By Christopher R. Deubert, Senior Writer
While the details and results of the new business arrangement between the PGA Tour and LIV Golf (or some related entity) remain to be seen, many have commented that the relationship is likely to draw antitrust scrutiny. Specifically, there is a concern that the new structure will result in decreased competition (and thus compensation) in the market for the services of professional golfers. This is especially true if the LIV Golf tour disbands, which is uncertain. Nevertheless, recent developments in law and policy might provide the PGA Tour and LIV Golf an avenue to avoid antitrust problems.
The Non-Statutory Labor Exemption
There is a tried-and-true method for sports leagues and teams to avoid antitrust scrutiny of restraints on their labor market: the non-statutory labor exemption. The non-statutory labor exemption is a judicially crafted doctrine which exempts rules, policies, and practices of employers which might otherwise offend antitrust law so long as those rules, practices, and policies are collectively bargained with a union that represents the employees. The purpose of the exemption is to promote collective bargaining and labor peace. Sports leagues and their teams have been relying on the non-statutory labor exemption since the 1970s to enact restrictive practices such as free agency and contract limitations, salary caps, and drafts.
The non-statutory labor exemption historically would not be viewed as applicable to the PGA Tour for the simple fact that its member golfers are independent contractors and not employees of the Tour. Since they are not employees, they historically would not be thought to be eligible to unionize and collectively bargain under the National Labor Relations Act (“NLRA”).
However, the presumed inapplicability of the NLRA and non-statutory labor exemption to the PGA Tour has changed due to a First Circuit case from last year and recent changes in policy from the Federal Trade Commission (“FTC”), a federal agency tasked with antitrust enforcement.
The Confederación Hípica Case
In Confederación Hípica de Puerto Rico, Inc. v. Confederación de Jinetes Puertorriqueños, Inc., 30 F.4th 306 (1st Cir. 2022), the First Circuit (which hears appeals from the District Court for the District of Puerto Rico), analyzed whether jockeys at Puerto Rico’s lone horse racing track are exempt from antitrust law in taking collective action in efforts to improve pay and working conditions, including by refusing to race.
The legal analysis in the case concerned the statutory labor exemption, a corollary to the non-statutory labor exemption. As stated by the First Circuit in Confederación Hípica, “[t]he statutory labor exemption flows from both the Clayton Act and the Norris-LaGuardia Act” and generally provides that employees or laborers who act collectively – such as by striking – do not violate the antitrust laws.
The District Court ruled that the exemption did not apply because the jockeys are independent contractors rather than employees. The First Circuit reversed, holding that “[t]he key question is not whether the jockeys are independent contractors but whether what is at issue is compensation for their labor.” The jockeys here were clearly acting to improve the compensation for their labor and thus were protected by the statutory labor exemption.[1]
Changes in FTC Policy
Lina Khan, Chair of the FTC, has been no stranger to controversy during her brief tenure in the role. Khan has been a vocal critic of the competitive practices of large technology firms and has proposed a rule banning non-compete clauses in employment arrangements.
She has also had interesting views on the ability of non-employee workers, i.e., independent contractors, to take collective action. In a September 28, 2021 letter to the Subcommittee on Antitrust, Commercial, and Administrative Law, Khan explained that “collective action and organizing by certain workers—including those who have the terms of their work dictated by a firm yet are classified as non-employees—may be susceptible to prosecution under the antitrust laws.” However, Khan did not believe that the FTC’s “scarce resources” should be used to pursue such claims.
In addition to non-enforcement, Khan’s letter supported active protections for such workers. Specifically, Khan proposed that Congress
pursue legislative reforms that grant workers greater protections under the antitrust laws. For example, legislation clarifying that labor organizing by workers regarding the terms and conditions of their work is outside the scope of the federal antitrust statutes, regardless of whether the worker is classified as an employee, would remove the threat of antitrust liability resulting from such coordination.
The NBA-ABA Precedent
The outcome of the proposed merger between the NBA and its upstart rival the ABA is instructive to the situation. In 1970, NBA players, led by their union President and future Hall of Famer Oscar Robertson, filed an antitrust lawsuit to block the merger. The players obtained a temporary restraining order against the merger when a federal court determined that the “net effect” of the merger “would be to eliminate all competition between them,” resulting in “immediate and irreparable injury” to the players.[2] After several more years of litigation, the case was resolved when the players and the NBA reached a new collective bargaining agreement. The players got a form of free agency and $4,365,000 in damages.[3] Additionally, the ABA folded, and the NBA absorbed four of its clubs.
Implications for the PGA Tour
Numerous golfers who spurned LIV Golf and its lucrative offers to remain on the PGA Tour have expressed their displeasure about the recent developments. Consequently, they may seek to exert greater collective pressure and have more control moving forward (whether through a union or otherwise). The Confederación Hípica case and Khan’s letter suggest that they could do so without violating antitrust laws, i.e., they would be protected by the statutory labor exemption.
Moreover, the PGA Tour may welcome the golfers acting collectively. If the golfers, in some collective capacity, approve of the PGA Tour’s new arrangement with LIV Golf, including the possibility that the LIV Golf tour ceases to exist, then the PGA Tour and LIV Golf would have a strong argument that the arrangement is protected by the non-statutory labor exemption. This is a lesson from the Robertson case.
The PGA Tour was forced to cede some control over professional golf to LIV Golf to avoid purported financial ruin. It now may be forced to cede additional control to its member golfers if it wishes for its new business arrangement to avoid antitrust scrutiny.
Deubert is Senior Counsel at Constangy, Brooks, Smith & Prophete LLP.
[1] The Supreme Court denied the track’s petition for review.
[2] Robertson v. NBA, 1970 WL 532 (S.D.N.Y. Apr. 17, 1970).
[3] Jim Quinn, Don’t Be Afraid to Win, 37 (Radius Book Group 2019).
