Last year in December, Seattle passed an ordinance to allow collective bargaining between for-hire transportation companies like Uber and Lyft and their drivers.  The U.S. Chamber of Commerce subsequently filed suit against the City of Seattle in federal court on March 3rd, 2016, alleging, among other counts, that the ordinance violated the Sherman Antitrust Act.

The Ordinance in a Nutshell

The Seattle ordinance authorizes Seattle’s Director of Finance and Administrative Services to designate qualifying non-profit entities as “Qualified Driver Representatives” (QDR).  A QDR that seeks to represent a transportation company’s drivers then notifies the company of its intent.  All covered transportation companies, referred to as “Driver Coordinators,” are required to disclose a list of their drivers to any QDR that seeks to represent its drivers.  A QDR must receive both the majority of the drivers’ signatures and more signatures than any other QDR’s seeking to represent that company’s drivers in order to become the drivers’ official collective bargaining unit, the “Exclusive Driver Representative” (EDR).

An EDR has the right to meet with the transportation company to negotiate in good faith over driver pay, working conditions, background checks, vehicle standards, safe driving practices, and other subjects to be designated by the Director.  If the EDR and the company reach agreement, and the Director approves these terms, that agreement will be legally binding for a period not to exceed four years.  If the EDR and the company do not reach an agreement, they must submit their dispute to arbitration.

The Chamber’s Arguments

In their complaint, the Chamber of Commerce alleges that Seattle’s ordinance violates § 1 of the Sherman Antitrust Act, which declares illegal “every contract, combination in form of trust or otherwise…in restraint of trade or commerce among the several States.”  There are carve-outs to the Sherman Act for certain types of labor activity, hence the legality of unions.  The Supreme Court has held, however, that § 1 forbids independent contactors from collusive anti-competitive behavior, including collective bargaining over pay, on the grounds that such bargaining is a “restraint of trade.”

Under the aegis of the EDR, the ordinance allows for collective bargaining by independent contractors.  The Chamber thus alleges in their complaint that the ordinance has an anti-competitive effect by shielding drivers from competing with each other for the lowest wages and the loosest work conditions.  The Chamber claims that possible terms resulting from collective bargaining would harm the transportation companies, who are members of the Chamber, by forcing them to incur extra costs like paying drivers for their incurred expenses and worker benefits.  These new terms, the Chamber claims, will ultimately harm consumers by increasing prices.

Parker Immunity

However, the state-action doctrine, also known as Parker immunity, can provide antitrust immunity when the anti-competitive restraints in question are an exercise of a state’s sovereign power.  Thus, the preamble of the ordinance cites the Revised Code of Washington 46.72.001, which states the following:

The legislature finds and declares that privately operated for hire transportation service is a vital part of the transportation system within the state. Consequently, the safety, reliability, and stability of privately operated for hire transportation services are matters of statewide importance. The regulation of privately operated for hire transportation services is thus an essential governmental function. Therefore, it is the intent of the legislature to permit political subdivisions of the state to regulate for hire transportation services without liability under federal antitrust laws.

RCW 81.72.200, which the ordinance also cites, possesses similar language:

The legislature finds and declares that privately operated taxicab transportation service is a vital part of the transportation system within the state and provides demand-responsive services to state residents, tourists, and out-of-state business people. Consequently, the safety, reliability, and economic viability and stability of privately operated taxicab transportation service are matters of statewide importance. The regulation of privately operated taxicab transportation services is thus an essential governmental function. Therefore, it is the intent of the legislature to permit political subdivisions of the state to regulate taxicab transportation services without liability under federal antitrust laws.

The Chamber contends that the state-action doctrine does not save the ordinance.  Citing N.C. State Bd. of Dental Exam’rs v. FTC, the Chamber claims that the state-action doctrine only exempts anti-competitive “private conduct” like that of the City of Seattle when (1) “clearly articulated” state policy authorizes the conduct and (2) the State “actively supervises” such conduct.  The Chamber argues that neither requirement is met by the Seattle ordinance.

N.C. State Bd., however, involved a state-created licensing board made up of participants in the very market the Board sought to regulate, dentistry.   The court considered the licensing board a private party, and thus the Board’s actions had to meet the “clearly articulated” and “active supervision” requirements to get Parker immunity.

A different requirement for Parker immunity applies when the actor is a municipality because there is less risk that the actor is involved in a private price-fixing agreement.  A municipality’s anti-competitive conduct only needs to fulfill the first requirement, that it is authorized by a “clearly articulated” state policy. This is the rule from Town of Hallie v. City of Eau Claire.

Whether a private party or a municipality is responsible for the anti-competitive conduct authorized in the Ordinance is ambiguous.  The City of Seattle must approve QDR’s, EDR’s, and the agreed-upon terms between the EDR and the company whose drivers it represents.  However, the actual negotiation of pay and other work terms is left to the EDR’s and transportation companies, who are private parties.  The Ordinance seems to authorize anti-competitive behavior by a hybrid of municipal action and private party action.

No matter how the district court defines the actor in the Ordinance, the City of Seattle will have to show that the Ordinance fulfills the “clearly articulated” requirement.  The Chamber argues that the requirement is not met because “[n]o Washington law clearly articulates or affirmatively authorizes collective bargaining for independent contractors generally, or specifically authorizes for-hire drivers to collectively bargain with driver coordinators.”  In response, the Ordinance’s defenders will likely rely on 46.72.001 and 81.72.200 as “clearly articulated” statements of state policy authorizing the Ordinance’s new rules.  The text of the Ordinance does not cite to any other state legislation that may fulfill that purpose.  Whether 46.72.001 and 81.72.200 are general and forceful enough to authorize the type of collective bargaining described in the Ordinance will likely be a key issue for the Chamber’s suit as it moves forward.