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Beware Of No-Hire Provisions In Contracts

On January 11, 2019, in Pittsburgh Logistics Systems, Inc. v. BeeMac Trucking, LLC, 2019 PA Super 13 (2019), the Pennsylvania Superior Court held that a no-hire provision in a contract between two companies was unenforceable because it violated public policy. In order to do business with Pittsburgh, BeeMac signed a contract containing a provision that BeeMac would not hire, solicit for employment or induce any employee of Pittsburgh to leave its employment. The provision was to last for the duration of the contract and for two years thereafter. The court held that the provision violated public policy, because it limited employment opportunities for employees who were not signatories to the contract.

In its review of the matter, the court noted that it found no previous Pennsylvania cases that had decided a similar issue. The court held that its role was to uphold the decision of the trial court, as long as the decision was reasonable. The court then upheld the trial court’s decision that the contract restriction violated public policy, pointing to the trial court’s finding that there was no proof that employees even knew about the clause. It also noted that employees were not subject to a similar noncompete provision in their work contracts. While the employees’ contracts had a noncompete provision, the trial court had struck it down as overly broad. The court quoted an out-of-state decision that stated: “It is one thing for an employee voluntarily to surrender his known rights; it is vastly different when an employee is placed under servitude by a contract to which he is not a party and about which he may know nothing.” The court then held that the no-hire provision “violated public policy by preventing non-signatories, [the] employees, from exploring alternate work opportunities in a similar business.” The court further noted that noncompete agreements between an employer and its employees must be supported by consideration, generally monetary. It held that Pittsburgh “should not be entitled to circumvent that outcome through an agreement with a third party.”

What Does This Mean For You? If you have such provisions in your contracts with other entities with whom you do business, you may want to consider whether there is a different way to protect your business. For example, having such a provision in tandem with tightly worded noncompete agreements with relevant employees may satisfy public policy considerations.

If you have any questions or concerns about this update, or any other employment or labor law questions, please contact S. Whitney Rahman at swr@blakingerthomas.com or (717) 509-7237.

**This update is provided for informational purposes only and
should not be construed as legal advice or as creating an
attorney-client relationship where one does not already exist.**