Superior Court Finds That Corporate No-Hire Provision is Void Against Public Policy In A Matter Of First Impression

By: Gaetan J. Alfano John W. Kettering 

Earlier this year in a case of first impression, the Superior Court of Pennsylvania found corporate “no-hire” policies void against public policy.

Pittsburgh Logistics Sys., Inc. v. BeeMac Trucking, LLC, 2019 PA Super 13 (Jan. 11, 2019) involved a service contract entered between Pittsburgh Logistics Systems, Inc. (“PLS”) and BeeMac Trucking LLC. (“BeeMac”). PLS, a third-party logistics provider, assists clients in shipping materials through proper avenues at the best price. PLS contracted with BeeMac to coordinate a materials shipment from BeeMac. The contract included a provision prohibiting BeeMac from directly or indirectly hiring any employee of PLS during the life of the contract and for two years afterwards. While the agreement was still in force, four PLS employees left PLS to join BeeMac. PLS sought a preliminary injunction based on the no-hire provision.

In an en banc opinion, the Superior Court voided the “no-hire” provision as against public policy. The PLS employees did not know about the provision and were not provided any additional consideration in exchange for this restraint. The Superior Court reasoned that the “no-hire” provision was, in effect, a backdoor restrictive covenant prohibiting the free movement of PLS employees.  Two judges dissented, arguing that conflating BeeMac’s corporate agreement to not hire employees with individual non-compete agreements was incorrect as a matter of law and that the “no-hire” provision was not against public policy.

There are two immediate takeaways. First, the decision demonstrates that a court will restrict freedom of contract between sophisticated commercial employers if it finds that the contract derogates the interests of employees. Second, this holding dampens one potential method for a company to shield confidential business information. Accordingly, businesses should place greater emphasis on strong confidentiality agreements with key employees.

The analysis of Pittsburgh Logistics Sys., Inc. v. BeeMac Trucking, LLC may not be complete. As of this writing, the plaintiffs have filed a petition for allowance of appeal to the Pennsylvania Supreme Court which has not yet been decided. As a matter of first impression from a divided court, the Supreme Court may find the case sufficiently compelling to grant review.

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