On January 11, 2019, in Pittsburgh Logistics Systems, Inc. v. BeeMac Trucking, LLC and BeeMac Logistics, LLC, a panel of nine judges sitting en banc affirmed a ruling holding that a no-hire agreement between two companies was unenforceable as a matter of law. In this case of first impression, the fact that there was a valid non-solicitation agreement in place that protected the company's interests and that the no-hire provision was an overly restrictive restraint on trade informed the trial court's decision and provided support for the affirmation of that decision.
The plaintiff, Pittsburgh Logistics Systems, Inc. ("PLS") is a third-party logistics provider that works with shipping companies to ship out goods. One of those shipping companies is BeeMac Trucking, LLC ("BeeMac"). Because BeeMac is a non-exclusive shipper for PLS, PLS required BeeMac to enter into a Motor Carriage Services Contract ("the Contract"), which provided for certain terms of the parties' relationship. Pursuant to the Contract, the parties agreed that during the term of the contract, which is self-renewing, and for a two year period following the contract, BeeMac would not hire, solicit, or induce any employees from PLS. The parties also entered into a non-solicitation agreement in which BeeMac agreed not to disclose PLS' confidential information during the term of the contract and for one year following the termination of the contract.
When PLS' former employees went to work for BeeMac, PLS filed suit against both BeeMac and PLS' former employees, seeking an injunction precluding BeeMac from employing any former employees and prevented BeeMac from soliciting business directly from other entities that had done business with PLS. The trial court granted PLS relief with regard to the non-solicitation provision of the Contract and entered an order precluding BeeMac from soliciting PLS customers for the two-year period set forth in the Contract. The trial court, however, refused to grant PLS injunctive relief with regard to the no-hire provision. PLS appealed.
In reaching its decision, the trial court first noted that Pennsylvania courts do not favor restrictions on trade but certain restrictive covenants are valid if they are ancillary to the main purpose of the contract. Accordingly, the trial court determined the non-solicitation provision was necessary to protect PLS' interests – its business customers.
Turning to the no-hire provision, the trial court determined that no Pennsylvania court had addressed the issue of enforceability of a no-hire agreement and thus looked to case law from other jurisdictions. After examining decisions from other jurisdictions and concluding that the cases that disfavor no-hire restrictions represent the current state of Pennsylvania law, the trial court held that no-hire contracts should be void against public policy because they essentially force a non-compete on employees without their consent or even knowledge. Further, every time PLS entered into a similar agreement with a new carrier, it created more restrictions on its employee which they did not know about and for which they did not receive consideration. Moreover, the no-solicitation provision protected PLS' business interests rendering the no-hire provision superfluous.
After reviewing the trial court's analysis and decision and determining it was based upon reasonable grounds, the en banc Panel affirmed the trial court's decision.
As a case of first impression, this decision has implications for Pennsylvania employers specifically. However, based on the general trend throughout the country wherein courts are holding no-hire agreements to be unenforceable, all employers should review their restrictive covenants; in particular any no-hire agreements. Employers who utilize no-hire agreements should review these ensure they are necessary to protect the employers' business interests. If they are necessary, employers should then review the no-hire agreements to ensure they are drafted as narrowly as possible. Employers should also review their non-solicitation agreements to ensure these are compliant with applicable law and enforceable in order to secure their business interests.