For the first time in Pennsylvania, the Supreme Court recently took on the issue of whether a no-hire provision (i.e., no-poaching) in a services contract is enforceable under Pennsylvania law. Ultimately, in Pittsburgh Logistics Systems, Inc. v. Beemac Trucking LLC, et al., the Court unanimously held that the no-hire provision at issue was unenforceable and a violation of public policy as a restraint on trade and restriction on the freedom of employment.
The services contract at issue was between two trucking companies, Pittsburgh Logistics and Beemac Trucking. The services contract contained both a non-solicitation provision and the no-hire provision. Essentially, the provision was intended to prevent either company from hiring the other’s employees.
Those provision at issue was as follows:
- 14.3 The parties acknowledge that during the term of the Contract there may be disclosed to CARRIER [Beemac] confidential information concerning PLS’ operations, including, but not limited to, the names and addresses of Shippers and others who are clients of PLS, volumes of traffic and rate data. During the term of this Contract and for a period of one year after termination of this Contract, CARRIER hereby agrees that it will not, either directly or indirectly, solicit any individual Shipper or other client of PLS, back-solicit and/or transport for itself, without the involvement of PLS, any freight that CARRIER handles pursuant to this Contract or freight which first becomes known to CARRIER as a result of CARRIER’S past, present or future dealings with PLS. . . . 14.6 CARRIER agrees that, during the term of this Contract and for a period of two (2) years after the termination of this Contract, neither CARRIER nor any of its employees, agents, independent contractors or other persons performing services for or on behalf of CARRIER in connection with CARRIER’S obligations under this Contract will, directly or indirectly, hire, solicit for employment, induce or attempt to induce any employees of PLS or any of its Affiliates to leave their employment with PLS or any Affiliate for any reason. Id. at 9-10.
While the Contract was in force, Beemac hired four PLS employees. Thereafter, PLS filed an action in the Court of Common Pleas of Beaver County against Beemac alleging breach of Contract, tortious interference with Contract, violation of the Pennsylvania Uniform Trade Secrets Act, 12 Pa.C.S. §§ 5301 – 5308, and civil conspiracy. PLS sought injunctive relief, and on December 1, 2016, the Beaver County court issued an order enjoining Beemac from employing the former PLS employees and soliciting PLS customers pending a hearing. PLS also filed separate actions against the employees for alleged violations of non-competition and non-solicitation provisions of their employment contracts with PLS. The trial court ultimately held that the employees were not enjoined from working for Beemac. The trial court noted a lack of caselaw in PA regarding no-hire covenants between contracting parties and therefore looked to other jurisdictions for guidance. For example, while Wisconsin has held that such provisions are void against public policy, e.g., Heyde Cos., Inc. v. Dove Healthcare LLC, 654 N.W.2d 830 (Wis. 2002), whereas Illinois has deemed them to be a permissible restraint on trade, see e.g., H & M Commercial Driver Leasing, Inc. v. Fox Valley Containers, Inc., 805 N.E.2d 1177 (Ill. 2004). Ultimately, the Beaver County Court held that the no-hire contracts should be void against public policy as they “essentially force a non-compete agreement on employees of companies without their consent, or even knowledge, in some cases.” On appeal, the Superior Court upheld the trial court, noting that the provision violated public policy by preventing employees (who are not parties to the Contract) from finding alternative work opportunities in the same industry. The Superior Court noted that such a restriction might be enforceable between employer and employee, but again, the focus was on whether two companies could contractually restrict their employees.
The Supreme Court ultimately agreed with the lower courts. In reaching its decision, the Court applied its balancing test used in evaluating other restrictive covenants to determine the reasonableness of the restraint in light of the parties’ interests that the restraint aims to protect and the harm to the other contractual parties and the public. The Court acknowledged that “PLS had a legitimate interest in preventing its business partners from poaching its employees, who had developed specialized knowledge and expertise in the logistics industry during their [employment] at PLS.” However, the Court ultimately concluded that “the no-hire provision was both greater than needed to protect PLS’s interest and create[d] a probability of harm to the public.” The Court explained that the provision was “overbroad because it preclude[d] Beemac … from hiring, soliciting, or inducing any PLS employee,” regardless of whether Beemac ever had contact with that employee, and the provision lasted for the one-year term of the commercial Contract plus two years thereafter.
Notably, the Court’s concern was on the likelihood of real harm to the employees who were not parties to the Contract, but would nevertheless be deprived of their current job and livelihoods if the provision was enforced.
It is important to note that the Court did not hold that all no-hire provisions are invalid as a matter of law. Therefore, like non-compete agreements and other restrictive covenants, no-hire provisions must be analyzed by applying the balancing test on a case-by-case basis. Nevertheless, companies should be cautioned when looking to incorporate a no-hire provision into a contract. Best practice would be to have the provision reviewed to ensure that it is no broader than necessary and to discuss whether there are other less restrictive alternatives.