This post was written by John Paul Regan.
On April 29, 2021, the Pennsylvania Supreme Court issued its long-awaited decision in Pittsburgh Logistics Systems, Inc. v. Beemac Trucking LLC, et al. (“PLS”). In PLS, the High Court considered whether a contractual “no-hire” provision in a service contract was enforceable under Pennsylvania law. In short, Pittsburgh Logistics Systems, a third-party logistic provider that arranges shipping of its customers’ freight, and Beemac Trucking, a shipping company, entered into an agreement in which Beemac promised not to hire PLS’s employees. PLS required this provision to ensure that Beemac would not simply hire away PLS’s specially-trained employees and cut PLS out of the process altogether.
In a unanimous opinion written by Justice Mundy, the Supreme Court found that the no-hire provision in question unreasonably restrained trade, and was, therefore, unenforceable. In arriving at this decision, the High Court found that the “no-hire provision is a restraint on trade because two commercial entities agreed to limit competition in the labor market by promising to restrict the employment mobility of PLS employees.” Although the Court recognized PLS’s “legitimate interest in preventing business partners from poaching its employees, who had developed specialized knowledge and expertise,” it nevertheless found the no-hire provision in question was “both greater than needed to protect PLS’s interest and creates a probability of harm to the public.”
The Court held that the provision was too broad because it precluded Beemac, and any of its agents and independent contractors, from hiring or soliciting PLS employees during the term of the agreement, plus two years, and because it was applicable whether a PLS employee worked with Beemac during the contract. By its own terms, the provision “was meant to have effect in the broadest possible terms.” In addition, the Court noted that the no-hire provision affected 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 impairment.” Finally, the Court took exception to the impact of the provision, which, in the Court’s estimation “undermine[d] free competition in the labor market[.]” For these reasons, the Court found the no-hire provision was an unreasonable restraint on trade.
In the wake of the PLS-decision, broadly worded no-hire provisions are likely no longer enforceable under Pennsylvania law. Instead, such provisions must be carefully crafted to ensure that they are narrowly tailored to protect a specific, legitimate business interest, and that such protection does not place an unreasonable burden on the public or non-parties to the agreement. Metz Lewis Brodman Must O’Keefe’s employment group provides contract review and guidance for assuring that your contractual no-hire provisions are in keeping with Pennsylvania law.