In a case of first impression in the Commonwealth of Pennsylvania, the Pennsylvania intermediate appellate court (Superior Court) has held that inter-company employee no-hire contracts are void as against public policy.
In Pittsburgh Logistics Sys. Inc v. BeeMac Trucking, LLC, 2019 Pa. Super. 13 (Pa. Super. 2019), Pittsburgh Logistics Sys., Inc. (“PLS”), and BeeMac Trucking, LLC (“BeeMac”) entered into a Motor Carriage Services Contract (“MCSC”). Pursuant to the terms of the MCSC, PLS would provide third party logistics to BeeMac, a shipping company, which does non-exclusive business with PLS. The MCSC contained a provision which prohibited 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. This prohibition was in place for the duration of the contract, which was self-renewing and for two years post-contract.
While the MCSC was in place, four employees of PLS left PLS and took employment with BeeMac. PLS filed suit against both BeeMac and PLS’s former employees seeking an injunction preventing BeeMac from employing any former employees and to prevent BeeMac from soliciting business directly from other entities that had done business with PLS. The trial court refused to grant PLS’s injunctive relief to prevent BeeMac’s employment of the former PLS employees and PLS appealed.
The trial court determined that a no-hire provision such as the one between PLS and BeeMac had never been the subject of litigation in Pennsylvania in any reported case. Since this was a case of first impression the court looked to other jurisdictions to provide guidance on this issue.
Similar provisions were found to be void in Wisconsin, Heyde Cos. v. Dove Healthcare, LLC, 258 Wis. 2d 28 (Wis. 2002), and California, VL Sys., Inc. v. Unisen, Inc., 152 Cal. App. 4th 708 (Cal. Ct. App. 2007). These cases have held that these provisions are against public policy and believe that these types of no-hire contracts should be void because they essentially force a non-compete agreement on employees of companies without their consent or even their knowledge. If an employer wishes to limit its employees from future competition, this matter should be addressed directly between the employer and the employee not between competing businesses.
Similar provisions were found to be permissible in Alabama, Ex parte Howell Eng’g & Surveying, 981 So.2d 413 (Ala. 2006), and Illinois, H & M Commercial Driver Leasing, Inc. v. Fox Valley Containers, Inc., 805 N.E.2d 1177 (Ill. 2004). The states have held that these types of provisions are permissible as partial restraints of trade and are therefore not against public policy. The key aspect of these cases was that the contracts only prohibited the employees’ ability to work with one specific employer and therefore could pursue meaningful employment elsewhere.
The court in PLS also looked at the existing law in Pennsylvania related to non-compete provisions. The court noted that such provisions are disfavored in Pennsylvania and that a non-compete is similar in nature to a no-hire agreement. PLS also had a contract with its employees which prevented them from working for any similar company anywhere in the world. The trial court found this prohibition to be unenforceable as being overbroad, against public policy, and oppressive. However, the ruling was not appealed herein.
The court indicated that the scope of review for a preliminary injunction is to determine if the trial court’s ruling regarding injunctive relief had a sound basis. The Superior Court’s review and analysis demonstrated that the trial court’s ruling in this matter was reasonably based and accordingly affirmed the order denying injunctive relief as it relates to inter-company employment provisions relating to no-hire of employees.
Employers in jurisdictions which prohibit such no-hire provisions have other ways to protect and their business besides these types of inter-company no-hire provisions. Employers can still have employment agreements containing restrictions related to customer non-solicit provisions and misappropriation of confidential information or trade secret information. They can also have contractual provisions with their employees prohibiting the solicitation of its employees to work elsewhere. Employers seeking to protect its business can employ such contractual prohibitions to adequately safeguard against unwanted activities of its former employees.
At this point in time, it is unclear if there is any kind of emerging trend with respect to the validity of inter-company employee no-hire contracts. In addition to the two approaches indicated above, one Indiana court has signaled that, under Indiana law, the issue may turn on the specific provision is narrowly tailored. Ens Group v. Franklin Elec. Co., 2016 Ind. Cir. LEXIS 51, at *18 (In. Cir. Ct. November 15, 2016). Although that court did not rule on the issue, it demonstrates that courts may choose to adopt a middle ground. However, and for the time being, it seems that Pittsburgh Logistics Sys. Inc v. BeeMac Trucking, LLC created a tentative majority view of the validity of inter-company employee no-hire contracts.
Employers can also look to their states existing law related to non-compete agreements, if there is no existing case law related to intercompany no-hire agreements. If their state either discourages or prohibits non-compete agreements then an employee considering a no-hire restriction can reasonably assume that an intercompany no-hire provision would also be unenforceable.
PLS has filed a Petition for Allowance of Appeal with the Pennsylvania Supreme Court. As of the date of this article, the Pennsylvania Supreme Court has not determined whether or not it will hear the case.