Employers in Pennsylvania commonly use restrictive covenants, such as non-compete provisions, in employment agreements as a means of protecting their legitimate business interests against unfair competition. A traditional non-compete provision restricts where and for whom employees may work when they leave their current employer, and typically appears in a written agreement between the employer and employee signed before or during the employee’s tenure.
Though generally disfavored by Pennsylvania courts, non-compete provisions will be upheld where they are reasonably necessary to protect an employer’s legitimate business interest and are supported by consideration (i.e., the employee receives something of value in exchange).
In the recent case Pittsburgh Logistics Systems, LLC v. BeeMac Trucking, LLC, et al., No. 134 WDA 2017 (Pa. Super. Ct. 2018), the Pennsylvania Superior Court was tasked with determining the validity of a unique “no-hire” provision contained in a contract between two rival trucking companies. In an apparent issue of first impression, the court determined that the no-hire provision was invalid as against public policy.
Different from the traditional non-compete, the no-hire provision at issue arose out of a Motor Carriage Services Contract between Pittsburgh Logistics Systems, Inc. (“PSL”) and BeeMac Trucking, LLC (“BeeMac”) that, among other things, prohibited BeeMac from hiring former PSL employees during the term of the contract and for a period of two (2) years thereafter. PSL sought to enforce the provision after BeeMac hired three former PSL employees during the alleged restrictive period.
In finding the provision to be an unfair restraint on trade, the Superior Court noted the key differences between traditional non-competes and the no-hire provision at issue. Whereas traditional non-competes restrict employees from future competition through an agreement with their employers, the no-hire provision prevents employees from seeking employment with certain companies without their consent and, in some cases, even their knowledge. In addition, the employees affected by the provision received no consideration in exchange for these restrictions. The court reasoned, “If the [no-hire provision], between companies, is allowed, then PSL would essentially be evading the requirement to pay additional consideration in exchange for additional restrictions.”
The court further noted that the no-hire provision exceeds the necessary protection PSL needs to secure its business, particularly as its contract with BeeMac also contained a valid non-solicitation clause that prohibited BeeMac employees from contacting current and former PSL customers.
In essence, the Superior Court’s ruling closed a loophole that would have enabled employers to force a non-compete agreement on their employees without the employees ever agreeing to it.
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