On April 29, 2021, the Supreme Court of Pennsylvania decided that businesses could not enforce overly broad no-hire clauses and non-compete agreements entered into with other businesses. The ruling in Pittsburgh Logistics Systems, Inc. v. Beemac Trucking, 2021 WL 1676399 (Pa. Apr. 29, 2021) determined that companies cannot block employees from taking jobs with other companies via non-compete agreements that are created in business contracts between the two businesses. This creates a new precedent that resembles similar rules in neighboring states, like New Jersey.
At the heart of this case was the contract the two companies signed in 2010 that made Pittsburgh Logistics Systems, Inc. (PLS) a non-exclusive partner of Beemac Trucking (Beemac) to haul the freight of the former’s clients. PLS included non-solicitation and no-hire clauses, attempting to retain workers. However, Beemac still hired four of PLS’s employees. PLS then filed suit an sought an injunction to enforce the non-solicitation and no-hire provisions of the contract. The trial court denied PLS’s request for an injunction, and held that a no-hire provision in commercial contract between two companies violates public policy and is therefore unenforceable under Pennsylvania law. The Superior Court, sitting en banc, affirmed the trial court’s decision. The Supreme Court of Pennsylvania, narrowly affirmed the lower courts’ rulings, finding that, in this case, the contract between PLS and Beemac was overly broad because Beemac was precluded from hiring any PLS employee during the term of the contract and two years after regardless of whether the PLS employee had worked with Beemac during the term of the contract.
In Pennsylvania, employees must consent to non-compete or no-hire clauses. Usually this happens when signing an initial employment contract. Employers must disclose the terms of the clauses upon entering the agreement. In this case, when the two companies entered their business contract in 2010, the employees of both were not parties to the deal. Without notifying the employees or gaining their consent, the non-compete agreement is voided. Had there been some input from the employees or some compensation promised by Beemac if they decided to hire PLS’s workers, that may have kept the contract clauses valid.
Since the language of the contract attempted to cover all of PLS’s employees, not just those working on matters related to Beemac and the business deal, the Court also found that to be too broad. The length of the non-compete clause, which extended two years beyond the established one-year term of the deal, was also found to be problematic.
The Court’s ruling put a spotlight on larger concerns, like the free competition for employees and the overall harm to the public. While acknowledging that PLS had an interest in retaining talent, the decision noted that the clauses went beyond the scope of protecting that interest. Instead, it not only violated established state laws, but it created a probable harm to the public good. The Court determined restraining trade and limiting the labor market took importance over PLS’s interests as an employer.
This ruling could have significant impact as more people return to the workforce as the Coronavirus (COVID-19) shutdowns end and more businesses seek normalcy. While employers try to entice those unemployed back to jobs, this has started to create bidding wars that benefit workers.
For those offered new deals, it is important to scrutinize these contracts. Know the terms of employment, especially any non-compete agreements, that may preclude leaving for another position with better pay, conditions, or other arrangements.
Contract negotiations can be confusing and stressful. Even for well-prepared professionals who know their values, there can be concerns. A trusted Philadelphia employment lawyer at Sidkoff, Pincus & Green P.C. can protect your interests. Call us at 215-574-0600 or contact us online to schedule an initial consultation. Based in Philadelphia, we proudly serve hard-working residents throughout Pennsylvania and New Jersey.