of value,
or at least the potential for multi-homing is a
value to the drivers. But I think in practice,
in the status quo, it is not as available an
option as the public has been led to believe. MS. LUBELL: A lot of what
you talked about stems from this distinction
between the classification of workers as independent
contractors versus employees. And so, how should we
think about sharing economy workers? Do they fit well
within the existing employee/independent
contractor dichotomy? I mean, what is the
appropriate way to think about them? DR. STEINBAUM: Yeah. I mean, the existing
independent contractor/employee
dichotomy is something that has not been
static at all. So I don’t want to give
the impression, you know, that there’s this sort
of well-established categories and you’re
in one or you’re in the other. And if you’re not in
one or the other, then something’s wrong
with the system. We have been eroding labor
law in the sense that we have allowed many
different work arrangements to be
categorized as independent contracting that would
previously have been categorized as
statutory employment. And this is enabled by
technologies that allow for supervision from afar. But it’s also been enabled
by the erosion of legal standards. And, you know, at the very
least, whatever you think about that evolution of
labor law, I would say it certainly implies that
antitrust has more of a role to play in the labor
market than it once did because if we’re saying
that all of this whole category of worker
doesn’t benefit from the protections of labor law,
like minimum wage, you know, in some sense you
could construe labor law as, you know, even more
— you know, sort of regulating competition in
the market even more so than antitrust law. Antitrust is sort
of a minimal set of regulations about
preserving competition in the labor market. If more and more workers
are not protected by labor law, which
recognizes the imbalance of power between workers
and employees, then you’re sort of throwing workers
into the realm of antitrust, where they, at
least to date, are also not effectively
being protected. And I think that that
represents a policy failure at the very least,
you know, even recognizing the erosion of the
traditional employment relationship. MS. LUBELL: So California
recently passed a law that requires app-based
companies to convert in- state workers to full-time
employees with benefits and wage protections. And I’m just — following
up on what you just said, you know, how would you
predict that this bill would change labor
competition analysis for workers? DR. STEINBAUM: Yeah. Well, I mean, so the
companies have claimed that in response they
will have to withdraw the ability of the workers to
multi-home and force them to be exclusive to one
platform or another. I don’t buy that
on their part. I mean, there’s no reason
why they would have to withdraw the ability
to multi-home. I think, you know, there
are certainly labor arrangements that exist
in the economy that are analogous to multi-homing
that are fully consistent with statutory employment
status on the part of workers and that
could be arranged. On the other hand, I would
say it’s pretty clear that the reason why the
platforms have availed themselves of these sort
of technology-based controls over worker
behavior as opposed to just saying outright,
well, you have to only drive for Uber, you have
to only drive for Lyft is because they feared
exactly the thing that has now come to pass, which is
that they would then be forced to reclassify
workers as — or sorry, independent contractors
as employees, or at least the law aims at
bringing it about. I guess it hasn’t
actually made that happen as of yet. And so, you know, I think,
you know, now there’s — so the companies could
say, well, you know, now that this thing has been
passed, we do require exclusivity. In some sense, the legal
risk of doing that has now been removed because
the bad outcome has already occurred. But there’s no reason
why it needs to. And there could be a
context, I would say, arising say from a
collective bargaining agreement under
employment status that, you know, multi-homing
must be preserved in some form or fashion. MS. BRASS: For those
interested in this subject, there’s been
one trial to date on the employee/independent
contractor question in the gig economy. It’s one case that’s
actually gone all the way to judgment. That’s the case
involving Grubhub. It was tried in front of
Magistrate Judge Corley. It was a bench opinion. So unlike a jury trial,
you can actually see, you know, a very extensive
set of findings of fact. Not to discount Marshall’s
personal experience as a bike messenger and what it
meant for multi-homing, for example, Judge Corley
does have extensive findings on how that was
working at least in one geographic market in the
independent contractor versus employee context,
to the extent, you know, the law clearly in
California is changing, not merely because of AB5
but because of the Dynamex decision. You know, it’s clearly a
very evolving environment in terms of what’s an
employee versus what’s an independent contractor. But for those who are
thinking about this in terms of what’s going to
happen in the other 49 states, it’s a nice
counterpoint just to see, you know, an actually
foliated, developed factual record on how
some of these thigs are working in practice. MS. LUBELL: So I cannot
believe it, but I think our time is up for this
panel, and not just because the next panel
was supposed to start 10 minutes ago. (Laughter.) This has been
a fascinating discussion. I will say personally I
am grateful to all of you for arriving today, for
being as enthusiastic for the subject as I
anticipated and for having this really fantastic
discussion. To echo something that
Makan said this morning, it is an essential public
good and all of us are grateful for your time. (Applause.)

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