A type of backdoor non-hire clause that a Pittsburgh-area logistics company attempted to implement through its counterparties had its illegality affirmed by the Pennsylvania Superior Court.
The court decision affirmed both parts of a lower court decision from 2016. The other part affirmed by the Superior Court was the Beaver County court’s upholding of a non-solicitation portion of a contract between PLS Logistics Services, in Cranberry Township, Pennsylvania, near Pittsburgh, and BeeMac Trucking of Ambridge, Pennsylvania, also near Pittsburgh.
It comes at a time when demand for truckers–and for any other employees of a transport and logistics company–is rising rapidly while the supply is not. The impact of the case, handed down March 26, is not clear, but any impact on employee movement can’t help but be seen as significant.
The non-hire aspect of the contract was not what is traditionally thought of as a non-compete clause, where an employee, upon joining or somewhere in their tenure, signs an agreement with their employer that restricts where they can work when they depart.
A person connected with the case who did not want to be identified described the PLS provision as non-hire rather than non-compete. The difference is that it puts the onus on the PLS counterparty to not hire an individual, rather than restricting that individual to a broader limitation to not work for any of PLS’ competitors.
“Pennsylvania courts have addressed the appropriateness of non-compete clauses between employers and employees, but there is no case law in Pennsylvania on the issue of no-hire restrictive covenants between contracting companies,” the decision said.
The non-compete was part of the broader services contract that PLS signed with BeeMac. The source indicated that PLS had similar contractual wording with other counterparties. It was sweeping enough that not only could BeeMac not hire any PLS employees, but independent contractors of BeeMac couldn’t either.
The decision quotes from the PLS-BeeMac agreement. “CARRIER agrees that, during the term of this Contract and for a period of 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 Affiliate for any reason.”
The problem with such a non-hire provision, the court decision says, is that it takes all of BeeMac’s employees and saddles them with a restriction to which they had no say. In a contract that renews itself, an employee who wasn’t even with BeeMac when it entered into a contractual arrangement with PLS would be under a non-hire signed months or years earlier.
The case grew out of three employees of PLS, identified by name in the litigation, leaving that company and joining BeeMac in 2016.
Non-hire clauses are legally problematic in Pennsylvania, the court wrote. “Such a provision”– between companies as opposed to between a company and an individual–“has never been upheld in Pennsylvania; indeed, this provision may never have been the subject of litigation,” the decision said.
It then raises the additional point of employees being subject to the non-hire provisions “without those persons receiving additional consideration, or even necessarily having any input in or even knowledge of the restrictive provision,” it said.
Besides, the opinion says, if the point of the non-hire was to keep PLS from losing business that their former employees might recruit into their new employer, the non-solicitation provision–upheld by the lower court and affirmed by the Superior Court–takes care of that. There is a likelihood that PLS did lose some business as a result of the employee migration to BeeMac: “PLS offered evidence that customers (listed on separate documents) were its customers. BeeMac could not establish similar, prior direct dealings with these clients.”
The non-solicitation provision was “ancillary to the main purpose of the agreement and was necessary to protect PLS’ interest in its customers,” the opinion said.
But the non-hire clause “exceeds the necessary protection PLS needs to secure its business, and is void as a matter of public policy.”