Cargill settles DOJ lawsuit to clear path for $4.5B chicken deal

Cargill Inc. and other poultry operators agreed to settle a Department of Justice lawsuit filed Monday alleging the companies conspired to suppress wages for its processing plant workers.

The DOJ filed the lawsuit, along with the settlement terms — or consent decree — Monday morning. The department's antitrust investigation was triggered by Cargill's and Continental Grain's proposed $4.5 billion joint acquisition of Sanderson Farms.

Cargill and Continental finalized their joint venture Friday. The companies plan to combine Sanderson Farms with Wayne Farms to form a new, privately held poultry business.

"The merits of this deal outweigh the potential costs of prolonged litigation," Cargill said in a statement Monday, "which is why we've agreed to a $15 million settlement of a lawsuit which alleges wage suppression by U.S. turkey and poultry producers to help facilitate its forward movement."

The suit, filed in federal court in Maryland, names Cargill, Sanderson Farms and Wayne Farms, along with a data consulting company known as Webber, Meng, Sahl and Co. and its president.

In its lawsuit, the Justice Department alleged the companies have been engaged in a multiyear conspiracy to exchange information about the wages and benefits of workers at poultry processing plants to drive down employee competition in the marketplace.

The government contends the data consulting firm helped to share the information about the workers' compensation with the companies and their executives. By carrying out the scheme, officials alleged, the companies were able to compete less intensely for workers and reduce the amount of money and benefits that they had to offer their employees, suppressing competition for poultry processing workers across the board, according to court papers.

"We believe the alleged claims lack merit and do not show a conspiracy to fix wages, nor do they show any improper actions by Cargill or its employees. The settlement is not an admission of guilt and Cargill denies any wrongdoing," Cargill said in its statement. "The company sets compensation independently to ensure that it pays fair and competitive wages to employees in each of our processing facilities."

The suit is the latest example of the Justice Department's antitrust enforcement targeting companies that the government believes engage in anticompetitive behavior to disadvantage workers or consumers. It also comes as the department continues a broader investigation into labor abuses in the poultry industry.

"Through a brazen scheme to exchange wage and benefit information, these poultry processors stifled competition and harmed a generation of plant workers who face demanding and sometimes dangerous conditions to earn a living," said Doha Mekki, the principal deputy assistant attorney general for the Justice Department's antitrust division.

The proposed consent decree would require the companies to pay $84.8 million in restitution for workers who were harmed by the unlawful information sharing network. Cargill is paying $15 million of that amount.

It also puts in place a federal monitor selected by the Justice Department to ensure compliance for the next decade.

The suit comes as Cargill and Continental Grain, of which Wayne Farms is a subsidiary, formed a joint venture to acquire Sanderson Farms, paying $203 per share in cash for a company that last year processed more than 4.8 billion pounds of meat.

Combined operations under the new venture will include poultry processing plants and prepared foods plants across Alabama, Arkansas, Georgia, Louisiana, Mississippi, North Carolina and Texas.

Before the deal, Cargill had chicken operations in Asia, Europe, Latin America and Canada — but not in the United States. While most of the lawsuit allegations relate to the chicken industry, Cargill's role in the alleged wage-sharing scheme relates to its U.S. turkey business.

Wayne Farms has more than 9,000 employees. It makes products under brand names including Wayne Farms fresh and prepared chicken, Platinum Harvest premium fresh chicken, Chef's Craft gourmet chicken, Naked Truth premium chicken and Ladybird premium chicken.

Sanderson Farms, based in Laurel, Miss., has 17,000 employees and 12 plants. It processes 13.6 million chickens per week.

The proposed consent decree would also resolve allegations that Sanderson Farms and Wayne Farms treated chicken farmers unfairly by using a system that reduced their pay for low performance.

The farmers sign contracts to raise the chickens, and the processing companies provide the birds and the feed. The farmers' pay is determined by how well they perform compared with other chicken growers. The Justice Department alleges that the companies' use of that compensation method, known as the "tournament system," resulted in their failure to provide information for farmers to evaluate and manage their financial risk.

Generally, chicken producers enter long-term contracts with meat companies that farmers say lock them into deals that fix their compensation at unprofitably low levels.

As part of that settlement, Sanderson Farms and Wayne Farms would be prohibited from reducing the base payments to chicken growers as a way to penalize them for under-performance. The consent decree would allow the companies to offer incentives and bonuses to growers.

The Associated Press contributed to this report.