The review of mergers should take into account the role of trade unions

In some cases, unions even pushed for mergers, which management opposed. In 2011, American Airlines filed for bankruptcy due to rising labor costs and increasing competition from other airlines. When US Airways proposed a takeover, American’s unions negotiated directly with US Airways management and then sought American’s management approval. The deal provided workers with better terms than they would have received had Americans remained independent after bankruptcy.

The current merger evaluation system could benefit from more systematic involvement of trade unions representing employees of one or more of the merging companies. Regulators and antitrust courts evaluate mergers based on a narrow legal standard for determining whether a merger significantly reduces competition in any relevant market, which typically comes down to a truncated cost-benefit analysis of that market. Mergers that raise prices or lower wages, for example, are to be blocked. In practice, however, regulators and courts have downplayed the labor market implications, which are often complex because labor markets tend to be local in nature and most companies benefit from many different labor markets.

Giving unions a seat at the table in merger reviews would help solve this problem. Trade unions are in a good position to assess the impact of a merger on workers in their industry and defend their interests. They can provide valuable information and perspective that may otherwise be overlooked by regulators.

For example, the proposed merger of T-Mobile and Sprint in 2018 sparked opposition from the Communications Workers of America. The union argued that the merger would lead to job losses in the wireless industry. Despite the union’s efforts, the merger was ultimately approved by regulators in 2020, albeit with conditions intended to address some of the concerns raised by CWA and other critics.

The case for union involvement is particularly strong in industries where both merging companies are heavily unionized. In such cases, unions can credibly claim to represent the interests of a significant portion of the affected workforce. Regulators and courts should give considerable weight to union concerns in such circumstances, including possibly the right to block mergers that would clearly harm workers (though Congress would need to create a legally enforceable law).

Of course, unions can support bad mergers or try to block good mergers. Critics of the American Airlines-US Airways merger argued at the time that the merger would harm consumers. (The evidence is mixed). Union involvement would not eliminate the need for agency and judicial review to ensure mergers benefit consumers. The goal is to protect workers, but not at the expense of consumers.

The proposal to engage trade unions can be seen as part of a broader effort to reform merger review to better take into account a range of social welfare issues beyond just consumer welfare. One promising approach is to move towards a system of “structured negotiations” in which mergers are negotiated between various stakeholders – including workers, consumers and other stakeholders – rather than assessed through a top-down regulatory process.

The model is corporate bankruptcy, in which interested parties bargain for the reorganization of the debtor, usually through agents such as a committee of creditors. The bankruptcy court oversees the negotiations and enforces the underlying rights, rather than using a cost-benefit analysis or other top-down evaluation criterion. Corporate bankruptcy poses a much smaller burden on courts than merger control. It adopts Coase’s decentralized approach: the court acts as a backstop that protects these fundamental rights and requires good faith negotiations, but otherwise allows the parties to reach any agreement they wish.

In a merger review, unions would only protect workers who are unionized, so a comprehensive system of structured negotiations would require protection of other stakeholders. One option is to empower courts to appoint independent ombudsmen to protect consumers and nonunion workers. A mechanism could be introduced to allow interested parties to vote on the final decision (although this seems more practical for employees than for consumers). Regulators could also take on the role of protecting unorganized contractors while allowing unions to represent workers, with negotiations taking place under court supervision. The merger of American Airlines and US Airways began as a result of American’s bankruptcy proceedings, during which unions opposed management’s plan to keep the airline as an independent entity after stripping workers of a collective bargaining agreement, which ultimately helped plan the merger.

Reforming merger assessment in this way could lead to better outcomes. It would also improve the legitimacy of antitrust enforcement and public support for mergers. By giving workers and other interested groups a voice in the process, structured negotiations could help address concerns that antitrust laws have focused too narrowly on technical economic analysis, which the evidence shows has fallen short of expectations.

Note: For further discussion, see Eric A. Posner, Should Labor Unions Play a Role in Merger Review?