Supply-Chain Wage Theft as Unfair Method of Competition
abstract. This Note argues that we should understand wage theft in the fissured economy as a competition problem, not just a labor problem. Specifically, it argues that the Federal Trade Commission (FTC) should use its “unfair methods of competition” authority under Section 5 of the Federal Trade Commission Act to find supply-chain wage theft unlawful under certain circumstances. The Note first recovers and reasserts a historical understanding of substandard wages as an unfair method of competition. It then applies this understanding to the modern fissured economy, proposes FTC action, and defends the merits of the proposal.
author. J.D. expected 2025, Yale Law School; B.S.F.S. 2019, Georgetown University. Many thanks to Alvin Klevorick, Amy Kapczynski, Andrew Costa-Kelser, Christine Jolls, David Seligman, David Weil, Luke Herrine, Sally Dworak-Fisher, Sandeep Vaheesan, William Eskridge, Daniel Backman, Grace Watkins, Gustavo Berrizbeitia, Matt Buck, Michael Swerdlow, Peter Morgan, Teddy Watler, and anonymous reviewers for helpful discussions, comments, and suggestions. Thanks to the editors of the Yale Law Journal, particularly Sloane Weiss, for time, labor, and recommendations that vastly improved this piece. All errors are mine.
Introduction
The United States faces a “wage theft epidemic”1 in an increasingly “fissured”2 economy. This Note offers a novel theory of how fissuring implicates fair competition, and it raises a new way to create accountability for a specific labor practice, supply-chain wage theft, using competition-law authorities. As David Weil and others have explained, “fissuring” describes a reorganization of business activity that purports to disconnect “control” over work from legal “responsibility” for work-law compliance,3 through arrangements like “subcontracting, franchising, and supply-chain structures.”4 Work-law obligations generally turn on “employer” status: a firm must, for example, ensure that workers receive the minimum wage only if they “employ” those workers.5 In fissured work arrangements, “lead” firms—Weil’s term for “[l]arge businesses . . . operating at the top of their industries”6—design their operations to attempt “to avoid employer status.”7 At the same time, these firms use their market power and contracting to maintain “employment-like” authority over the work performed on their behalf.8 Taken together, lead firms “have their cake and eat it too”9: they can dictate the most intricate details of supply-chain work while dropping responsibility for the labor protections of supply-chain workers.10
A large body of evidence suggests that fissuring reduces wages, in part, by increasing wage theft among corporate suppliers and contractors. Across the American economy, extensive fissuring consistently coincides with near-endemic disregard for wage-and-hour laws.11 In some cases, lead businesses cause certain wage theft by demanding contract prices so low that contractors cannot possibly pay workers in accordance with the law.12 The lead firms who produce this wage theft, however, are not legally responsible under employment laws as currently interpreted,13 and labor enforcers can do little to hold them accountable with their existing authority.14 Department of Labor (DOL) officials, finding substandard wages to be ubiquitous among contractors in industries like garment production,15 have had to resort to begging lead businesses to “begin conversations”16 and “come to the table,”17 even when agency investigations clearly identify the behavior of these firms as the root of the problem.18
An emerging body of scholarship has considered the intersection of labor and competition in the fissured economy.19 For the most part, however, contemporary understandings of “fair” economic practices silo product markets and labor markets. When commenters think about “fair” product-market competition, they usually focus on product-market practices—for example, how a company prices its goods or advertises its services. Likewise, when commenters think about “fair” labor practices, they generally consider the interaction between employer and worker, such as how much an employer pays or how long they require a worker to labor.20 Recent work, most notably by Eric A. Posner, has argued that certain practices traditionally viewed through a product-market lens, like mergers, have significant impacts on labor-market competition and outcomes for workers.21 This Note seeks to demonstrate the inverse: labor-market practices—like how a company treats its workers—affect fair product-market competition, that is, the practices that are on-limits and off-limits to business competitors seeking advantage.22
This Note proceeds in two main parts, one historical and one forward-looking. The Note demonstrates that, historically, many Americans understood “fair” labor practices and “fair” product-market competition as intertwined. Since the early twentieth century, advocates have understood the use of a certain labor practice, the payment of substandard wages, as a type of unfair product-market competition. This understanding continued throughout national debates on wage-and-hour legislation during the 1930s, when political, business, and labor leaders repeatedly conceived of substandard wages as “an unfair method of competition.”23 The theories of unfair competition expressed then—substandard wages as competition by subversion of public norms and substandard wages as taking an implicit subsidy from workers and the public—are more relevant than ever in today’s fissured economy.24 I seek to “recover” and reassert this historical understanding.25
Reassertion of these past conceptions is important for several reasons. In the last few years, “New Brandeisians” have challenged the Chicago School antitrust paradigm, seeking to train competition enforcement on “the harms caused by undue market power,” and thereby move back toward the original intent of the antitrust laws.26 Intellectually, the history that this Note examines provides important context for new works offered by neo-Brandeisian scholars that emphasize the ways in which fissuring and other labor practices may impede fair competition.27 The competition lens is not a new way of thinking about wage theft and other labor practices: the understanding that labor-market abuses undermine fair product-market competition was once widespread, contributing to arguments before the Supreme Court and the passage of two national wage-and-hour laws. By explicitly naming two distinct theories of how competition on subminimum wages is unfair and developing those theories as a through line from the 1910s through the early 1940s, this Note builds upon previous historical scholarship28 and follows other authors in providing historical grounding for neo-Brandeisian competition-law work.29
More practically, this history informs ongoing debates about the relationship between “labor” issues and “competition” issues. Under Chair Lina M. Khan, the Federal Trade Commission (FTC) has taken action at the crossroads of these fields.30 Opponents of these actions have asserted a strict delineation between the spheres of labor and competition.31 The history recounted by this Note shows that members of the American government, labor movement, and business community have long viewed these spheres as interrelated and overlapping: the payment of substandard wages is both a “labor” harm and a “competition” harm, and such treatments are not mutually exclusive. As debates about new competition action continue, we should recognize this link once again.
This historical view offers a new way of understanding the fissured economy, where both historical theories—what this Note calls the public-standards theory and the implicit-subsidy theory—are increasingly apposite. Applying this history to the modern day shows that wage theft in the fissured economy is not just a labor problem but also a competition problem. Lead firms in fissured supply chains contribute to worker abuse when they produce supply-chain wage theft, cheating hard-working Americans and relegating many to poverty.32 Importantly, however, these firms can also use resultant stolen wages to reduce costs, outcompeting honest competitors who follow the law and ensure that their contractors do as well.33 Advocates debating national wage-and-hour laws recognized that lead firms would use contracts to gain unfair competitive advantages from wage theft.34 In the modern economy, fissuring has rendered their solution of extending liability to the contractor insufficient.35 Given the inability of labor enforcers to reach lead firms, policy innovation is necessary to protect workers and stop unfair competition on stolen wages.
Reviving the notion that labor-market practices implicate product-market fairness broadens the range of authorities that officials might use to address supply-chain wage theft. Spurred by its historical recovery, this Note points to a new route to reestablish wage accountability in the fissured economy through competition-law enforcement. Specifically, it proposes that the FTC use its “unfair methods of competition” authority under Section 5 of the FTC Act36 to hold lead businesses responsible for failing to take “reasonable care to prevent” supply-chain wage theft.37 Adapting a proposal by Brishen Rogers, the Note argues that when a company negligently fails to prevent supply-chain wage theft, defined to include wage theft in all entities from which a firm directly or indirectly “purchase[s] goods or services” within the United States,38 that company gains an unfair competitive advantage in violation of Section 5.
The Note makes this argument in four Parts. Part I considers the main problem: “the epidemic of wage theft” affecting American workers in the fissured economy. Part II recovers a historical understanding of substandard wages as a competition problem. Part III introduces the Note’s main policy prescription: FTC regulation of supply-chain wage theft using Section 5 of the FTC Act. Part IV explains why this proposal is likely to be effective at reducing supply-chain wage theft.