Are Law Schools Violating Antitrust Law?

Thom Lambert at Truth on the Market thinks U.S. law schools may be engaged in anticompetitive (and illegal) practices with regard to lateral recruiting.

Apart from harming individual employees, non-poaching agreements occasion a societal harm: They preclude labor resources from being channeled to their highest and best uses. To poach a competitor’s star employee, you must offer to pay that employee more than she’s currently making (or otherwise adjust the terms of her employment in a way she deems desirable). Her current employer will usually have a chance to counter your offer. If you win the bidding war, it’s likely because the current employer’s willingness-to-pay for the employee—an amount reflective of the degree by which the employee enhances her firm’s value—is less than yours. If you can derive more value from the employee, you should have her. When employers agree to limit competition for workers, they preclude labor resources from flowing to their highest and best ends, causing an “allocative inefficiency.”

So perhaps DOJ should go after the members of the Association of American Law Schools. Pursuant to a Statement of Good Practices to which AALS members scrupulously adhere, each law school has agreed to limit competition with its rivals by refraining from making lateral offers of employment after March 1 each year. Unlike the eBay/Intuit arrangement, the competing law schools’ trade restraint is applicable for only part of the year–from March 1 until the fall hiring season–but it has the same basic effect as the eBay arrangement. And, despite the law schools’ claims to the contrary, it isn’t justified on efficiency grounds.

By preventing law professors from credibly threatening to leave their existing employers after March 1, the AALS restraint significantly reduces professors’ ability to negotiate higher wages or more favorable employment terms. If you announce a competing school’s offer six weeks before fall classes start, you’re much more likely to receive an attractive counter-offer from your current employer than you would be if you sprang the news of your potential departure six months before the start of classes, when you’re more easily replaced. What’s more, law schools generally don’t tell professors what they’ll be earning the following year until after March 1, when it’s too late for a disgruntled professor to secure another offer elsewhere. The AALS restraint thus artificially depresses the salaries of a school’s most desirable professors.

UPDATE: FWIW, I am not sure these sorts of agreements should be illegal. But if they are, I see no reason for law schools to have a de facto exemption from the rules applied to other institutions. I would also note that declaring these sorts of horizontal agreements does not leave law schools without other options to prevent the potential disruption caused by late-spring faculty departures. Among other things, individual schools could include provisions in faculty contracts concerning the amount of notice required and providing for other limits on sudden departures.