FTC Issues Notice of Its Withdrawal from Cross-Agency Merger Review Agreement

The Federal Trade Commission (FTC) on September 27, 2024 unexpectedly withdrew from a recently established Memorandum of Understanding (MOU) with the US Department of Justice Antitrust Division (DOJ), US Department of Labor (DOL), and National Labor Relations Board (NLRB). The MOU aimed to enhance interagency coordination in investigating and assessing the impact of proposed mergers and acquisitions (M&A) on labor markets. Although the FTC’s sudden exit may indicate friction between it and the other involved agencies, the FTC’s scrutiny in this area is expected to continue.

On August 28, 2024, the FTC announced that it was entering into an MOU with the DOJ, DOL, and NLRB, which the FTC touted would “enhance [the] ability of the FTC and DOJ to investigate the impact of mergers and acquisitions on labor markets.” The MOU outlined several measures that the involved agencies agreed to implement as part of the agreement:

• The DOL and the NLRB agreed “to promptly meet” with the FTC and DOJ upon request and to provide data, information, and technical assistance to aid FTC and DOJ investigations of potential effects on labor markets of proposed mergers and acquisitions
• The DOL and the NLRB agreed to provide training to FTC and DOJ staff on legal and technical issues within the DOL’s and NLRB’s respective jurisdictions
• The involved agencies agreed to endeavor to meet biannually to discuss the implementation and coordination of the activities contemplated in the MOU

In signing the MOU on behalf of the FTC, FTC Chair Lina Khan stated that “[b]y deepening partnerships with the National Labor Relations Board, the Department of Labor, and the Justice Department’s Antitrust Division, the FTC will keep building on our whole-of-government efforts to ensure that all Americans can get a fair shot in our economy, free from unlawful coercion.”

The FTC’s Unexplained Withdrawal

In the press release issued on September 27, the FTC announced its notice of withdrawal from the MOU. The press release stated simply that the agency “has notified the other parties that it will withdraw from a Memorandum of Understanding with federal labor agencies related to merger investigations.” While offering no explanation for the withdrawal, the FTC promised to “continue to closely scrutinize all issues related to mergers, including potential impacts on labor, in accordance with its merger guidelines.” The FTC has yet to provide any reason for its decision to withdraw from the MOU less than a month after its implementation.

Continued Scrutiny of Labor Impacts in M&A Activity

The FTC’s unexplained withdrawal from the MOU may signal a lack of alignment among the involved agencies regarding enforcement priorities or processes. Regardless of the FTC’s reasons for withdrawing, it appears likely the agency will continue to take a vigorous approach to investigating and potentially challenging M&A activity, particularly in relation to its effects on labor markets.

In a recent merger challenge, for example, the FTC’s complaint seeking to block the merger of two luxury apparel and accessory manufacturers alleged that the combination would eliminate competition for labor between the two manufacturers, which the FTC claimed has “resulted in higher wages, better benefits, and improved working conditions.” The federal court overseeing the luxury apparel merger challenge recently ruled in favor of the FTC and issued a preliminary injunction blocking the planned merger but did not reach the labor arguments advanced by the FTC.

The FTC has experienced a mixed track record in other recent merger challenges, including a few high-profile losses. For example, in July 2022, the FTC sought to block the acquisition of a virtual reality fitness app developer by a prominent social media company that sells virtual reality devices and apps on the theory that, although the social media company had not yet developed its own virtual reality fitness app, it would have done so in the absence of the acquisition. Although it indicated that this “potential competition” theory could be viable in certain situations, the court held that the FTC had failed to make the required showing in that case that the acquiror was sufficiently poised to enter the market. The FTC also experienced a major loss this August when its controversial noncompete ban was set aside, nationwide, by a court.

In addition to experiencing setbacks in court, the FTC’s efforts have led to industry and political pushback, including from certain FTC commissioners who view the agency as overstepping. For example, after the FTC launched and issued a study that was critical of pharmacy benefit managers (PBMs), a leading national PBM recently sued the FTC under the Administrative Procedures Act and the Due Process Clause on the theory that the FTC had disregarded evidence and made misleading statements. In the latest of numerous examples of FTC commissioners pushing back on perceived overreach, Commissioner Melissa Holyoak issued a sharp dissent from the PBM report, arguing that it was “plagued by process irregularities and concerns over the substance—or lack thereof.”

Notwithstanding the FTC’s decision to withdraw from the MOU within weeks of entering into it, the FTC’s recent track record suggests that its focus on labor issues in the M&A space is likely to continue, or even intensify. Companies considering a merger or other combination would be well advised to consult counsel on labor-related competition implications.