Pennsylvania court rules broker contract's 'no-hire' provision unenforceable

By Tyson Fisher, Land Line staff writer | 1/14/2019

A Pennsylvania appellate court has sided with a trucking company in a dispute over whether or not a no-hire provision in a contract with a broker is enforceable. The court upheld a lower court’s ruling that another clause in the contract served the same purpose as the no-hire provision, effectively invalidating the latter.

On Jan. 11, a Pennsylvania superior court panel determined Pittsburgh Logistics Systems (PLS) cannot enforce a no-hire provision in its contract with BeeMac Trucking after the trucking company hired four employees of the logistics company while the contract was still valid.

PLS was hired by BeeMac as a nonexclusive shipper, requiring the trucking company to enter into a motor carriage services contract with the brokerage company. One provision in the contract prohibits BeeMac from hiring PLS employees:

“Carrier agrees that, during the term of this contract and for a period two years after the termination of this contract, neither carrier nor any of its employees, agents, independent contractors or other persons performing services for or on behalf of carrier in connection with carrier’s obligations under this contract will, directly or indirectly, hire, solicit for employment, induce or attempt to induce any employees of PLS or any of its affiliates to leave their employment with PLS or any affiliate for any reason.”

While the contract was still valid, four PLS employees left the company to work for BeeMac. Consequently, PLS sued BeeMac and the former employees for breach of contract.

A trial court ruled in favor of PLS in part. Per the contract, BeeMac was prohibited from soliciting other PLS customers for two years after the contract. However, the trial court also ruled against PLS’ request for relief regarding BeeMac’s hiring of PLS employees.

According to court documents, a no-hire provision like the one in BeeMac’s contract with PLS has never been the center of a lawsuit in Pennsylvania in any reported case. The trial court had to find case law elsewhere.

Ultimately, the trial court determined that other provisions within the contract served the intended purpose of the no-hire provision. First, the trial court ruled that the no-hire provision violates public policy.

“We believe these types of no-hire contracts should be void against public policy because they essentially force a noncompete agreement on employees of companies without their consent, or even knowledge, in some cases,” the trial court ruled. “We believe that 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.”

Considering the no-hire provision is too broad, the trial court argued that the more enforceable no-solicitation provision “sufficiently protected PLS from the loss of its clients, which was the ultimate purpose of all the relevant restrictions.”

That provision reads as followed:

“During the term of this contract and for a period of one year after termination of this contract, carrier hereby agrees that it will not, either directly or indirectly, solicit any individual shipper or other client of PLS, back-solicit and/or transport for itself, without the involvement of PLS, and freight that carrier handles pursuant to this contract or freight which first becomes known to carrier as a result of carrier’s past, present or future dealings with PLS.”

“So long as the former employee, or any employee of BeeMac, does not contact former customers of PLS, for the time period in the contract, in this case one year under section 14.3 of the Carrier Contract, there is no need to enforce the no-hire provision contained in section 14.6,” the trial court ruled. “For these reasons, we do not believe PLS has a substantial likelihood of success on the merits of its claim under section 14.6, and we will vacate the injunction prohibiting BeeMac Trucking from hiring former PLS employees.”

An appellate court agreed with the trial court.

“Here, there is no proof that the employees knew of the clause between the companies,” the appellate panel opined. “While there was a restrictive covenant in the employees’ contracts with PLS, the trial court determined it was unenforceable as being oppressive or an attempt to foster a monopoly, thereby demonstrating unclean hands on the part of PLS.”

 

 

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