Alerts and Updates
Pennsylvania Superior Court Holds "No-Hire" Provision in Commercial Contract Between Two Businesses Unenforceable in a Case of First Impression
February 21, 2019
The Superior Court, analyzing cases in other jurisdictions addressing similar contract provisions, affirmed the trial court’s order refusing to enforce the no-hire provision.
On January 11, 2019, the Pennsylvania Superior Court, sitting en banc, affirmed a trial court decision that a “no-hire” provision in a commercial contract between two companies—i.e., an agreement by which one company agrees not to solicit or hire the employees of the other for a certain period of time—violated public policy, and was thus unenforceable under Pennsylvania law. Pittsburgh Logistics Systems, Inc. v. Beemac Trucking, LLC and Beemac Logistics, LLC, No. 134 WDA 2017, 2019 Pa. Super. 13 (Jan. 11, 2019).
In Pittsburgh Logistics, Pittsburgh Logistics Systems (PLS), a third-party logistics provider, entered into an agreement with one of its customers, BeeMac Trucking and BeeMac Logistics, for PLS to provide logistics services to BeeMac. The agreement included a no-hire provision prohibiting BeeMac from directly or indirectly hiring, soliciting for employment, inducing or attempting to induce any employee of PLS or any of its affiliates to leave their employment with PLS or the affiliate during the term of the agreement and for a period of two years thereafter. After four PLS employees joined BeeMac, PLS sued BeeMac and its former employees seeking an injunction to enforce, among other things, the no-hire provision. The trial court, noting that a provision such as the one between PLS and BeeMac has never been the subject of litigation in Pennsylvania in any reported case, refused to enforce the no-hire provision, citing cases in other jurisdictions where similar provisions were held to be unenforceable. PLS appealed the trial court’s denial of its preliminary injunction motion seeking to enforce the no-hire provision.
The Superior Court began its analysis by noting that review of a trial court's order granting or denying preliminary injunctive relief is “highly deferential.” The Superior Court, analyzing cases in other jurisdictions addressing similar contract provisions, affirmed the trial court’s order refusing to enforce the no-hire provision.
Of particular significance to the Superior Court’s decision was the fact that “there is no proof that the employees knew of the clause between the companies” and the similar restrictive covenant in the employees’ contracts with PLS was found unenforceable by the trial court because it was oppressive and/or an attempt to foster a monopoly. Id. at *9. In addition, the Superior Court found that the no-hire provision violated public policy by placing an employee “under servitude by a contract to which he is not a party.” Id. at *10 (quoting Richards Energy Compression, LLC v. Dick Glover, Inc., 2013 WL 12147626, at *1 (D.N.M. Sept. 16, 2013)). The Superior Court also noted that, because each new agreement between an employer (PLS) and another company (a new carrier) creates an additional restriction on PLS’ employees, the no-hire provision fails for lack of additional consideration to the employees.
In dicta, the Superior Court left open the possibility that narrowly tailored agreements between companies not to hire the other’s employees may be enforceable under Pennsylvania law. The Court specifically cited the provision at issue in H&M Commercial Driver Leasing, Inc. v. Fox Valley Containers, Inc., 805 N.E.2d 1177 (Ill. 2004), which prohibited employment of only those drivers that had been supplied by one contracting party to the other. The Court found that the no-hire provision between PLS and BeeMac was not narrowly tailored because it was meant to prevent BeeMac, or any agent or contractor of BeeMac, from hiring any PLS employee, regardless of whether the employee had worked with BeeMac while employed by PLS.
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