download.jpgBy Timothy Haley, Reema Kapur, and Scott Schaefers

In a workplace antitrust class action in which the plaintiffs are reportedly seeking hundreds of millions of dollars, Judge Gerald Rosen of the U.S. District Court for the Eastern District of Michigan recently issued a decision that highlights the risks associated with the exchange of wage information. In Cason-Merenda v. Detroit Medical Center, Case No. 06-15601, 2012 U.S. Dist. LEXIS 38810 (E.D. Mich. March 22, 2012), the Court granted the defendants’ motion for summary judgment with respect to the plaintiffs’ class claim that they had conspired to suppress the wages of their employees. However, Judge Rosen denied the defendants’ motion for summary judgment with respect to the plaintiffs’ class claim that the defendants’ practice of exchanging wage information had the effect of unreasonably and unlawfully suppressing wages. 

The decision demonstrates that the methods by which employers gather wage information can create serious liability risks even when the there is no intent to suppress wages and the only purpose for gathering the information is to unilaterally determine wage rates.

Key Facts In The Litigation

In June of 2006, nurses filed nearly identical class action antitrust lawsuits in Chicago, Albany, Memphis, and San Antonio, alleging that the defendant hospitals conspired to suppress their wages in violation of Section 1 of the Sherman Act. Approximately six months later, a nearly identical case was filed by nurses in Detroit – the Cason-Merenda case. Each of the complaints contained two counts. Count one alleged that the hospitals agreed to suppress nurse wages in violation of Section 1 of the Sherman Act. Count two alleged that the hospitals conspired to exchange nurse wage information, and that this exchange unreasonably suppressed nurse wages in violation of the Act.

The Court determined that an agreement among employers to suppress the wages of employees would likely result in a per se violation of Section 1 of the Sherman Act. Id. at *64-65. An agreement to exchange wage information, on the other hand, would violate Section 1 only if it could be demonstrated that the effect of the exchange was to unreasonably suppress wages. Id. at *116. However, the exchange of wage information among employers can also create circumstantial evidence of a per se unlawful agreement to suppress wages.

In analyzing the per se claim in Cason-Merenda, the Court found that there was substantial evidence that the defendant hospitals regularly exchanged nurse wage information: (i) through direct contacts by employees at the various hospitals; (ii) at healthcare industry meetings and through healthcare industry organizations; and (iii) through third-party surveys that did not satisfy the safety zone requirements of the joint enforcement policy statements issued by the Department of Justice and the Federal Trade Commission (“Guidelines”). Id. at **8-35. However, plaintiffs conceded that they had no “smoking gun” evidence that the hospitals actually agreed among themselves to suppress nurse wages. Id. at *35. While the substantial evidence of wage information exchanges created circumstantial evidence of a wage suppression agreement, it was outweighed by evidence that the defendants used different wage information to independently set nurse wages at different rates. Id. at **109­16.

For summary judgment purposes, the rule of reason wage exchange claim turned on whether plaintiffs put forth sufficient evidence to create a material issue of fact that they suffered an antitrust injury as a result of the alleged agreement to exchange wage information. Id. at *116­17. Plaintiffs in Cason-Merenda did not attempt to demonstrate antitrust injury through the testimony of their experts. Id. at *119. Instead, they argued that the substantial evidence of the regular exchange of wage information established a policy of “on-demand” information exchange and that an “on-demand” exchange would result in depressed, sub-competitive wages. Although noting that it was a “close” call,  the Court agreed with plaintiffs that they had presented sufficient evidence to raise a material issue of fact on this issue and denied the defendants’ motion for summary judgment. Id. at *117, 134.

Implications For Employers

The Court’s ruling provides an important lesson for employers in connection with the setting of their employees’ wages. 

Although employers normally wish to obtain as much market information as possible when setting their wages, they should resist the temptation to engage in the type of wage information exchanges that are described in the Cason-Merenda decision. Arguably, there would be no plausible antitrust violation if the defendant hospitals had limited their wage exchange activity to surveys conducted in compliance with the DOJ/FTC Guidelines. Those Guidelines create a “safety zone” if the exchange is limited to surveys that satisfy the following conditions: (i) the survey is managed by a third-party (e.g., a purchaser, government agency, health care consultant, academic institution, or trade association); (ii) the information provided by survey participants is based on data more than 3 months old; and (iii) there are at least five providers reporting data upon which each disseminated statistic is based, no individual provider’s data represents more than 25 percent on a weighted basis of that statistic, and any information disseminated is sufficiently aggregated such that it would not allow recipients to identify the compensation paid by any particular provider.