“No-Hire” Agreements Unenforceable in Pennsylvania
May 4, 2021
On April 29, 2021, the Pennsylvania Supreme Court, in a case of first impression, ruled in the case of Pittsburgh Logistics Sys. Inc. Beemac Trucking, LLC, 2021 PA LEXIS 1853 that “no-hire” agreements are unenforceable in Pennsylvania. This is significant to Pennsylvania businesses and employees who work for companies with these “no-hire” or “no-poach” provisions in their agreements.
In this case, Pittsburgh Logistics Systems, Inc. (“PLS”) is a third party logistics provider for the shipping of customers’ freight with selected trucking companies including Beemac Trucking, LLC (“Beemac”). PLS and Beemac entered into a contract which included a “no-hire” provision which prohibited Beemac from hiring or soliciting any employees of PLS during the term of their one year contract or for two years after its termination. While the contract was in force, Beemac hired four PLS employees. PLS filed suit for breach of contract, tortious interference with contractual relationship and violation of the Pennsylvania Uniform Trades Secret Act, 12 Pa.C.S. Sections 5301-5308 and civil conspiracy. In a related action, PLS sued the four employees for breach of contract alleging that they breached their employment contracts.
Other states have ruled both ways on this issue. However, this is the first time that the Pennsylvania Supreme Court has weighed in on the question. The Supreme Court held at pages 41-44:
While the enforceability of a no-hire provision ancillary to a services contract between two businesses is an issue of first impression to this Court, we will apply the reasonableness test that applies to ancillary restraints of trade. [Footnote omitted]. Here, the no-hire provision was ancillary to the principal purpose of the shipping contract between PLS and Beemac. The no-hire provision is a restraint on trade because the two entities agreed to limit competition in the labor market by promising to restrict the employment mobility of PLS employees. See Restatement (Second) of Contracts Section 186(2). (“A promise is in restraint of trade if its performance would limit competition in any business.”). PLS had a legitimate interest in preventing its employees from using their specialized knowledge and skills in competition with the employer. However, the no-hire provision is both greater than needed to protect PLS’s interest and creates a probability of harm to the public. It is overbroad because it precludes Beemac and any of its agents or independent contractors from hiring, soliciting, or inducing any PLS employees or affiliate for the one year term of contract plus two years after the contract ends. The no-hire provision precludes Beemac from hiring or soliciting all PLS employees, regardless of whether the PLS employees had worked with Beemac during the term of the contract… Further, the no-hire provision creates a likelihood of harm to the public, i.e. non-parties to the contract. The no-hire provision impairs the employment opportunities and job mobility of PLS employees, who are not parties to the contract, without their knowledge or consent and without providing consideration in exchange for this impingement… Balancing PLS’s interest against the overbreadth of the no-hire provision and the likelihood of harm to the public we conclude that the no-hire provision is unreasonably in restraint of trade and therefore unenforceable.
This is welcome news for plaintiff employment lawyers and employees. However, anti-trust lawyers might find it curious since labor is not considered an article of commerce for which restraint of trade would seem to apply. However, this is state law public policy and the Pennsylvania Supreme Court is the highest court in the Commonwealth. Attorneys representing businesses with no-hire provisions in their contracts should discuss this case with their clients. If you have a question about a no-hire or any other employment contract, contact us online or call (412) 338-1145.