Pilgrim’s Pride Settles Out of “Wage-Fixing” Lawsuit

Baltimore, MDPilgrim’s Pride Group, one of many poultry processors/defendants, has agreed to settle out of Jien v. Perdue Farms Inc. for $29 million and an agreement to cooperate against the remaining defendants. Rather than proceeding as an unpaid wages claim, Jien was brought as an antitrust case under the Sherman Act. The Sherman Act prohibits anticompetitive practices and has been used recently to protect wages. For workers, the effect of “wage-fixing” across an industry is very like the effect of failing to pay legally-required wages. Exploited workers, doing dangerous jobs, live at or near poverty.

A grim and dangerous workplace

The named defendants process and produce roughly 80 percent of poultry consumed in the United States. The processors employ hundreds of thousands of people. Also named are two consulting companies that publish and exchange industry compensation data.

A 2015 report by Oxfam America, entitled “Lives on the Line,” found that most workers on a poultry processing line earn wages that place them at or near the poverty level. A worker supporting two children would likely qualify for food stamps and free-or-reduced cost school lunches. Many turn to food banks and other charities to meet their basic needs. Furthermore, their jobs are among the most dangerous in the country. OSHA has found that the reported rate of work-related illnesses and musculoskeletal injuries was five times the national average.

Consequently, workers who have other options are unlikely to take work in a poultry plant. The processors therefore tend to recruit employees who have limited education and do not speak English. They target refugees, the undocumented and prison labor, the most vulnerable of workers.

Evidence of a conspiracy

Senior executives at the defendant processors allegedly held recurring “off the books” meetings at resorts like the Hilton Sandestin Resort Hotel & Spa in Destin, Florida to exchange information about, discuss and set wages for hourly workers at artificially low rates. They continued to exchange detailed current industry salary information compiled by their consultants. The information was not available to the general public. Although nominally scrubbed of identifying information, the data was so detailed that it was reportedly easy to match to individual processors. Individual processors also exchanged current compensation data among themselves on a monthly basis.

One of the consultants, Agri Stats, undertook to audit the information submitted on a regular basis so that no processor could secretly raise wage rates. This, the Complaint alleges, had the effect of enforcing the wage agreement reached by the processors as a group.

The practice seems to have been highly beneficial to the processors. Hourly wages are among their greatest costs. Nonetheless, profitability throughout the industry reportedly jumped after the group undertook to share wage information. For example:
“[a]t Tyson, operating margins in the chicken division have risen sharply since 2009, when they were 1.6 percent, according to SEC filings. The next year they were up to 5.2 percent. After a brief dip, they climbed to 7.9 percent in 2014, an astounding 12 percent in 2015, and 11.9 percent in 2016. A similar trend has been under way at Pilgrim’s Pride, where operating margins went from 3.08 percent in 2012 to 14.02 percent in 2014 and 12.77 percent in 2015.”

Sherman Act

Section 1 of the Sherman Act One makes all anti-competitive practices that restrain trade between states illegal. Some of the practices may include agreements to fix prices, exclude certain competitors, and limit production outputs, as well as combinations to form cartels.

Although the Department of Justice usually pursues these cased civilly, the law provides that any individual or entity that engages in a contract or combination that is anti-competitive is guilty of a felony. If convicted, such a party may be fined an amount not exceeding $10 million for a corporate entity, or $350, 000 for an individual, or imprisoned for a period not exceeding three years, or both as the court deems fit. The use of the law to address “wage-fixing” is relatively recent, and has focused particularly on the healthcare industry.

Sharing wage information

To be clear, employers commonly participate in surveys to assist them in setting competitive wage rates, salaries, and benefits. By itself, there is nothing about this practice that runs afoul of antitrust laws. Problems arise, however, where there is clear evidence of collusion among competitors. Courts have focused on the nature of the information exchanged, more particularly:

• how current the information is;
• whether the information is available to the general public;
• how specific the information is, including whether the employer can be identified and
• the purpose of the information exchange.

The more current and identifiable the information is, the more likely it is that the effect will be anti-competitive. The DOJ and the Federal Trade Commission have issued guidelines for employers that suggest that data:

• should be collected and provided by a neutral third party;
• must not reflect the identity or any other factor that may allow someone to identify a participating organization; and
• should be shown only in aggregate form.

Proving the case against the remaining defendant poultry processors will depend heavily on evidence that the wage information was highly specific, current and identifiable. In the meantime, however, Pilgrim Pride’s obligation to cooperate against the other defendants may hasten further settlement negotiations.