Antitrust battle continues between WGA, talent agencies

A Hollywood union's recent amendments to its union rules sparked federal antitrust lawsuits by three of Hollywood's top talent agencies.

The Writers Guild of America, a labor union and the exclusive collective bargaining representative for writers in the entertainment industry, recently instituted new rules that prohibit its members from dealing with talent agencies that do not adopt the WGA's new "Code of Conduct." The WGA's new code prohibits its union members from dealing with talent agencies that continue to employ "packaging" arrangements, whereby agents forego individual commissions from their clients in lieu of "packaging fees" from production companies for providing pools of talent (writers, actors, directors, etc.). The code also prohibits WGA members from affiliating with "any entity that produces or distributes content." If members continue to deal with agencies that have not adopted the code, the members face sanctions, up to and including expulsion from the union.

Three of the "Big Four" talent agencies -- Creative Artists Agency, LLC, United Talent Agency, LLC, and William Morris Endeavor Entertainment, LLC -- individually brought suit alleging that the WGA's new Code of Conduct constitutes an illegal group boycott in violation of Section 1 of the Sherman Act, which prohibits any "contract, combination ... , or conspiracy, in restraint of trade." The talent agencies allege that the WGA has orchestrated a group boycott by requiring its members to refuse to deal with any agency that employs "packaging fees" and has coerced certain "showrunners" (i.e., independent contractors, producers of television content, and other employers in the television industry) to refuse to deal with the plaintiff-agencies. More than 7,000 writers and showrunners have allegedly fired their agents pursuant to the code.

In response, the WGA brought federal antitrust counterclaims against the agencies alleging that the "packaging fee" model was instituted by the talent agencies themselves and constitutes a price-fixing conspiracy aimed at reducing competition in the talent agency market, which also violates California's Unfair Competition Law. The WGA also counterclaimed that the packaging fees constitute unlawful "kickbacks" in violation of the federal Labor-Management Relations Act, and by using the proceeds from those fees to fund the agencies' enterprises and in-house production companies, the agencies have engaged in a "racketeering enterprise" in violation of the federal Racketeer Influenced and Corrupt Organizations Act. The agencies filed a consolidated complaint in the U.S. District Court for the Central District of California on Sept. 27. William Morris Endeavor Entm't, LLC, et al., v. Writers Guild of America, West, Inc., et al., 19-cv-05465 (C.D. Cal.).

On Oct. 11, the WGA filed a motion to dismiss the consolidated complaint, arguing that "it is black letter labor law" that the federal National Labor Relations Act provides the guild with the "exclusive right" to represent its members in contract negotiations and to adopt standards that talent agencies must meet. There is "no reason to set aside canonical labor law here," the WGA added.

Instead, the WGA argues that the Code of Conduct is designed to avoid potential financial conflicts of interest. The packaging fee model rewards agents for providing pools of talent to production companies, which can depress individual writers' compensation. According to the WGA, the agent's "primary interest becomes procuring, maximizing, and protecting those fees, instead of maximizing their writer-clients' compensation." And by prohibiting agents from affiliating with production companies, the code aims to avoid the situation where an agent has an ownership stake in the production company while simultaneously acting as a representative of a future employee of the production company. These regulations, the WGA argues, are "quintessential labor union" activities that are entitled to the "statutory exemption" from federal antitrust liability.

Under the statutory exemption, a union is exempt from federal antitrust liability when it acts in its self-interest and does not combine with non-labor groups. The agencies argue that the statutory labor exemption does not apply because the WGA has worked with non-labor groups to implement the code, including producers, managers, and attorneys.

In response, the Guild argues that the Supreme Court resolved the issue in H. A. Artists & Associates, Inc. v. Actors' Equity Association, 451 U.S. 704 (1981): A union does not combine with a non-labor group when it requires agents to satisfy conditions in order to represent union members. "This holding applies to agents, managers, or lawyers who represent Guild members," the WGA said.

The agencies also argued that the statutory exemption does not apply because the code does not address union members' "terms and conditions of employment." The WGA counters that courts have unanimously recognized that union rules designed to prevent financial conflicts of interest between agents and their union member clients are "intimately bound up" with wages and working conditions of union members.

Antitrust scrutiny in the labor market has been increasing ever since the U.S. Department of Justice announced its intention to focus on labor markets and prosecute "no-poach" agreements criminally. No-poach agreements prohibit companies from soliciting or hiring the employees of other companies. Since DOJ's announcement, several state attorneys general also have started to focus on antitrust issues in labor markets. Last month, the DOJ and the Federal Trade Commission also held a joint public workshop on the role of antitrust in labor markets.

Human resource professionals and other parties engaging in labor negotiations should be aware of government and private plaintiff focus on labor markets. While antitrust law allows traditional union negotiations on issues like wages and benefits, negotiations beyond those parameters likely carry additional antitrust risk in the current environment.

A hearing on the WGA's motion to dismiss is scheduled for Dec. 6. 