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Since the U.S. Supreme Court decided in the Federal Baseball case of 1922 that baseball was not interstate commerce, Major League Baseball has enjoyed an exemption from antitrust law.
The Supreme Court has since criticized the 1922 ruling, calling it “unrealistic,” “inconsistent,” and “aberrational.” However, the Court has declined to overrule it, citing stare decisis and the fact that Congress has failed to act. The Curt Flood Act of 1998 repealed the exemption as related to major league players, but the exemption has otherwise permitted MLB to control the business of baseball in ways that may not be legal without the exemption. This includes rules and practices concerning franchise relocation, pay for minor league players, minor league club affiliations, rival leagues, and non-player personnel.
MLB recently salvaged its antitrust exemption by settling a lawsuit that seemed to have been headed for the Supreme Court. It has also loosened some of its practices related to non-players, indicating that MLB has some concern for potential liability under antitrust law.
Staten Island Yankees lawsuit
In 2020, MLB decided to reduce the number of its affiliated minor league clubs from 160 to 120. Four of the clubs that lost their major league partners (led by the former Staten Island Yankees) sued, alleging that MLB’s plan was an unreasonable restraint of trade in violation of Section 1 of the Sherman Act. The clubs alleged that MLB’s plan was an unlawful “horizontal agreement” among competitors to artificially restrict the market for affiliation agreements between minor league and major league clubs, and that the major league clubs engaged in an unlawful group boycott by refusing to do business with the excluded clubs.
The plaintiffs predictably lost in both the U.S. District Court for the Southern District of New York and the U.S. Court of Appeals for the Second Circuit based on the antitrust exemption. But they did find a sympathetic ear at the District Court, which ruled that but for the exemption, they had sufficiently alleged violations of antitrust law. At both levels, the U.S. Department of Justice Antitrust Division filed briefs in support of the plaintiffs.
In September 2023, the plaintiffs petitioned for review by the Supreme Court. The petition was supported by amicus (“friend of the court”) briefs from the Major League Baseball Players Association, various professors and practitioners of sports and antitrust law, commercial interests, attorneys general from 18 states, and some members of Congress (Sens. Mike Lee (R-UT) and Marco Rubio (R-FL), and Reps. Paul Tonko (D-NY) and Joe Courtney (D-CT)).
The petition certainly concerned MLB, and a confidential settlement was announced on November 2. The settlement resolves the litigation and keeps the exemption intact for now but might invite copycat lawsuits from other aggrieved former minor league clubs.
MLB responds on non-player personnel
Although the exemption is still in effect, MLB has taken action that seems to be in response to (or in anticipation of) legal challenges. A recent article in The Athletic described how MLB had eliminated standardized contracts for coaches, managers, trainers, and scouts. Clubs will now draft their own contracts, which should, in time, begin to deviate in their terms and conditions of employment. The prior practice undoubtedly provided efficiencies for MLB and its clubs but also presented theoretical antitrust concerns.
Of most relevance to MLB was an apparently standard clause that prohibited employees from speaking to other clubs while under contract. Such a provision makes it very challenging for employees to consider their employment options, resulting in a less dynamic and lucrative labor market.
Indeed, in a recently filed lawsuit by former baseball scouts, the plaintiffs allege that this prohibition against communication, coupled with an allegation of blacklisting older scouts, constitutes systemic age discrimination. The scouts acknowledge that MLB’s alleged “conduct might be protected from antitrust by MLB’s exemption from federal antitrust law” and so have postured their claim as age discrimination instead.
Competition isn’t just for sports
In a prior post, I outlined antitrust concerns for human resources professionals. As in other industries, MLB clubs should be competing for prospective employees. The amount of pay is generally the driving factor in competition, but contract details can also be relevant to employee decision-making. Termination rights, mitigation requirements in the event of termination, expense allowances, confidentiality, job exclusivity, and dispute resolution are all examples of contract provisions that could steer a prospective employee to one club rather than another.
MLB’s decision to abandon the uniform contract reflects a recognition that some of its practices are susceptible to antitrust attack if not for its exemption. And having just entered into what may have been a costly settlement of litigation challenging that exemption, MLB seems to recognize that it would be wise not to invite further challenges. The result should be a more dynamic – but perhaps more costly – non-player labor market.
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