What California’s DOJ Said at the 2024 Antitrust Law Section Spring Meeting

1. CALIFORNIA’S PARTICIPATION IN MULTISTATE ENFORCEMENT ACTIONS

On November 6, 2023, California and three other states joined the US Department of Justice’s (DOJ) complaint against Agri Stats Inc., alleging Agri Stats violated Section 1 of the Sherman Act by facilitating exchange of competitively sensitive information among US meat processors.

• Agri Stats provides subscription and data analytics services that enable processors to upload and view sales figures and other competitive data. Agri Stats then generates detailed industry- and facility-level reports summarizing the data for participating processors to use in setting their prices and output. The participating processors account for a majority of meat sales in the United States.
• DOJ and the coalition of state attorney generals allege that Agri Stats’ data allowed the processors to engage in a coordinated effort to increase prices of chicken, pork and turkey. Agri Stats also allegedly encouraged the processors to use its reports for anticompetitive purposes.
• At the Spring Meeting, Blizzard highlighted the Agri Stats case as a high-profile multistate enforcement action that implicates key agricultural markets and impacts “the cost of putting dinner on the table.” Blizzard also implied that the California attorney general was looking at bringing information-sharing cases in California similar to the Agri Stats case.

2. CALIFORNIA PASSES LAWS EXPANDING PROTECTION OF LABOR COMPETITION

In light of the heightened enforcement focus on competition in labor markets, Blizzard discussed two California statues that further expand California’s strong protection of open competition and employee mobility.

California currently voids “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind,” including post-employment noncompete agreements and other restrictive covenants, subject to very narrow exceptions. See Cal. Bus. & Prof. Code § 16600.

• Senate Bill No. 699, codified as Section 16600.5, declares that any contract “that is void under [Section 16600]” is unenforceable, regardless of where and when the contract was signed. An employer who enters into, or attempts to enforce, a noncompete or restrictive covenant that is deemed void commits a civil violation. In addition to declaratory relief, employees may bring private actions against employers for violation of Section 16600 and can request injunctive relief, actual damages and attorney’s fees.
  • According to Blizzard, this provision reaches noncompete agreements entered in California and outside of California. Future enforcement of the new statute is likely to raise the question of whether non-California noncompetes will be subject to Section 16600.5 even if noncompetes are legally permitted in that state.
  • Blizzard also believes that this statute reaches no-poach agreements because the statute does not even require the employee to be a party to the anticompetitive arrangement.
• Assembly Bill No. 1076, codified as Section 16600.1, bans noncompete clauses in employment contracts and requires employers to notify all current and former California employees who had entered a noncompete agreement that such agreement is now void. The notification must be provided in written communications to the employee by February 14, 2024. A violation of Section 16600.1 also constitutes an act of unfair competition under Section 17200, California’s Unfair Competition Law.

Section 16600.5 and Section 16600.1 went into effect January 1, 2024. According to Blizzard, California’s enforcement of open competition and employee mobility helps fuel the strong California economy.

3. CALIFORNIA ATTORNEY GENERAL’S OFFICE IS ACQUIRING RESOURCES TO PERFORM ECONOMIC ANALYSES AND FORECASTING AMENDMENTS TO THE CARTWRIGHT ACT

As part of the broader effort to effectively implement necessary antitrust enforcement, Blizzard remarked that the attorney general’s office, which is the largest attorney general’s office in the country, is onboarding an on-staff economist.

Additionally, Blizzard pointed out that the California Law Revision Commission reviewed and entertained the possibility of revising the Cartwright Act, California’s flagship antitrust statute. See Section § 16700 et seq. Blizzard believed that the recommendations resulting from the review were likely to be implemented through new California legislation in the next one to two years.

• Starting in 2022, the Commission began a comprehensive study to determine whether the Cartwright Act should be amended to (1) incorporate monopolization offenses, (2) place greater emphasis on reduction in innovation as a form of antitrust injury and (3) further highlight the benefits of free market competition.
• On April 1, 2024, several working groups in the Commission concluded their research and provided recommendations. They outlined the following potential changes to the Cartwright Act:
  • Expanding the Cartwright Act’s scope to cover single-firm conduct, typically condemned under Section 2 of the Sherman Act
  • Broadening the current standard on antitrust harm to include harm to suppliers, workers, growers, retailers and others
  • Expanding current state merger review to possibly codify a separate merger notification requirement in California
  • Enacting specific legislation related to the technology industry to give weight to consumer harm not already implicated by existing legal frameworks
  • Taking more skeptical approaches to vertical agreements

WHAT THIS MEANS 

• California is increasing its antitrust enforcement activities in tandem with federal enforcers and in collaboration with other state attorneys general. Companies should revisit compliance guidelines as they relate to information sharing, noncompetes and no-poach arrangements.
• California takes the lead in enacting legislation banning noncompete and no-poach agreements in all instances, in parallel with the Federal Trade Commission’s promulgation of its own rule on noncompetes issued on April 23. Companies doing business in California involving Californian employees must ensure compliance with the state laws, in addition to the new federal one.
• The implications of the extraterritorial reach of Sections 16600.1 and 16600.5 to non-Californian employees and employers remain to be seen. Companies should consult with experienced counsel to discuss the ramifications of these new statutes for their preexisting and current employment contracts.

McDermott’s Los Angeles-based antitrust, litigation and employment teams are well-versed in these matters and look forward to assisting clients in navigating the California attorney general’s continued enforcement activities. The Firm’s Los Angeles office has an extensive history of helping technology industry clients as well as suppliers and retailers, all of whom are likely to be affected by the state’s enforcement initiatives in the antitrust space.