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NAW News

Legal Update

- September 2012

Kansas Supreme Court Declares All Vertical Minimum Resale Price Agreements Violate State Antitrust Law

In 2007, the U.S. Supreme Court overruled its own 1911 decision in the Dr. Miles case and held that a manufacturer does not necessarily violate the antitrust laws by establishing a minimum resale price for its products and enforcing the policy by terminating a wholesaler-distributor or other reseller who sells below the minimum price. (Leegin Creative Products, Inc., v. PSKS, Inc. d/b/a Kay’s Kloset… Kay’s Shoes, Docket No. 06-480).

The Court ruled that vertical agreements between a manufacturer and a distributor establishing minimum resale prices can have either procompetitive or anticompetitive effects, depending upon the circumstances in which they are formed. Thus, these agreements should no longer be per se (or automatically) unlawful, as previously ruled in the Dr. Miles case. Rather, federal courts should apply the “rule of reason” standard to decide, on a case-by-case basis, whether a particular vertical price restraint violates federal antitrust law.

It is important to note that federal antitrust law does not preempt a state’s antitrust law. For example, in O’Brien v. Leegin Creative Leather Products the Kansas Supreme Court declined to follow the U.S. Supreme Court’s decision in Leegin, and held that under Kansas antitrust law all vertical minimum price agreements are unlawful—whether or not the agreement may have procompetitive effects.

Hostility to the U.S. Supreme Court decision is likely to continue at the state level. Thirty-seven states filed an amicus brief in the Leegin case, arguing in favor of the Supreme Court continuing the ban on all vertical minimum resale price agreements. In 2009, Maryland amended its state antitrust law to ban all such agreements. Congressional action to amend federal antitrust law and reverse the Leegin decision is also a possibility.

NLRB Launches Webpage Describing Protected Concerted Activity by Employees

The National Labor Relations Board (NLRB) has launched a public webpage that provides examples of the right of employees to take concerted action under the National Labor Relations Act (Act), even if they are not union members. Section 7 of the Act states “employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The law also states that employees have “the right to refrain from any or all such activities.”

An employer may not interfere with, restrain, discipline or terminate an employee because the employee engages in “concerted activities” or otherwise exercises his or her Section 7 rights. The source of interference may be a policy or work rule that is overly broad and could be interpreted by employees to prohibit activity protected by the Act. An employer who interferes with protected activity may end up defending an employee’s unfair labor practice charge filed with the NLRB.

The page, at www.nlrb.gov/concerted-activity, contains the Board’s summary of more than a dozen select cases that involved employees engaging in alleged protected concerted activity, including the use of social media to discuss wages, hours and other workplace issues.

HR Investigations Constrained by NLRB Ruling

When conducting an investigation of alleged workplace misconduct or other incidents, employers often will request, or direct, an employee complainant or other employee witnesses not to discuss the investigation with other employees while the investigation is ongoing. This practice was followed by the employer charged with an unfair labor practice action before the NLRB in Banner Health System d/b/a Banner Estrella Medical Center, 358 NLRB No. 93. The decision may be viewed at: http://pdfserver.amlaw.com/cc/BANNER.pdf

The labor law issue presented—does an employer’s general prohibition on employee discussion of an ongoing investigation with co-workers violate the employee’s rights under Section 7 of the National Labor Relations Act to engage in concerted activities with other employees for mutual aid and protection.

The administrative law judge who heard the case upheld this practice, ruling that the employer had a legitimate business reason for making this request, namely, protecting the integrity of the investigation. In a 2-1 ruling, the NLRB disagreed. According to the Board, to justify a prohibition on employee discussion of an ongoing investigation, an employer must first determine (and be able to prove) whether, in any given investigation, there is a legitimate business justification for the prohibition (e.g., witnesses need protection, evidence is in danger of being destroyed, testimony is in danger of being fabricated, there is a need to prevent a cover up). Since the employer did not present evidence as to specific business justification in this case, the company was ordered to cease and desist from “maintaining or enforcing the rule that employees may not discuss with each other ongoing investigations of employee misconduct.”

To compound matters, this ruling can be in conflict with guidance from the Equal Employment Opportunity Commission on how an employer should respond to complaints of unlawful harassment in the workplace. In Enforcement Guidance: Vicarious Employer Liability for Unlawful Harassment by Supervisors the agency states that a company’s anti-harassment policy and complaint procedure should assure that the employer will protect the confidentiality of harassment complaints to the extent possible. Protecting confidentiality becomes difficult if the company can’t direct employees to refrain from discussing a harassment complaint with co-workers.

NLRB Acting General Counsel Issues a Third Report on Social Media Policies

The NLRB acting general counsel has issued three reports analyzing the Board’s recent enforcement actions involving employer implementation and enforcement of policies that regulate employee use of social media to discuss workplace issues. The reports set out various social media policy provisions and other work rules that the NLRB considers overly-broad and unlawful restraints on employee rights to engage in protected concerted activity on social media platforms. The first two reports may be viewed at:

http://mynlrb.nlrb.gov/link/document.aspx/09031d458056e743 and

The third report contains the acting general counsel’s analysis of numerous actual employer policies and rules governing topics such as employee use of social media to discuss workplace issues, confidentiality, privacy, commenting on legal matters and contact with the media or government agencies. (Office of General Counsel, Division of Operations-Management, Memorandum OM (12-59)). The report then expresses counsel’s opinion whether the cited policies violate the Act. It also includes one company’s social media policy that counsel believes is, in its entirety, lawful under the Act (pp. 22-24). The report is at:

Although this report is intended to provide guidance, employers are well advised to consult with their own legal counsel for professional advice when adopting or revising employment policies and work rules.