United States: DOJ Secures Major Settlement With Poultry Processors And Consulting Company To Stop Anticompetitive Compensation Information Exchanges And Agreements

Continuing the federal antitrust agencies' focus on anticompetitive conduct in labor markets, on July 25, the U.S. Department of Justice, Antitrust Division (DOJ) announced a major complaint and settlement with poultry processors, along with a consulting company and its owner, for conspiring to suppress wages and exchanging wage and benefits information.

In a 72-page complaint against Cargill, Inc., Sanderson Farms, Inc., Wayne Farms, Inc. and the consulting company WMS & Co., Inc., the DOJ laid out a 20-year conspiracy to suppress wages and exchange competitively sensitive information relating to wages, salaries, and benefits for poultry processing plant employees.¹ The complaint alleges:

"For at least two decades, . . . poultry processors that employ more than 90 percent of all poultry processing plant workers in the United States conspired to (i) collaborate with and assist their competitors in making decisions about worker compensation, including wages and benefits; (ii) exchange information about current and future compensation plans; and (iii) facilitate their collaboration and information exchanges through data consultants."

While the complaint names only these companies, the allegations make clear that there are at least 18 unnamed co-conspirators that are still being investigated.

The DOJ also filed proposed Final Judgments, or settlement agreements, with these companies. The Final Judgments are subject to review and approval by the District Court for the District of Maryland.

History

The DOJ began investigating the poultry industry for price-fixing approximately as far back as 2017. Retailers brought a class action in 2017 alleging price-fixing in the industry.

The industry's issues soon expanded beyond price-fixing to include wage-fixing allegations. It is likely that the information regarding the wage-fixing conspiracy was uncovered in the course of the price-fixing investigations. In 2019, a class of plaintiffs filed a complaint in the District of Maryland alleging a conspiracy among several poultry processors to agree on and suppress wages.² Earlier in 2022, poultry processors Pilgrim's Pride and Perdue both acknowledged that the DOJ opened a civil investigation into "human resources antitrust matters."

DOJ's Civil Complaint

Contrary to the DOJ's rhetoric about treating agreements on wages as criminal violations, and its recent criminal indictments for such violations, the DOJ here brought a civil complaint. This civil complaint alleges all the elements needed to succeed under the "rule of reason" – as opposed to the per se rule. In a rule of reason case, the DOJ must establish there was an anticompetitive effect to the illegal agreement. According to the complaint, there is a direct connection between conversations/exchanges and actions (or inaction) on wages/salaries and benefits. For example, the complaint alleges that in 2009, certain defendants and co-conspirators shared information multiple times on plant and merit increases for the next year. Documents from 2010 showed that three co-conspirators did not raise their wages in 2009, which the complaint claimed established the harmful effect of the information exchange.

In addition to claiming the defendants violated Section 1 of the Sherman Act because they agreed on wages and benefits, the complaint also alleged a Section 1 violation based on the companies' exchange of competitively sensitive information relating to wages and benefits for employees, both directly and through a consultant. Notably, the DOJ and FTC's Antitrust Guidance for Human Resource Professionals (2016 HR Guidance) highlights sharing of information as problematic conduct..

The complaint details many exchanges of competitively sensitive information – both directly between the companies and through the consulting company WMS & Co.³ The retention of third party consulting company, WMS & Co., did not insulate the poultry processing plants or the consultants from enforcement.

The information was exchanged through surveys, over email and at in person meetings. A summary of key allegations includes:

• Exchange of compensation information that was disaggregated and identifiable, and/or that was current or future. The information was "granular enough to show compensation at individual poultry processing plants," including "what each member of the [WMS Survey Group] paid, on average, in hourly wages to poultry processing workers at each of their processing plants."
• Defendants met in person to discuss the compensation information and collaborate on compensation decisions. Attendees brought their detailed compensation data with them to discuss and answer questions.
• WMS was hired "to establish the appearance of compliance with the Safe Harbor guidelines and antitrust law and obtain compensation data in a matter that sometimes seemed permissible."⁴
• For 12 years, the WMS survey showed future compensation data, including the dates and ranges of planned raises in salary by position. It only stopped including this data after 2017 when the price-fixing cases started.
• The WMS survey also included information "that allowed for easy comparison between the actual current year's percentage changes and the changes that had been projected in the previous year's survey. This enabled the survey participants to monitor whether their competitors adhered to the previous year's forecasts."
• Defendants also exchanged detailed current and future information on health benefits; changes in job classifications that would mean fewer benefits such as less sick pay, less vacation and lower short-term disability pay; and planned specific changes in overtime pay to comply with a change in the Fair Labor Standards Act.
• Defendants, with the help of WMS, standardized job titles and categories in the WMS survey to make it easier to compare data on specific jobs.

Settlements

Concurrent with the filing of this suit, the DOJ announced that the three named poultry processing defendants, the consulting company, and the consulting company's owner have entered into settlement agreements (Proposed Final Judgments) with the DOJ.

Both settlement agreements broadly define Compensation as "all forms of payment for work, including salaried pay, hourly pay, regular or ad hoc bonuses, over-time pay, and benefits, including healthcare coverage, vacation or personal leave, sick leave, and life insurance or disability insurance policies."

Both agreements also broadly define "Confidential Competitively Sensitive Information" to mean information that is relevant to, or likely to have an impact on, at least one dimension of competition, including price, cost (including Compensation), output, quality, and innovation. In terms of compensation-related information, the definition includes amounts and types of Compensation, and formula and algorithms used for calculating Compensation or proposed Compensation.

Poultry Processing Defendants

For a period of 10 years, the poultry processing defendants cannot have any meetings with other Poultry Processors relating to Compensation. They also cannot exchange any Competitively Sensitive Information "including about types, amounts, or methods of setting or negotiating Compensation for Poultry Processing Workers" with other Poultry Processors.

The defendants have also agreed to pay a "Restitution Amount" for employees, which is split $15 million for Cargill Meat Solutions, $38.3 million for Sanderson, and $31.5 million for Wayne. These amounts are subject to whether the defendants enter into a final settlements with the class plaintiffs in Jien.

Each defendant must also appoint or hire an antitrust compliance officer – who must be approved by the DOJ.

However, each defendant can use Competitively Sensitive Information in order to negotiate with a union or employee if that information is their own or is received from the prospective employee. They can also exchange such information with a legitimate staffing agency that is assisting in recruiting employees or in a public advertisement for an open position. The defendants can also exchange such information if it relates to a bona fide merger or acquisition but only after securing approval from antitrust compliance counsel – and must maintain documents that show the legitimacy and approval for the exchange.

WMS and Owner

The settlement sends a strong message to industry consultants as well. The consulting company, WMS & Co. – including its owner G. Jonathan Meng – cannot run any survey with Confidential Competitively Sensitive Information in any industry. They cannot organize or speak at any non-public events in the Poultry Processing industry or if the meeting includes the exchange of Confidential Competitively Sensitive Information. In sum, WMS and Mr. Meng cannot do anything related to Compensation and Poultry Processing employees for the next 10 years. The DOJ is permitting WMS and Mr. Meng to complete any surveys in progress or under contract from now until the end of 2022, but they must provide copies of those surveys to the DOJ.

Takeaways

After two criminal trial losses on wage fixing and no poach agreements, this resolution is a significant win for DOJ in the labor and antitrust area. Given the number of co-conspirators referred to in the complaint, and in the Jien class action, expect to see more complaints and settlements of this type in the future. There are a few takeaways from this complaint and proposed Final Judgments for all companies to be mindful of:

• The DOJ's position is that merely an exchange of detailed, identifiable, current or future wage or benefit information is a violation of Section 1 of the Sherman Act.
• In line with the agencies' 2016 HR Guidance, "compensation" includes wages, bonuses, overtime pay, and any kind of benefit.
• Adhering to the antitrust "Safe Harbor" guidelines for surveys "does not immunize any competitor information exchange from antitrust laws."
• The DOJ is emboldened to require wide-reaching prohibitions on conduct in its settlement agreements, including requiring restitution payment for affected employees.
• Surveys or meetings, including those administered or organized by third parties, among competitors or concerning competitively sensitive information will be key evidence in any future cases. Companies involved in such surveys and meetings should consult antitrust counsel.

Buchanan's Antitrust team offers guidance to help clients develop corporate compliance programs, manage government investigations and avoid antitrust liability.