Why You Can't Take This Job and Shove It: Obama Judge Endorses Wage-Fixing by McDonald's

Antitrust law has been fully perverted. Congress must act.

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I’m often asked why people should care about monopoly. Well, if you work for a living, corporate concentration is likely costing you large sums of money in wages, perhaps $10,000 or more. Some economists found that the power of employers reduces labor’s share of output by 22%. As Marshall Steinbaum, Jose Azar, and Ioana Marinescu, and Bledi Taska noted in 2018, in most areas of the U.S. it’s pretty hard to find a new employer to whom one can sell one’s labor.

Employer dominance leads to the ability of firms to use coercive contracting terms on employees, like forcing them to sign employment agreements prohibiting them from going to work at a rival employer. Or firms might sign agreements among themselves, pledging not to hire each others’ employees. Doing so is wage-fixing, equivalent to price-fixing, which is illegal and often a criminal violation.

One might think that antitrust law would be able to help raise wages by both reducing concentration and attacking the problem of employer wage-fixing. Can it? To answer that question, let’s look at what happened last week, when Judge Jorge L. Alonso, killed a class action complaint by McDonald’s employees over a wage-fixing agreement.

McDonald’s is a weird corporation, what is known as a franchise. A franchise is a hybrid system, with the franchisor - McDonald’s corporation - controlling and serving a large group of independently owned McDonald’s franchisees. While technically these restaurants are independent, the control by the franchisor is absolute, with the franchisor setting standards, training, menus, marketing, where restaurants can be located, who franchisees can sell their restaurants to, etc.

Until 2017, McDonald’s had a provision in its contracts with franchisees saying that they weren’t allowed to hire each others’ employees. If I ran a McDonald’s near a different McDonald’s, I was not allowed to go out and offer higher pay to poach some of their workers. Fast food workers are not interchangeable, as McDonald’s employees learned the McDonald’s system, Wendy’s workers the Wendy’s system, and so forth. Anyone can learn a new system but it’s costly to train someone new and easier to hire someone with experience. So this restriction reduced wages for McDonald’semployees.

Some attorneys brought a class action suit against McDonald’s, alleging antitrust harm. Judge Alonso heard the case; Alonso is not some right-wing ideologue, he was appointed by Obama in 2014. Nevertheless, he refused to let the case move forward. Why? The short story is that he bought the economic argument that these workers didn’t have the same interest or injury, because they all worked in different geographical labor markets. A McDonald’s worker in Chicago faces a different labor situation than one in Atlanta. Therefore, Alonso argued, they couldn’t be one class. As such, they couldn’t band together and sue McDonald’s, even if all of them had been subject to the same national anti-competitive restriction.

There was a more fundamental problem with Alonso’s analysis. Wage-fixing, like price-fixing, is straight-up illegal. But Alonso bought the argument from McDonald’s lobbyist and Columbia University economist Justin McCrary that for franchises, wage-fixing helps them open up more restaurants and cook more hamburgers. He even accepted the notion that franchises don’t have the incentive to pay their employees low wages, so it’s irrational to assume harm for saying franchises can’t offer more money to hire each employees. The judge just said, this kind of wage-fixing is fine. It’s an absurdist and incoherent decision, but common these days.

Every employee-employer relationship is somewhat unique. If bringing class action antitrust cases around labor power means that such relationships must all be the same, then the way judges interpret antitrust law means that the law will be pretty much unusable to stop what is effectively mass theft from workers.