Brown v. Pro Football Services: Widening the Field but Staying in-Bounds

By Lance Formwalt

{1} At the heart of litigation involving union-management relations are the competing policies of the federal antitrust and labor laws.¹ In 1890, Congress passed the Sherman Act with the aim of promoting free competition and restricting restraints on trade.² Since the enactment of that law, Congress passed a series of laws, beginning with the Clayton Act in 1914 and concluding with the National Labor Relations Act (NLRA) in 1947, designed to promote collective bargaining and encourage unionism.³ These labor laws resulted in the sanction of a direct restraint on free competition.⁴ For example, one of the functions of unions is to reduce competition for wages and to set a uniform wage scale for all union members, something which, if not for congressional sanction under the labor laws, would be a clear violation of the antitrust laws.⁵

{2} Because of the competing policies of the antitrust and labor law, whenever a dispute arises between a union and management questions arise regarding the applicable law. This situation in part occurs because the victor in an antitrust cause of action is awarded treble damages.⁶ When this issue arises, the proper application of the policies behind these laws are required.⁷

{3} Congress and the courts have attempted to resolve this issue through the creation of two exemptions for labor law from the antitrust laws: the statutory labor exemption and the nonstatutory labor exemption.⁸ The statutory exemption draws from both the Norris-LaGuardia Act and the Clayton Act and applies to only a narrow band of labor-management relations, such as protection of the right to strike.⁹ In an effort to gradually broaden the scope of the exemption, the Supreme Court, in a series of cases from the 1940's-60's, created the nonstatutory exemption.¹⁰ However, even though it created the exemption, the Court did not clearly set forth its parameters. Consequently, the circuit courts have created a variety of approaches.¹¹

{4} The application of the nonstatutory labor exemption in the context of the professional sports arena involves an unusual circumstance in that the team owners usually raise the exemption as a defense to an antitrust action brought by the union or player's association, while the opposite situation usually exists in the context of most other labor-management disputes.¹² Since the Supreme Court cases setting forth the exemption all took place in the context of a union seeking to use the exemption as a defense, application and determination of the scope of the exemption as it applies to management is even murkier than usual. Additionally, application of antitrust law to sports leagues, outside the labor law context, creates some unique dilemmas which suggest that the courts grant more deference to labor law in this context than in other business sectors.¹³

{5} In the sports context, courts generally agree that the exemption is in effect at least during the life of the collective bargaining agreement (CBA)¹⁴ with regard to the terms contained in the agreement.¹⁵ Disputes have arisen as to how much farther the exemption should extend.¹⁶ Most recently, in Brown v. Pro Football Services, Inc.¹⁷, the D.C. Circuit extended the exemption to its furthest point to date. The court essentially held that as long as the action taken by either the unions or the management is legal within the labor laws, it will be exempt from the antitrust laws.¹⁸

{6} This Comment will examine the reasoning behind the decision of Brown and assess its impact on the scope of the nonstatutory labor exemption in the context of professional sports. The Comment will discuss the competing policies of the labor and antitrust laws accompanied by an overview of the Supreme Court cases that shaped the nonstatutory labor exemption and the several circuit court cases that have shaped the exemption in the context of professional sports.¹⁹ Second, the facts of the case and the court's analysis are presented.²⁰ Third, the Comment will analyze the reasoning of the Brown court and the impact of the case.²¹ This Comment will propose that the position of the D.C. Circuit is defensible and appropriate, both in light of the legislative scheme created by Congress and the fact that the test may be easily applied.²² Finally, the Comment will argue that using the same principles found in Brown, an alternate framework for viewing this type of case should be adopted by the courts; this framework would treat the entire action within the antitrust law.²³

{7} Federal antitrust law is primarily contained in two statutes: the Sherman Act and the Clayton Act.²⁴ Of primary concern in the sports context is the sweeping language contained in section one of the Sherman Act declaring illegal "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce ... "²⁵ However, in effect, the language of the statute is not really that sweeping since the alleged activity must be an unreasonable restraint on trade.²⁶

{8} The courts employ two tests when hearing an antitrust action. Generally, the courts will apply the Rule of Reason which gives the parties an opportunity to present to the court the purposes behind the alleged restraint.²⁷ In using the Rule of Reason, the courts determine whether there is a less restrictive alternative in existence.²⁸ Because the process of determining what is reasonable can be rather cumbersome and time-consuming, the courts have developed an alternate approach: the per se violation.²⁹ Among other things, courts have ruled the following restraints as illegal per se: price-fixing³⁰, division of markets³¹, concerted refusals to deal³², group boycotts³³.

{9} Prior antitrust case law dictates that if antitrust law applies directly to the situation in Brown,³⁴ a court would undoubtedly rule that it falls under the category of price-fixing and therefore is a per se violation of the Sherman Act.³⁵ While several restraints on trade are considered per se illegal in most businesses, courts, although they have applied the antitrust laws to the professional sports leagues,³⁶ have generally refrained from applying the per se rule, instead turning to the Rule of Reason.³⁷

{10} The labor law scheme is primarily found in the NLRA (also known as the Wagner Act).³⁸ Because it purposes to encourage collective bargaining between labor and management, the labor laws allow certain actions that are decreed illegal by the antitrust laws.³⁹ The NLRA sets forth several rights and responsibilities which govern labor-management relations.⁴⁰ Rights of employees and players include "the right to self-organization, to form, join or assist labor organizations, to bargain collectively through representation of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid and protection, and ... to refrain from any or all such activities ...."⁴¹

{11} An extensive list of rights and duties exists with regard to the collective bargaining process that the NLRA was designed to foster. First, when the parties enter into a collective bargaining relationship, they have a duty to bargain in good faith.⁴² This duty extends to so-called "mandatory subjects" for collective bargaining⁴³, requiring that the parties must bargain collectively and "meet at reasonable times and confer in good faith with respect to wages, hours, and other terms and conditions of employment ...."⁴⁴ Additionally, if the parties form a collective bargaining relationship, the two representatives become the exclusive negotiators and the subsequent agreement binds all employees regardless of whether they are members of the union or disagree with the terms.⁴⁵ Furthermore, the duty to bargain in good faith only lasts until the parties reach an impasse in the negotiations.

{12} Impasse is "the deadlock reached by the bargaining parties 'after good-faith negotiations have exhausted the prospects of concluding an agreement.'"⁴⁶ Following impasse, the parties may then utilize various economic weapons without fear of being subjected to an unfair labor practice charge.⁴⁷ These weapons are available to both sides. The employees may strike⁴⁸, and the employers may lock out the employees⁴⁹ and make unilateral changes in the collective bargaining relationship which were "reasonably comprehended within his pre-impasse proposals."⁵⁰

2. Policies of the Antitrust and Labor Laws

{13} The following is simply a quick review of the various policies behind the antitrust and labor laws. Policy issues will be examined more thoroughly in the analysis of Brown.⁵¹ Some of the policies for each law are similar while others conflict.

{14} The Sherman Act and other antitrust laws promote unfettered competition and the free flow of commerce.⁵² The labor law scheme (embodied in the NLRA) has several policy objectives. First, the scheme promotes the free flow of commerce.⁵³ Second, the statute incorporates a fundamental respect for the freedom of contract.⁵⁴ Third, the labor law should insure industrial peace and reduce strife and work stoppages which harm productivity.⁵⁵ Fourth, and finally, the labor law should give finality to the parties' agreements since failure to do so will make it more likely that one or both of the parties will view the final terms of the agreement as unsatisfactory. This will lead to attempts to subject the terms of the agreement to judicial intervention, which in turn would inhibit the free flow of commerce.⁵⁶

{15} As discussed earlier, although the Supreme Court created the nonstatutory labor exemption, it has not precisely defined the contours of the exemption.⁵⁸ However, the Court has provided some guidance on the applicable principles in the cases discussed below. The first significant case to define some principles governing a labor exemption is United States v. Hutcheson.⁵⁹ This case involved two unions, each of which thought they had a contract with an employer to do certain construction work.⁶⁰ The employer awarded the work to members of one union; and in response, the other union called a strike, which apparently violated an agreement with whom to arbitrate controversies such as this one.⁶¹ Although Hutcheson dealt with the narrow issue of which actions would fall within the statutory labor exemption, the Court suggested that there may be an exemption (in the context of labor law) from the antitrust laws "so long as a union acts in its self-interest and does not combine with non-labor groups."⁶²

{16} In United Mine Workers v. Pennington,⁶³ the Court began to examine the possible exemption (of the substance of a CBA) from antitrust laws, thereby beginning the formation of the nonstatutory labor exemption. Here, along with large coal companies, a union of coal miners entered into a CBA that called for higher wages. To prevent the larger operators from being harmed by lower wages given to workers at smaller coal facilities, the union agreed to seek the same wages from the smaller operator.⁶⁴ The Court refused to exempt the provision from antitrust liability.⁶⁵ In its decision, the Court seemed concerned not only that the provision at issue went beyond affecting the immediate labor market into the product market, but also because there was a conspiracy to indirectly affect the entire product market.⁶⁶ Indeed, the Court appeared willing to accept a similar indirect effect on the product market as long as the conspiracy element between a union and an employer bargaining unit was not involved.⁶⁷

{17} In Meat Cutters Local 189 v. Jewel Tea, the Supreme Court had to determine whether the nonstatutory labor exemption applied to a situation in which there was no conspiracy between a union and an employer to affect another employer.⁶⁸ In this case, a butchers' union imposed through bargaining agreements with several employers marketing restrictions on retail stores.⁶⁹ Under threat of a strike, the plaintiff (Jewel Tea) agreed to the restrictions and then challenged them under antitrust law.⁷⁰ The Court employed a balancing test, first looking to see if the disputed provision constituted a mandatory subject of bargaining.⁷¹ Once the Court determined that the marketing hours restriction was a mandatory subject, then the Court examined whether it

{18} is so intimately related to wages, hours, and working conditions that the unions' successful attempts to obtain that provision through bona fide, arm's-length bargaining in pursuit of their own labor union policies, and not at the behest of or in combination with nonlabor groups, falls within the protection of the national labor policy and is therefore exempt from the Sherman Act.⁷²

{19} The Court found no wrongful association between the union and nonlabor groups during negotiations and that the provisions met the required intimacy of the disputed provision to "wages, hours, and working conditions", therefore exempting the marketing hours restriction.⁷³

{20} While the Supreme Court has not addressed the scope of the nonstatutory labor exemption as it applies to management in the sports context, several circuit and district courts have addressed the issue. Scope of the nonstatutory labor exemption in the sports context was first examined by an appellate court in Mackay v. National Football League.⁷⁴ Importantly, the court explicitly stated that the nonstatutory labor exemption applies to employers as well as employees.⁷⁵ The court held that three requirements must be met in order for the exemption to apply: "First, ... where the restraint on trade primarily affects only the parties to the collective bargaining relationship ... Second, federal labor policy is implicated sufficiently to prevail only where the agreement sought to be exempted concerns a mandatory subject of collective bargaining ... Finally, the policy favoring collective bargaining is furthered to the degree necessary to override the antitrust laws only where the agreement sought to be exempted is the product of bona fide arms length bargaining."⁷⁶ While the language of the court seemed to suggest that the exemption only applied while the CBA was in force (i.e., there was union consent), the court refused to determine whether or not the exemption could apply after the expiration of the CBA.⁷⁷ Instead, it held that the challenged restraint was not the product of "bona fide arms length bargaining" since the owners unilaterally imposed it on a weak labor union, even though the union gave formal consent. Thus, the court found that the exemption did not apply.⁷⁸

{21} Another case that addressed the nonstatutory labor exemption in the area of professional sports was Bridgeman v. National Basketball Association.⁷⁹ In this case, Judge Debevoise decided to extend the exemption beyond Mackay and introduced a new formulation as to the length of the exemption by turning to a reasonableness test.⁸⁰ Debevoise stated that the exemption "survives only as long as the employer continues to impose that restriction unchanged, and reasonably believes that the practice or a close variant of it will be incorporated in the next agreement."⁸¹ Thus, while provisions of the old CBA could now remain in effect indefinitely, this test would not protect the unilateral imposition of new provisions.

{22} Powell v. National Football League⁸², adopted a different approach but reached a result like that of Bridgeman. Once again, the nonstatutory labor exemption protected a player restraint embodied in an old National Football League (NFL) CBA.⁸³ The court held that as long as the restraint was part of an agreement conceived in an ongoing collective bargaining relationship, the exemption would remain effective, even beyond an impasse in the negotiations.⁸⁴ Furthermore, although the court said that the owners receive the benefit of the nonstatutory labor exemption in this case, the ruling did not mean that once union and management enter into collective bargaining that management was "forever exempt."⁸⁵

{23} Recently, in National Basketball Association v. Williams⁸⁶, the owners won a declaratory judgment stating that various player restraints (e.g., the college draft and the right of first refusal contract provision) found in the old CBA may be imposed by the owners even after impasse since they are subject to the nonstatutory labor exemption.⁸⁷ The court held that multi-employer bargaining was legal, relying primarily on NLRB v. Truck Driving Local Union No. 449.⁸⁸ Additionally, the court stated that the owners, acting jointly, could also unilaterally impose the old CBA terms on the players after negotiations broke down.⁸⁹ To find otherwise, the court reasoned, would put employers in an impossible position. The court felt it must rule this way because the owners have an obligation under labor law to maintain the status quo in good faith negotiations, but they are placed in a difficult position if, to comply with the labor law, they must impose terms that violate the antitrust laws.⁹⁰

{24} The latest case to address the scope of the nonstatutory labor exemption is Brown v. Pro Football, Inc.⁹¹, the subject of this Comment. This case arose after the owners and the players had reached impasse in the collective bargaining process.⁹² During negotiations, the owners had proposed including in the new CBA a new provision which would restrict the salaries of players on the practice squad to $1000/week.⁹³ In other words, these players, unlike non-practice squad players, would not be able to negotiate for a higher salary.⁹⁴ The players rejected this proposal, and after impasse, the owners chose to unilaterally impose this term onto the players as they were allowed to do by the labor laws because it was contained in their pre-impasse proposals.⁹⁵

{25} In its decision, the D.C. Circuit held that the nonstatutory labor exemption should protect the entire collective bargaining process, not just the agreement itself.⁹⁶ The Court thought this view was consonant with the Congressional aims of the NLRA.⁹⁷ The court stated that it would protect from antitrust liability any steps legally taken within the bounds of the labor laws as long as the restraints imposed "operate primarily in a labor market characterized by collective bargaining."⁹⁸ The court cited several reasons for its decision. First, it examined the related Supreme Court opinions and derived from them two principles which served to support the decision: 1) "the exemption must be broad enough in scope to shield the entire collective bargaining process" and 2) "the case for applying the exemption is strongest where a restraint on competition operates primarily in the labor market and has no anti-competitive effect on the product market."⁹⁹ Second, the court noted recent decisions favor broadening the exemption to cover the collective bargaining process and not just the agreement.¹⁰⁰ Third, and finally, the court felt that in the collective bargaining context, the labor laws themselves provided a sufficient remedy.

{26} The court, by taking the position it does, has extended the exemption beyond the parameters of other courts and the proposals of most commentators.¹⁰¹ However, the extension of the exemption appears defensible and consistent with recent case law.¹⁰² The court's view of the exemption should be valued for its simplicity and clarity, while at the same time, it appears to not tilt the playing field too far to one side or the other. Simply put, if an action taken by a party is legally within the scope of the labor laws, this court would exempt it from antitrust scrutiny.¹⁰³ Although this ruling takes away a potential weapon from the players, it does not appear that Congress intended the antitrust law to be one of the weapons encompassed in the NLRA.¹⁰⁴ Indeed, allowing such claims leads to seemingly incongruous results as the NLRA would allow certain action to be taken only to have those actions be declared invalid by the antitrust laws.¹⁰⁵

{27} In its resolution of the case, the Brown court set forth the following test: "we conclude that the nonstatutory labor exemption shields from antitrust challenge alleged restraints on competition imposed through the collective bargaining process, so long as the challenged actions are lawful under the labor laws and primarily affect only a labor market organized around a collective bargaining relationship."¹⁰⁶ To break this down, the Brown test essentially has four components: 1) the restraints must be imposed through the collective bargaining process, 2) the restraints must be legal under the labor laws, 3) the restraints must primarily affect the labor market and 4) the labor market involved must be "organized around a collective bargaining relationship" (i.e., the dispute must involve only the parties to the collective bargaining relationship).¹⁰⁷

{28} The test of the Brown court extending the exemption essentially comports with sound policy and gives deference to precedent.¹⁰⁸ First, the court was correct in asserting that the entire collective bargaining process should be protected by an exemption as the NLRA itself declares that it is "the policy of the United States to eliminate the causes of certain substantial obstructions to the free flow of commerce and to mitigate and eliminate these obstructions when they have occurred by encouraging the practice and procedure of collective bargaining ...."¹⁰⁹ The fact that Congress listed prevention of interruption of the free flow of commerce as a goal of the NLRA persuasively demonstrates that Congress meant for the law to be applicable and not subject to antitrust law.¹¹⁰ It would be foolish to pass the NLRA and then have certain provisions rendered meaningless by a much older statute (the Sherman Act) which has the same stated policy goal as the NLRA.¹¹¹ Additionally, not only did Congress state that the policy of the NLRA was to encourage the process of collective bargaining, but the Supreme Court has previously ruled that the economic weapons that may be used by the parties after negotiations break down are also part of the collective bargaining process: "the presence of economic weapons in reserve, and their actual exercise on occasion by the parties, is part and parcel of the system ..."¹¹²

{29} The second component of the Brown test seems to unnecessarily restrict application of the nonstatutory labor exemption.¹¹³ If it is the opinion of the court that the labor law governs the entire collective bargaining process, then why is the exemption only available for actions lawful under the labor laws?¹¹⁴ It seems more consistent with the court's reasoning that the exemption should apply whenever labor law governs since the NLRA also provides remedies when a party asserts that the other party has violated the NLRA.¹¹⁵

{30} Prior parameters laid down by the Supreme Court were appropriately taken into consideration by the Brown court and constitute the third and fourth elements of its test. The Supreme Court considered two factors in its reference to the nonstatutory labor exemption: 1) the disputed provision did not affect the product market¹¹⁶ and 2) parties outside the negotiations were not involved in conspiring with one of the bargaining parties in order to have an adverse impact on the opposing parties.¹¹⁷ Brown respected these two concerns by stating that the exemption only applies if the two concerns are not present: "where, as here, an alleged restraint on competition imposed through the collective bargaining process affects only the bargaining parties, and has no impact on the product market, the nonstatutory labor exemption shields those parties from antitrust liability."¹¹⁸ Moreover, the exemption set forth by Brown seems to have implemented what has been called the unstated principle from prior Supreme Court opinions, namely that as long as the parties remain within the confines of the collective bargaining process, the parties generally have the freedom to contract into almost any provision they want.¹¹⁹

{31} One area in which the Brown test may be criticized is in its failure to limit application of the exemption to restraints that were mandatory subjects of bargaining. In failing to do so, the court ignored the Supreme Court's analysis in Jewel Tea when the Court examined whether the challenged restraints were "so intimately related to wages, hours, and working conditions [i.e., mandatory subjects of bargaining] ... [that it] falls within the protection of the national labor policy and is therefore exempt from the Sherman Act."¹²⁰ Other cases and commentators have also articulated as a requirement for application of the nonstatutory exemption that the restraint involves a mandatory subject of bargaining.¹²¹

{32} Another reason that this reading of the exemption is proper and should be accepted is that its simplicity allows it to be easily applied. Other courts and commentators have suggested standards which make it difficult to determine if an action taken will be exempt.¹²² Such proposals often involve a determination of "reasonableness" or "impasse."¹²³

{33} The contention by the dissent that "the reality is that today's decision sharply tilts the playing field in employers' favor, and because of that, will erode the vitality of collective bargaining itself ... "¹²⁴ is a myopic view which fails to take into account the sweeping ramifications of this decision. In the context of sports,¹²⁵ this contention might be arguable because the employees are usually the only party to bring an antitrust action, but the Court decided this case utilizing general labor and antitrust law policy concerns. Thus, while in the context of sports, the playing field may tilt slightly away from employees, in the rest of the business world, the party negatively impacted will usually be the employer, meaning that on the macro level the scope of the exemption is fair in its application.¹²⁶

{34} Indeed, the ramifications of this will apparently extend beyond simply the sports industry. Brown will also likely impact other industries in which multiemployer bargaining is used. Such industries include the construction and entertainment businesses.¹²⁷ The Supreme Court has also recognized the importance of this decision as it granted certiorari in this case on December 8, 1995.¹²⁸

{35} Moreover, even with the result in this case, the players are not completely foreclosed from invocation of the antitrust laws.¹²⁹ First, the Brown court did not address the question of whether a step taken by the owners which is determined to be an unfair labor practice in violation of the NLRA will be able to get protection from the exemption.¹³⁰ It seems unlikely that the court would extend it this far since it felt that the exemption's purpose was to protect the collective bargaining process as established by Congress. Thus, an illegal action would not appear to be within the collective bargaining process and therefore maybe subject to antitrust liability. Second, the players may invoke the Sherman Act by forsaking the protection of the labor law and voting to decertify (the equivalent of dissolution) the union.¹³¹ Although the literature and some dissenting judges have protested that this does not significantly help the players and may not even be a viable alternative¹³², this option has been taken by the NFLPA fairly recently and turned out to be a successful lever in negotiating a new CBA.¹³³ Following the expiration of a recent CBA, the players decided to decertify the union. In McNeil v. NFL, the court recognized that the union had in fact been decertified and that the nonstatutory labor exemption thus elapsed.¹³⁴ The case was submitted to the jury and they returned a verdict in favor of the players, finding that the challenged provision was in violation of antitrust law.¹³⁵

{36} In an effort to simplify the confusion resulting from the tangling of two types of law in cases such as Brown, this Comment proposes an alternate framework to assist future courts. Assuming that the exemption settled upon in Brown represents the proper scope of the nonstatutory labor exemption, this Comment proposes that a suit, such as the one brought by the players in Brown, be treated as an antitrust action only. Once the court does this, it may then decide whether the alleged restraint on trade was the result of an unfair labor practice.¹³⁶ If the court finds that the action taken is lawful within the labor law, then the alleged restraint on trade should be treated as a conclusively reasonable restraint on trade and therefore found to not be an antitrust violation under the Rule of Reason.¹³⁷

{37} In conclusion, the recent decision in Brown has extended the nonstatutory labor exemption further than any prior case. However, after review of the policies and prior decisions in the related case law, it appears that the court was within its bounds by extending the exemption. Furthermore, the test has as a virtue simplicity and easy administration. Moreover, this result does not completely foreclose the players from the possibility of redress under the antitrust laws. Finally, the extension of the exemption allows for the development of a simpler framework for analyzing this type of case that will enable courts to avoid the task of comparing the competing policies of the antitrust and labor laws.