PA High Court Deems No-Poach Deal Between Two Businesses Unenforceable
The Pennsylvania Supreme Court issued a unanimous decision on Thursday, April 29, 2021, ruling that an agreement between two trucking companies not to poach each other’s employees was unenforceable and violates public policy. The Court found that the provision was a restraint on trade, which limited competition in the labor market and, consequently, created a probability of harm to the public.
Pittsburgh Logistics Systems, Inc. v. Beemac Trucking, LLC and Beemac Logistics, LLC
Pittsburgh Logistics Systems sued BeeMac Trucking for breach of contract. Both companies are in the business of getting freight to its destination and work in tandem, where Pittsburgh Logistics Systems arranges the movement of freight throughout the U.S. by matching customers’ hauling needs with BeeMac Trucking’s capabilities. This business relationship gives some of Pittsburgh Logistics Systems’ employees access to customer receipts, fuel charges, customer lists, shipping routes and other proprietary information. Pittsburgh Logistics Systems claimed BeeMac Trucking hired away four of its employees in violation of a contract between the two companies that prohibited poaching each other’s employees. The Court of Common Pleas of Beaver County ruled that the no-hire agreement between the two companies was “unenforceable as a matter of law.” The Common Pleas Court also found that the parties’ agreement was “unduly oppressive.” It also ruled that these types of no-hire contracts should be void against public policy because they essentially force a non-compete restriction on employees without their consent, or even knowledge, in some cases. The Superior Court affirmed that ruling.
High Court Ruling
The Pennsylvania Supreme Court had not previously addressed the issue of whether no-hire provisions, also called no-poaching agreements, should be enforceable. The Supreme Court found that Pittsburgh Logistics Systems had a “legitimate interest” in preventing business partners like BeeMac Trucking from poaching its employees because those workers could have specialized knowledge and expertise of the industry and the company. However, the Supreme Court found that the provision in the agreement was “greater than needed to protect” Pittsburgh Logistics Systems’ interest. The Court reasoned that the provision undermined competition in the labor market in the shipping and logistics industry, and negatively impacted individual workers’ employment opportunities and job mobility without their consent. It is possible that agreements of this type which are more limited and focused could be enforced by the courts.
For more information about this ruling or the alert, please contact Lisa M. Scidurlo, Joseph P. Hofmann, Theresa M. Zechman, Daniel Sobol or reach out to the Stevens & Lee attorney with whom you regularly work.
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