Tuesday, May 18, 2021

PA Supreme Court on "no poach" aka "no-hire" agreements

The Supreme Court of Pennsylvania (i.e. "SCOPA") recently issued an opinion in Pittsburgh Logistics Systems, Inc. v. Beemac Trucking, LLC, addressing the enforceability of "no poach" aka "no-hire" provisions. Basically, a logistics company contracted with a shipping company, and the shipping company promised not to hire any of the logistics company's employees. You can think of it as kind of like a noncompete, but the parties to the contract are the two companies instead of the current employer and employee. 

SCOPA provided a lengthy opinion with a detailed recitation of the arguments on each side. That said, the actual analysis section is remarkably short. The Court looked at the no-hire contract a lot like it would a traditional noncompete employee-employer agreement:

[W]e employ a balancing test to determine the reasonableness of the restraint in light of the parties’ interests that the restraint aims to protect and the harm to other contractual parties and the public . . . . consider[ing] the reasonableness of the restraint’s geographical scope as well as its duration of time.

It is *very* important to note that the no-hire agreement here was ancillary to a services agreement. The opinion noted that a "naked" no-poach agreement would be "per se illegal" according to DOJ/FTC antitrust guidance. 

Yet, the Court still ultimately concluded that the no-hire agreement in this case was still unenforceable. The Court did recognize that the logistics company had "a legitimate interest in preventing its business partners from poaching its employees, who had developed specialized knowledge and expertise in the logistics industry during their training at PLS." But:

  • The agreement was too broad because it covered all of the company's employees regardless of whether they worked with the shipping company or not; 
  • "The no-hire provision impairs the employment opportunities and job mobility of PLS employees, who are not parties to the contract, without their knowledge or consent and without providing consideration in exchange for this impairment;" and
  • The agreement "undermines free competition in the labor market in the shipping and logistics industry."
The Court ultimately balances the logistics company's interest in enforcing the agreement against the harms bullet-pointed above. Bottom line? In this case - the agreement was unenforceable. 

Moving forward? Who knows - we're saddled with the same vague noncompete test that provides nearly zero-predictability in outcomes. After all, the Court is weighing a bunch of factors that don't have actual weights or units of measurement. How many of the harms noted above would have to shift before the balance tipped in favor of the logistics company? What if the agreement were limited to employees who worked with the shipping company and they all got notice of the provisions - but, they did not provide consent or receive consideration? 

My takeaways?
  • Limit the scope of no-hire agreements to employees who have contact with the other party;
  • Provide written notice, signed by the affected employees to indicate consent;
  • Provide some consideration (which presumably may be initial employment); and
  • Accept that you're still rolling the dice. 

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