Labor Exemption

Mackey v. NFL (Part 1) (1976) (p. 376) [NOT THE LAW]

 Facts: Players sued NFL over Rozelle Rule- rule requiring a team acquiring a player whose
contract had expired to agree with the old team on his compensation or else give up draft picks.
 Issue: Is the rule a horizontal agreement not to compete/ group boycott  per se illegal or
exempt from antitrust scruitany?
 Rule: Mackey Test- must ask does it:
1) primarily affect only parties to the related collective bargaining agreement;
Significant Effect on Strangers to the Bargaining – Pennington
2) reflect a mandatory subject of collective bargaining, such as wages, hours,
other employment terms/conditions;
Came from Goldberg (Jewel Tea majority)
3) result from bona fide, arm’s-length bargaining.
“Cat’s paw” – Pennington
Kelly: This is wrong because it doesn’t make sense as a matter of
CBA process.
4) Must also be in CBA
 Holding: This is an unreasonable restraint of trade.
 Reasoning: Although the rule fulfilled the first two prongs of the test, it failed the third prong
because there was no bona fide arm’s length transaction of a rule that predates the collective
bargaining agreement, and the Court could find no quid pro quo for its inclusion into the CBA.
Thus, while the nonstatutory labor exemption was held to apply to such collectively bargained
agreements, this particular rule did not satisfy the requirements.
 ROR Analysis: 1) This is an agreement; 2) This is a price restriction- w/o the rule, players
salaries would significantly increase = negative effect; 3) NFL has market power (no
close substitutes); 4) Rejected PJs (to assure competitive balance and avoid free riding-
other teams build up players and invest in them; 5) The Rozelle Rule is far more restrictive
than necessary because applies to every player and its unlimited duration.
o Agreement
 Non-statutory labor exemption applies when primary effect is on parties at
the table, not strangers to the agreement
 Must be bona fide bargaining b/w the parties (Pennington cat’s paw)
o Negative effects
 significantly deters clubs from negotiating with and signing free agents,
 acts as a substantial deterrent to players playing out their options and
becoming free agents,
 significantly decreases players’ bargaining power in contract negotiations,
 the players are prevented from selling their services in a free and open
market, and
 the Rule significantly prohibits players from moving from club to club in
interstate commerce.
o Have market power
o No procompetitive effects
 NFL Arguments
1. The NFL claims that, absent the Rule, star players would flock to
the most desirable clubs—resulting in a loss of competitive balance
 across all teams. The loss would result in lower revenue due to
decreased spectator interest.
2. The NFL claims that the Rule is necessary to protect teams’
investment in scouting expenses and player development costs.
o Kelly: This is a free-riding argument, but didn’t use the
verbiage
3. The NFL argues that elimination of the Rule would lead to
increased player movement across teams and will result in decreased
team cohesion.
4. Also argue except b/c it’s in CBA
o Less restrictive alternatives
 This restraint was broader than necessary

Brown v. Pro Football, Inc. (1996) (p. 403)

 Facts: NFL and NFLPA negotiated new contract after CBA expired. Negotiations reached an
impasse, but NFL unilaterally implemented the plan anyways(which it had the right to do under
labor law). Players brought antitrust suit, claiming it was never agreed to and employer's plan
unfairly restrained trade.
 Issue: Is there an antitrust exemption when club owners implement their last best bargain for a
wage issue agreement unilaterally after reaching an impasse in negotiations?
 Rule: If a player restraint was imposed as a lawful part of collective bargaining process, it’s
not an antitrust violation to implement last best offer.
o Focus on process
o Must be lawful under labor laws
 Not required, just permissible
 Holding: The NFL’s unilateral implementation of a plan after a negotiations impasse is a
reasonable restriction on competition.
o Employers, after impasse, may engage in considerable joint behavior such as joint
lockouts and replacement hiring.
o Antitrust exemption.
 Reason: The Court upheld the system unilaterally implemented by the NFL because:
1. The collusive conduct took place during and immediately after a collective bargaining
negotiation
- Does not need to be in CBA to be exempt, just follow proper process
2. It grew out of, and was directly related to, the lawful operation of the bargaining
process.
3. It involved a matter that the parties were required to negotiate collectively
- Union consent is not critical- what makes it lawful is that they follow labor laws
4. It concerned only the parties to the collective bargaining relationship.
- Any term lawfully imposed under labor laws is exempt, particularly if it doesn’t
have an effect outside of the agreement
- Multiplayer bargaining does not create antitrust exposure
Antitrust courts are not in the best position to make decisions about the adequacy of
collective bargaining processes. The argument that professional sports are “special” or
different enough from other labor situations to warrant special treatment under federal
and antitrust laws was rejected
 Smith v. Pro Football, Inc. (1978) (p. 360)
 Facts: Smith drafted to Redskins under 1 year contract for $50k. Got injured at the end of the
year and unable to play again . Smith sued saying if not for the draft rule (that the right to
negotiate with a player was exclusively held by one team at a time), he would've gotten a 3
year guaranteed contract with another team under a "free market" that protected him financially
from his injury.
 Issue: Is the rookie draft an antitrust violation?
 Rule: A draft can survive rule of reason only if procompetitive effects > anticompetitive or at
least that it accomplishes legitimate business purposes and has insubstantial anticompetitive
effects.
o Group boycott = concerted attempts by competitors to exclude horizontal competitors;
not applied to refusals not designed to drive out competitors but to achieve other goals
 Holding: The draft rule is not a group boycott but still an illegal restraint.
 Reasoning: The draft is anticompetitive in purpose and effect- eliminates economic competition
among buyers for the services of sellers and justification of competitive bidding has already been
reject. There are less restrictive alternatives. The draft strips players of any real bargaining power,
lowers their salaries, and destroys competition.
o Not a group boycott:
 NFL teams are not economic competitors but rather a joint venture. NFL needs
agreement and joint action to maintain a high entertainment product b/c w/o it,
there would be no competitive balance and not fun to watch.
 NFL teams have not combined to exclude competitors (refusal to deal ≠
restraint).
 W/o it, bidding for players would be "chaotic", and this is a widely used practice.
o Though court says promoting competitive balance is not a procompetitive effect, may
have gotten this wrong b/c it makes the "good" better.
 After Smith and Mackey, the NFL realized that it needed the protection of the nonstatutory labor
exemption and would have to collectively bargain for its desired set-up with the NFLPA in order
for the current NFL practices to survive antitrust scrutiny.

 National Labor Relations Act: In order to promote consensual agreement, the scheme was to
give each side the weapons to engage in economic warfare. Authorized weapons included
o Strike (group boycott),
o Lockout (correlative tool to the strike)—the ability to replace striking workers
o Owners use lockouts to take control of the timing so that labor won’t strike when
timing is best for them
o Duty to bargain
o Mandatory subjects of bargaining- anything related to pay/working conditions/strike
o Not the agreement that’s protected but the process
o Impasse: if they reach a point where further bargaining (in the view of a reasonable
person) will yield nothing fruitful – Last best offer
 Statutory Exemption- encourage sides to cooperate and management of labor disputes
o Exemption from antitrust law
 Need for antitrust exemption for sports
o Striking- collective refusal to deal
 o Group boycott
o Per se violation normally
o Asking for better wages- price fixing
o Per se illegal normally
- Draft/ salary caps, though horizontal agreements not to compete/ group boycotts + price
fixing (respectively), are not per se violations b/c of BMI and Board of Reagants
(horizontal agreements necessary for product  RoR)
 Non-statutory labor exemption
o Purpose: Give employers the same security employees have by statute
 If they follow process of collective bargaining, don't have to worry about
antitrust liability
 Many things they seek to do would be violation of antitrust, so at minimum
create broad exception to allow collective bargaining
 Incentive to encourage collective bargaining

Jewel Tea [NOT LAW]: A marketing-hours restriction (agreement that no one could sell fresh meat after
6pm) proposed by a butchers’ union was accepted by all but two employers. Union gave up hours of work
(extra chances to earn wages), but it was in the Union’s interests. One employer accepted the restriction
after a union-authorized strike, but subsequently brought an antitrust action. The Supreme Court found
that, because the marketing-hours restriction was closely tied to the butchers’ hours and working
conditions (mandatory subjects of collective bargaining), the restriction was protected under labor policy
and thus exempt from antitrust scrutiny.
 Goldberg: Congress has announced a strong position on collective bargaining, yet were going to
condemn them for reaching an agreement? If mandatory subject to bargain, that sets off a CBA
process, by law. Anything that lawfully results from that process cannot be an antitrust violation.

Pennington [NOT LAW]: The Court addressed bargaining for coal miner wages—wages also being a
subject generally protected under national labor policy and exempt from antitrust scrutiny. The Union
recognized that they would lose jobs to mechanizationso wanted to at least get higher wages. Unlike
Jewel Tea, however, the union agreed with large coal operators to impose higher wages (those
collectively bargained for between the union and large operators) on smaller operators that were not
part of the bargaining process. Although the union could, independently, seek the same terms from the
smaller operators that it obtained from the larger operators, it was no longer exempt from antitrust
scrutiny by doing so in agreement with other employers in an alleged conspiracy to eliminate the
employers’ competition
- The Supreme Court had 3 different opinions (no real majority):
1) All collective bargaining agreements were antitrust violations- big v. small not at the table
2) Agreements in collective bargaining can never be attacked
3) Sometimes can be attacked, and sometimes can’t.
o Anticompetitive firms that are in collective bargaining agreements are often immune,
but in this case they are not immune.
o 1) Direct effect on the product market (price/volume of coal) – “Strangers to
the bargain”
o 2) “Cat’s paw” – Union got out-bargained, and the court knows it. Might
have thought this was in their best interests, but it wasn’t.
Notes: In both cases, the unions “got what they wanted.” But in Pennington, the employees weren’t
challenging the agreement, the smaller operators were.

Clarett v. NFL (2004) (p. 418)

 Facts: Ohio State’s Maurice Clarett wanted to enter the NFL after his freshman year but CBA
said no team can draft until 3 years after graduating high school (until junior in college)
 Issue: Are these eligibility rules an antitrust violation?
 Rule: Federal Labor Laws protecting collective bargaining process > application of antitrust laws
 Holding: Not an antitrust violation, eligibility rules are exempt from antitrust law.
 Reasoning: The court declined to apply Mackey and instead applied Brown. The Court
interpreted Brown as holding that the nonstatutory labor exemption applied to any claims brought
by professional athletes against their employers arising out of mandatory subjects of collective
bargaining. The Court relied on Wood for the specific proposition that although new union
members often find themselves disadvantaged relative to more senior members, that is no reason
not to insulate the agreement from antitrust scrutiny. The appellate court found that the age
eligibility rule was a mandatory subject of collective bargaining because it influenced the
terms of initial employment, wages, and working conditions. The court found that the rules were
collectively bargained-for, giving the union’s acceptance of the terms. “The eligibility rules,
along with a host of other NFL rules and policies affecting the terms and conditions of NFL
players included in the NFL’s Constitution and Bylaws, were well known to the union, and a
copy of the Constitution and Bylaws was presented to the union during negotiations. . . . the
union or the NFL could have forced the other to the bargaining table if either felt that a change
was warranted.” NFL players selected NFLPA as exclusive bargaining representative and
this rule falls under their jurisdiction and union rep signed CBA/ agreed to bylaws.
Eligibility rules also protect veteran players. NFL needs to do this for a successful operation of
the league. Players joined the union as most appropriate/ expedient means of settling their
differences.

Brady v. NFL
 Facts: NFL and NFLPA spent 2 years in negotiations for new CBA. They couldn't agree and
players voted to disclaim NFLPA as their collective bargaining rep. NFL threatened lockout and
players brought suit alleging lockout = antitrust violation.
 Issue: Is a lockout an unlawful boycott causing irreparable harm to the Players?
o Norris-LaGuardia Act restricts courts from deciding on injunctions in labor disputes?
 Can a labor dispute be between a laborer and a union rather than a laborer and
employee?
 Rule: Norris-La Guardia Act
o If they lawfully follow the process (if what they're doing is permitted), no antitrust
violation, particularly if it doesn't effect outsiders.
 Holding: Courts cannot decide on injunctions on labor disputes, so lockout is not an unlawful
boycott and allowed.
 Reasoning: This was a true labor dispute. If you're part of union, you have to deal with non-
statutory labor exemption.