The Antitrust Paradox of the Gig Economy

Written by Professor Sanjukta Paul, Wayne State University

Antitrust law affects workers and labor markets in various ways, through both action and inaction. First, antitrust law currently functions as an obstacle to the collective action of workers who find themselves beyond the bounds of employment, whether they are called independent contractors, freelancers, or something else.

Second, and relatedly, the lax regulation of vertical restraints has contributed to what David Weil has called “The Fissured Workplace,”  in which firms are able to maintain control over smaller firms and workers in their orbits while largely disclaiming responsibility over what happens outside their formal firm boundaries. This has, in turn, enabled the proliferation of work beyond the bounds of employment.

U.S. Legislative History of the Relationship Between Antitrust Laws and Workers 

When it comes to the place of labor markets and workers in antitrust law, legislative history is a helpful guide. Legislative history arguments, correct or otherwise, have helped erect some of the key elements of the current antitrust framework that have worked against workers. These elements include the consumer welfare standard, under which antitrust decision-making is guided by its impact upon consumers, particularly prices. They also include the more general idea that Congress authorized federal courts to effectively decide the goals of antitrust policy under the guidance of economic theory.   

The Sherman Act is the statutory foundation of antitrust. That statute was a response to a farmer-labor antimonopoly coalitionfocused upon a particular phenomenon: the rise of corporate power, especially as manifested in the legal form of the business trusts. Those same trusts soon became the first industrial mega-corporations during the “great merger movement” of the 1890s. The farmer-labor coalition that pushed for federal antitrust legislation was specifically concerned with the concentration of economic coordination rights in fewer and fewer hands, and with the accompanying disempowerment of many American working people who had previously enjoyed a level of autonomy and control over their economic lives.

Legislators, like the political coalition to which they were responding, were concerned mainly with dispersing control over the economy rather than with the lowest possible consumer prices or even with competition for competition’s sake. For example, Senator George, a key figure in the shaping of the law, stated that he was “extremely anxious” that Congress pass a law to “put an end forever to the practice, now becoming too common, of large corporations, and of single persons too, of large wealth, so arranging that they dictate to the people of this country what they shall pay when they purchase and what they shall receive when they sell.”

George’s emphasis was certainly not on the lowest possible prices in all cases: in fact, he specifically identified the lowering of suppliers’ prices as one of the harms to be addressed by legislation—a fact that should make us think of small businesses and gig economy workers today.

Senators spoke of the “commercial monsters called trusts” whose growth “in the last few years has been appalling.” The trusts’ success was “an example of evil that has excited the greed and conscienceless rapacity of commercial sharks.” Importantly, each of these trusts was far more akin to what we would now call a single firm than to an association of firms, with coordination concentrated in a single board of trustees and grounded in the trustees’ controlling interest in each formally separate corporation. Sherman’s comments make it clear that he was primarily concerned with the concentration of economic coordination rights in too-few hands.

Unfortunately, antitrust law today has inverted this emphasis, treating economic coordination that takes place within large, powerful corporations with deference, while making the cooperation of small players, including workers beyond the bounds of employment, an enforcement priority.  The ultimate goal of the Sherman Act is to target the aggregation of wealth and power, which “makes the people poor.” Thus, a powerful firm or group of firms that are depressing suppliers’ prices (which may in turn depress their workers’ wages) cause an antitrust harm.  The legislative record as a whole also shows that legislators manifestly did not intend to target collective action, joint price-setting, or collective bargaining among workers or small producers by means of the Sherman Act. Legislators made repeated express statements to this effect, with little debate or disagreement.  

Following its enactment, the courts nevertheless interpreted the Sherman Act in just the way Congress had sought to avoid, turning it into a weapon against working people’s collective action during an era when such action was one of the few, limited checks upon sweatshop labor (entailing low wages, dismally poor working conditions, and widespread workplace injuries), child labor, and the general dispensability of workers’ lives.  It is time for Congress to consider this relationship anew. 

Labor and Antitrust in Today’s Fissured Workplace

Fast-forwarding to today’s labor market, this original legislative purpose has once again been inverted. In the so-called “gig economy,” dominant firms like Uber and Lyft are able to fix prices across thousands of supposedly independent businesses, while antitrust law functions to prevent individual workers from engaging even in collective bargaining to improve their pay and working conditions. And that is only the tip of the iceberg.

Both in the so-called gig economy, and in the fissured workplace more broadly, more powerful firms are able to coordinate the activities of smaller players in their orbits, often up to and including prices. This is true when Uber, for example, sets the prices charged by the very drivers the firm insists are independent businesses, and it is also true when franchisors control their franchisees’ business decisions. Antitrust law’s lax attitude toward vertical restraints since the 1970s has allowed this sort of control, exerted by powerful firms beyond their firm boundaries, to expand and proliferate.

Indeed, Uber’s and similar firms’ price-setting as to ride services—services they insist they do not sell—tests the bounds even of existing law. Uber claims that it is a two-sided platform that mediates between riders and drivers. A classic vertical restraint, however, is one in which the restraining firm sells a commodity that is then re-sold by the restrained firm. Uber thus stretches the limits of the current law, but precisely in the direction of the law’s underlying tendency to reward economic coordination in the form of control by more powerful actors over less-powerful ones.

Relatedly, although Uber’s and similar firms’ price coordination pushes beyond the limits of existing law, the turn toward laxness in the law of vertical restraints is what has helped to bring about the fissured workplace in the first instance. Economist Brian Callaci has shown that the ability to impose vertical restraints upon franchisees is critical to the franchising business model and that the liberalization of this area of antitrust law has therefore been critical in enabling it. In particular, powerful franchisor firms exert control beyond firm boundaries while largely escaping responsibility for its consequences.

As Callaci notes, franchisors’ efforts to persuade institutional decision-makers that the law ought to accommodate their business model foreshadows the efforts of contemporary gig economy firms. Importantly, the economic arguments for loosening vertical restraints have generally been premised upon (hypothetical) benefits to consumers—without considering the welfare of workers, franchises, or other smaller actors in the orbits of dominant firms. The Department of Justice engaged in this style of reasoning when it recently filed a brief in favor of franchisors in pending cases involving “no-poach” agreements, pointing to speculative consumer benefits as legitimate justifications for restraints upon competition in labor markets.

The antitrust paradox of the gig economy is that the least powerful actors in it, namely individual workers and entrepreneurs, are barred from engaging in economic coordination –even collective bargaining in order to receive a fair share of the revenues they generate—while powerful tech platforms are left free to coordinate prices beyond their firm boundaries. 

These antitrust obstacles to organizing and collective action by workers are not limited to the app-based ride-share sector. Antitrust law serves as an obstacle to collective action among a wide variety of workers and other small players who labor beyond the bounds of the employment relationship. The Federal Trade Commission itself has engaged in investigations and enforcement actions targeting workers and individual service-providers for engaging in reasonable collective action, from truck drivers to professional skaters, music teachers, and church organists.

And the effects of the rule on the structure of the economy are far greater than reported actions indicate, because private lawsuits, informal demands, and the fear of prosecution keep most such collective action entirely at bay. Work outside the traditional employment relationship continues to proliferate. It is perverse for antitrust law to pose obstacles to such collective action, which is necessary to balance power with larger firms.

While labor law reform is also necessary, this is not a problem that antitrust law can afford to outsource or ignore. Indeed, antitrust law’s current bias against democratic cooperation—including coordination among workers—and in favor of top-down corporate control has contributed more broadly to the institutional weakness and perceived illegitimacy of workers’ collective action rights, even when those rights are grounded in labor law.

Given the original purposes of antitrust law, its current stance toward workers is perverse. It should do more to restrain the control exerted by powerful firms, from franchisors to ride-share platforms to trucking companies, over workers and small players. At the same time, it should not impose obstacles upon workers’ attempts to engage in collective bargaining or other collective action in order to better their conditions, by balancing the bargaining power of more powerful contracting parties. And in navigating these and all other issues arising under antitrust law, decision-makers should not justify harms to workers by means of often-speculative benefits to consumers.

Sanjukta Paul, “The Antitrust Paradox of the Gig Economy” Canadian Law of Work Forum (April 2 2020): https://lawofwork.ca/?p=12201