By: Ashley L. Wilkinson
The way companies approach no-hire provisions in contracts between commercial entities may have been significantly upended, following a decision by the Superior Court of Pennsylvania.
On January 11, an en banc panel (a session in which a case is heard before all the judges of a court rather than by a select panel of judges) of the Superior Court affirmed the Beaver County Court of Common Pleas’ decision that a no-hire provision in a commercial contract between Pittsburgh Logistics Systems, Inc. (“PLS”) and Beemac Trucking (“Beemac”) was found to be unenforceable. Largely, what made it a surprise was the decision was made primarily on reasons of fairness to the employees, as opposed to general principles of contract law.
After four PLS employees went to work for Beemac, PLS sued to bar Beemac from employing them, pointing to the no-hire provision in the parties’ self-renewing motor carriage services contract. The provision prevented Beemac from hiring, soliciting for employment, inducing or attempting to induce any PLS employees to leave their job during the term of the contract and for two years after its termination.
The trial court, however, denied PLS’s request for a preliminary injunction for several reasons, including:
- PLS employees never agreed to the restrictions.
- PLS employees received no consideration for being a party to the no-hire provision.
- The scope of the no-hire provision was unreasonable and unnecessary to protect the legitimate business interests of PLS.
On appeal, the Superior Court affirmed the trial court’s decision, but PLS petitioned and was granted an en blanc hearing in which the Court again affirmed the ruling. The majority noted there is no Pennsylvania law addressing whether no-hire provisions between competing businesses were unenforceable restraints on trade, so the court first turned to contract principles, focusing on the impact to PLS’s employees.
The provision violated public policy, the majority concluded, because it enabled PLS to restrain its employees without providing them with consideration. The court also relied on out-of-state decisions, quoting authority that it “is one thing to uphold the restriction on an employee’s freedom where it results from an agreement entered into by the employee. But where the restriction on an employee’s freedom results from the employer’s agreement with another, the employee is deprived of his or her freedom without acquiescence and with no resulting benefit.” Additionally, a separate no-solicitation provision in the contract allowed the court to find the provision was redundant and the no-hire clause was a “back door restrictive covenant.”
A two-judge dissent highlighted why the ruling was peculiar in questioning whether the majority utilized the correct analytical framework in reaching the decision. The dissent pointed out that the clause at issue was a “no-hire provision that binds Beemac, not a non-compete clause binding PLS’s employees,” further disagreeing with the majority’s conflation of the no-hire provision as equivalent to an employee restrictive covenant.
Going forward, some may say the decision means no-hire provisions between commercial properties in a commercial contract – or any contract – may no longer be enforceable. Only time will tell how this decision will influence future contracts and litigation.
For assistance in matters involving employment-related disputes, please contact Ashley L. Wilkinson or any other Meyer, Unkovic & Scott Employment Law attorney with whom you have worked.
This material is for informational purposes only. It is not and should not be solely relied on as legal advice in dealing with any specific situation.