Pennsylvania Supreme Court strikes down no-hire provision

Pennsylvania’s highest court recently upheld a decision rendering a no-hire provision contained in a service contract between two companies unenforceable. The court found the provision was overly broad and unduly restricted fair competition among the laborers.

Background

Pittsburgh Logistics Systems, Inc. (PLS) is a third-party logistics provider that arranges for the shipping of freight, and Beemac Trucking is a shipping company. In August 2010, the two firms entered into a service contract agreement containing a no-hire provision.

The provision at issue prohibited Beemac and any of its agents or independent contractors from hiring any PLS employees during the term of the contact, plus an additional two years after the date of termination. The litigation arose after Beemac hired four PLS employees in violation of the no-hire provision, prompting the logistics provider to file suit.

Pennsylvania courts have routinely enforced (1) no-hire provisions related to the sale of a business or (2) a noncompete provision contained in an employment contract. The high court had yet to consider, however, whether a no-hire provision in a service contract was enforceable under state law.

No-hire provision overly broad, not enforceable