Pennsylvania Supreme Court Bars “No-Hire” Clauses Between Businesses
The Pennsylvania Supreme Court recently held that a contractual no-hire or “no poach” provision in a services contract between sophisticated business entities is not enforceable under the laws of the Commonwealth of Pennsylvania. This important case is entitled Pittsburgh Systems, Inc. v. Beemac Trucking, et. al., case no. 31 WAP 2019.
On August 30, 2010, Plaintiff, Pittsburgh Logistics Systems, Inc. (PLS) a third-party logistics provides that arranges for the shipping of its’ customers’ freight with selected trucking companies entered into a written agreement with Defendant, Beemac Trucking (“Beemac”), a shipping company that conducted non-exclusive business with PLS. That contract contained both non-solicitation and no-hire provisions. While that contract was in force, Beemac hired four PLS employees, who were not parties to the agreement between these two sophisticated entities.
This crucial decision addresses the novel issue of whether or not the no-hire or no-poach provisions contained in that contract were enforceable according to Pennsylvania law. Because this was an unknown issue, the Court looked to other states (Texas, California, etc.) to see how they decided the case.
The Supreme Court of Pennsylvania held that the no-hire or no-poach provision was a “restraint on trade because the two commercial entities agreed to limit competition in the labor market by promising to restrict the employment mobility of PLS employees.” The Court reasoned 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 training” the “no-hire provision [was] both greater than needed to protect PLS’s interest and create[d] a probability of harm to the public.”
Moreover, the Court held that the anti-poaching provision was “overbroad because it preclude[d] Beemac, and any of its agents or independent contractors, from hiring, soliciting, or inducing any PLS employee or affiliate for the one-year term of the contract plus two years after the contract end[ed]. The no-hire provision [also] precluded Beemac from hiring or soliciting all PLS employees, regardless of whether the PLS employees had worked with Beemac during the term of the contract.”
The Pennsylvania Supreme Court also reasoned that the no-hire provision impairs the employment opportunities and job mobility of PLS employees, who [were] not parties to the contract, without their knowledge or consent and without providing consideration in exchange for [the impairment].”
Finally, the Court held that the provision “undermine[d] free competition in the labor market in the shipping and logistics industry, which create[d] a likelihood of harm to the general public.” Apparently, the Court was concerned about anti-trust and restraints on trade. They were likely thinking about the potential effects of consolidation within specific industries, such as logistics.
As stated above, none of the employees signed the contract. They did not receive any consideration, which is required under Pennsylvania law to create an enforceable restrictive covenant. If upheld, these employees who are neither a party to the contract between the two sophisticated entities nor received any benefit other than employment with their former employer, PLS would have been barred from working for Beemac.
Perhaps, suppose both parties had included the individual employees (they wanted to restrain) in the contract and provided some sort of consideration for the restriction. In that case, the Court may have enforced the provision (assuming no harm to the general public)? But based upon these facts, the Court did not.