Opinion
No. 134 WDA 2017
01-11-2019
PITTSBURGH LOGISTICS SYSTEMS, INC., Appellant v. BEEMAC TRUCKING, LLC and BeeMac Logistics, LLC
William S. Stickman IV, Pittsburgh, for appellant. Daniel B. McLane, Paul D. Steinman, Michael P. Pest, Pittsburgh, for appellee.
William S. Stickman IV, Pittsburgh, for appellant.
Daniel B. McLane, Paul D. Steinman, Michael P. Pest, Pittsburgh, for appellee.
BEFORE: GANTMAN, P.J., BENDER, P.J.E., BOWES, J., PANELLA, J., LAZARUS, J., OTT, J., STABILE, J., DUBOW, J., and MURRAY, J.
OPINION BY OTT, J.:
Pittsburgh Logistics Systems, Inc. (PLS) appeals from the order entered on December 22, 2016, in the Court of Common Pleas of Beaver County, that determined the contractual no-hire provision in the Motor Carriage Services Contract (MCSC) between PLS and BeeMac Trucking, LLC and BeeMac Logistics, LLC (BeeMac) was unenforceable as a matter of law. A panel of this Court previously affirmed the trial court decision. PLS sought reargument before a court en banc on the issue of whether the trial court erred in denying a request for a preliminary injunction that sought to enforce a no-hire provision in a contract between PLS and BeeMac. PLS's request was granted and substituted briefs were filed by both parties. The case was submitted to the en banc panel without oral argument. After a thorough review of the submissions by the parties, relevant law, and the certified record, we affirm.
Although both BeeMac Trucking and BeeMac Logistics are in the caption, PLS's original appeal only involved the trucking concern. Accordingly, herein, "BeeMac" refers only to BeeMac Trucking, LLC.
PLS is a third party logistics provider. Essentially, it is a facilitator between those who need items shipped and those who are shippers. In its Appellant's Brief, PLS has provided a hypothetical transaction demonstrating its business model.
- PLS will be retained by a potential shipper or existing customer to ship freight from its facility to certain specified locations;
- PLS's employee is well-trained to recognize the type of truck necessary for particular freight, and to know what "lane" the shipment must take to get to its destination;
- PLS's employee knows which reliable trucking companies can offer the needed transportation in the designated lane and under certain cost parameters;
- PLS arranges the shipment with the carrier.
PLS's Brief, at 9-10.
BeeMac is a shipping company that does non-exclusive business with PLS. As a non-exclusive shipper, BeeMac was required to enter into the MCSC with PLS. This contract is at the heart of the instant litigation. Paragraph 14.6 of the contract is a no-hire provision that prohibits BeeMac from directly or indirectly hiring, soliciting for employment, inducing or attempting to induce, any employee of PLS or any of its affiliates to leave their employment with PLS or the affiliate. This prohibition is ostensibly in place for the duration of the contract, which is self-renewing, and for two years post-contract.
The contract will be quoted in relevant part later in this decision.
MCSC, ¶ 2.1, at 2.
While the contract was still in force, four employees of PLS, Mary Colman, Racquel Pakutz, Michael Ceravolo, and Natalia Hennings, left PLS and took employment with BeeMac.
Michael Ceravolo has denied working for BeeMac. He claims to be employed by Hybrid Global Logistics Services, LLC. We need not resolve this issue.
It is notable that PLS's contract with its employees also contained a provision that prevented them from working for any similar company anywhere in the world. See PLS v. Ceravolo, et al. , 2017 WL 5451759 (11/14/2017) (unpublished memorandum). The trial court found this prohibition to be unenforceable as being overbroad, against public policy, and oppressive. That ruling has not been appealed herein.
PLS filed suit against both BeeMac and PLS's former employees, seeking an injunction preventing BeeMac from employing any former employees and to prevent BeeMac from soliciting business directly from other entities that had done business with PLS. The trial court granted PLS relief in part, preventing BeeMac from soliciting other PLS customers for the two-year period established by the Motor Carriage Services Contract. However, the trial court refused to grant PLS the injunctive relief it sought regarding BeeMac's employment of the former PLS employees. PLS appealed.
With this background in place, we turn our attention to the substance of our review. Our standard of review for an order granting or denying a preliminary injunction is as follows:
We have emphasized that our review of a trial court's order granting or denying preliminary injunctive relief is "highly deferential". Summit Towne Centre, Inc. v. Shoe Show of Rocky Mount, Inc. , 573 Pa. 637, 828 A.2d 995, 1000 (2003). This "highly deferential" standard of review states that in reviewing the grant or denial of a preliminary injunction, an appellate court is directed to "examine the record to determine if there were any apparently reasonable grounds for the action of the court below." Id. We will find that a trial court had "apparently reasonable grounds" for its denial of injunctive relief where the trial court has properly found "that any one of the following ‘essential prerequisites’ for a preliminary injunction is not satisfied." Id. at 1002.
There are six "essential prerequisites" that a party must establish prior to obtaining preliminary injunctive relief. The party must show: 1) "that the injunction is necessary to prevent immediate and irreparable harm that cannot be adequately compensated by damages"; 2) "that greater injury would result from refusing an injunction than from granting it, and, concomitantly, that issuance of an injunction will not substantially harm other interested parties in the proceedings"; 3) "that a preliminary injunction will properly restore the parties to their status as it existed immediately prior to the alleged wrongful conduct"; 4) "that the activity it seeks to restrain is actionable, that its right to relief is clear, and that the wrong is manifest, or, in other words, must show that it is likely to prevail on the merits"; 5) "that the injunction it seeks is reasonably suited to abate the offending activity"; and, 6) "that a preliminary injunction will not adversely affect the public interest." Id. at 1002. The burden is on the party who requested preliminary injunctive relief[.]
Warehime v. Warehime , 580 Pa. 201, 860 A.2d 41, 46-47 (2004) (footnotes omitted).
Upon review of the parties' arguments, the trial court determined that a no-hire provision such as the one between PLS and BeeMac has never been the subject of litigation in Pennsylvania in any reported case. Accordingly, the trial court looked to case law from other jurisdictions for guidance and followed the logic of those jurisdictions that do not allow such provisions between companies. The trial court determined the no-hire provision would violate public policy by preventing persons from seeking employment with certain companies without receiving additional consideration for the prohibition, or even necessarily having any input regarding or knowledge of the restrictive provision. Additionally, the trial court reasoned the no-hire provision was overly broad in that the enforceable no-solicitation provision between PLS and BeeMac sufficiently protected PLS from the loss of its clients, which was the ultimate purpose of all the relevant restrictions. Based upon the nature and limitations of our review, we agree with the trial court.
Initially, we quote the relevant language from the MCSC:
14.3 The parties acknowledge that during the term of the Contract there may be disclosed to CARRIER [BeeMac Trucking, LLC] confidential information concerning PLS' operations including, but not limited to, the names and addresses
of Shippers and others who are clients of PLS, volumes of traffic and rate data. During the term of this Contract and for a period of one year after termination of this Contract, CARRIER hereby agrees that it will not, either directly or indirectly, solicit any individual Shipper or other client of PLS, back-solicit and/or transport for itself, without the involvement of PLS, and freight that CARRIER handles pursuant to this Contract or freight which first becomes known to CARRIER as a result of CARRIER'S past, present or future dealings with PLS.[ ]
...
14.6 CARRIER agrees that, during the term of this Contract and for a period two (2) 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 any Affiliate for any reason.
The trial court determined this restrictive clause was valid and enforceable. The enforceability of this clause was relevant to the trial court's subsequent invalidation of Paragraph 14.6.
MCSC, 8/30/2010, at 9-10.
The trial court set forth its reasoning regarding the restrictive provisions of the MCSC, as follows:
The entire reasoning of the trial court, including its discussion of the contractual provisions the trial court endorsed, is useful to provide the context for the trial court's decision regarding the no-hire provision.
We now address the terms of the Motor Carrier [sic] Services Contract (Carrier Contract) between PLS and BeeMac Trucking. PLS is seeking an injunction with respect to two of the provisions of this contract, namely section 14.3, the non-solicitation of PLS customers, and section 14.6, the no-hiring of PLS employees. We will address each of these provisions.
First, with respect to section 14.3 of the parties' Carrier Contract, we note that such restrictions on trade are not always favored by the courts. Indeed, the Pennsylvania Supreme Court acknowledged that "it has long been the rule at common law, that contracts in restraint of trade made independently of a sale of a business or contract of employment are void as against public policy regardless of the valuableness of the consideration exchanged." Jacobson & Co. v. Int'l Environ. Corp. , [427 Pa. 439,] 235 A.2d 612, 617 ( [Pa.] 1967). However, certain restrictive covenants are valid if they are ancillary to the main purpose of the contract. Id. The covenant must be inserted only to protect one of the parties from the injury which, in the execution of the contract or enjoyment of its fruits, he may suffer from the unrestrained competition of the other. Id. The main purpose of the contract must suggest the measure of protection needed, and furnish a sufficiently uniform standard by which the validity of such a restraint may be judicially determined. Id. We believe that the restrictive covenant in section 14.3 of the Carrie[ ]r Contract meets these requirements; it was ancillary to the main purpose
of the agreement and was necessary to protect PLS's interest in its customers.
In the instant case, the covenant contained in section 14.3 furthered PLS's legitimate interest in preventing BeeMac from cutting PLS out of the equation. Courts have held that a business's customers are a protectable interest. See Sidco Paper Co. v. Aaron, [465 Pa. 586,] 351 A.2d 250, 254, 257 ( [Pa.] 1976) (holding that "Sidco clearly has a protectable interest in customer goodwill" and "properly used a restrictive covenant to protect its customer relationships"); see also Bimbo Bakeries USA, Inc. v. Botticella , 613 F.3d 102, 112-[1]14 (3d Cir. 2010) (noting that Pennsylvania law protects non-technical trade secrets).
PLS offered evidence that the customers listed on Exhibits N and 12 were its customers, by showing receipts for shipments made. BeeMac could not establish similar, prior, direct dealings with these clients. As such, we will uphold the provisions of section 14.3, and allow the injunction to [sic] prohibiting BeeMac from soliciting these customers for one year to remain in effect.
Turning to section 14.6 of the Carrier Contract, which prohibits BeeMac from hiring former employees of PLS for a period of two years following the termination of the Carrier Contract, we believe that provision constitutes an unfair restraint on trade. We believe this no-hire provision exceeds the necessary protection PLS needs to secure its business, and is void as a matter of public policy.
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. Some states have held that these types of agreements are void against public policy. See, e[.]g[.] Heyde Cos. v. Dove Healthcare, LLC , [258 Wis.2d 28,] 654 N.W.2d 830 ( [Wis.] 2002) ; and see VL Sys., Inc. v. Unisen, Inc. , [152 Cal.App.4th 708,] 61 Cal.Rptr.3d 818 ( [Cal. Ct. App.] 2007). Other states have held that these provisions are a permissible partial restraint of trade, and are thus not void against public policy. See, e[.]g[.] Ex parte Howell Eng'g & Surveying , 981 So.2d 413 (Ala. 2006) ; and see H & M Commercial Driver Leasing, Inc. v. Fox Valley Containers, Inc. , [209 Ill.2d 52, 282 Ill.Dec. 160,] 805 N.E.2d 1177 ( [Ill.] 2004).
We believe these types of no-hire contracts should be void against public policy because they essentially force a non-compete agreement on employees of companies without their consent, or even knowledge, in some cases. We believe that if an employer wishes to limit its employees from future competition, this matter should be addressed directly between the employer and the employee, not between competing businesses. Moreover, in this case, such a restriction goes beyond the protected interest of PLS, which is its customers. So long as the former employee, or any employee of BeeMac, does not contact former customers of PLS, for the time period in the contract, in this case one year under section 14.3 of the Carrier Contract, there is no need to enforce the no-hire provision contained in section 14.6. For these reasons, we do not believe PLS has a substantial likelihood of success on the merits of its claim under section 14.6, and we will vacate the injunction prohibiting BeeMac Trucking from hiring former PLS employees.
Trial Court Opinion, 12/22/2016, at 11-14.
The trial court supported its decision by examining various decisions from other jurisdictions and concluding the reasoning of those cases that disfavor such restrictions better represents the current state of Pennsylvania law. Our duty in reviewing the trial court's decision is to determine whether that decision is based upon "any apparently reasonable grounds." Warehime , supra . We have reviewed the certified record, the submissions by the parties, relevant law and find that the trial court's decision is, in fact, based upon reasonable grounds.
In Heyde , supra , cited by the trial court, the restrictive covenant between companies was unenforceable because there was no proof that the employee knew of the clause and there was no similar clause in the employee's work contract. Here, there is no proof that the employees knew of the clause between the companies. While there was a restrictive covenant in the employees' contracts with PLS, the trial court determined it was unenforceable as being oppressive or an attempt to foster a monopoly, thereby demonstrating unclean hands on the part of PLS. See Trial Court Opinion, 12/22/206 at 7. See also , PLS v. Ceravolo , supra , affirming the trial court, and footnote 5, supra . It would be incongruous to strike the employees' restrictive covenant, finding PLS to have had unclean hands, yet allow PLS to achieve the same result via the contract between companies. In VL Systems , supra , also cited by the trial court, the California court found the restrictive clause between companies to be overbroad, applying to any VL Systems employee regardless of that person's contact with the other company, as well as against the policy of favoring employee mobility. The clause at issue herein is similarly overbroad, preventing any PLS employee from working for any PLS client.
Additionally, the essence of the trial court's sound decision is summed up in Richards Energy Compression, LLC v. Dick Glover, Inc. , 2013 WL 12147626, USDC New Mexico, memorandum, 9/16/2013, which quoted two published decisions from Texas and Wisconsin.
We are aware that this case, as both a Federal and memorandum decision, is not binding. However, we quote the succinct analysis of the previously published decision of Haire and Heyde . As such, this case provides an instructive single source.
This Court finds the Court of Civil Appeals case of Texas Shop Towel v. Haire , 246 S.W.2d 482, 484 (Tex. Civ. App.–San Antonio 1952) especially instructive. In Haire , the buyer of a business brought claims against the seller for breach of the non-compete agreement the parties had negotiated as part of the sale of the business. Id. , at 483. The non-compete agreement executed by the seller specifically provided that the owner (seller) and all of the companies' employees would not participate in a competing business for a number of years. Id. At trial, the jury found that the seller had not breached the non-compete agreement and found in the seller's favor. Id. The buyer asked the Court to grant a judgment notwithstanding the verdict; the trial court denied that motion. Id. The buyer appealed the trial court's ruling. Id. , at 484.
The Court of Appeals upheld the trial court's ruling. Id. The Court of Appeals noted that the only possible method of relief for the buyer was to find that all of the seller's employees were bound by the non-compete agreement. The Court noted "in a contract restricting trade, we do not think that an employee's individual right and freedom to contract may be traded away by a third person, even by the third party's express contract." Id. , at 485. "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." Id. Even though the contract specifically stated that it was to apply to employees of the seller, the Court of Appeals refused to hold the employee accountable to the terms of the non-compete agreement, because the employee was not a party to that agreement. Other courts have relied on the reasoning in Haire . See e.g. Heyde Companies, Inc. v. Dove Healthcare, LLC , 2001 WI 278, 249 Wis.2d 32, 39, 637 N.W.2d 437, 440 aff'd. 2002 WI 131, 258 Wis.2d 28, 654 N.W.2d 830 ("We agree with the reasoning in [ Haire ]. It is one thing to uphold the restriction on an employee's freedom where it results from an agreement freely entered into by the employee. But where the restriction on an employee's freedom results from the employer's agreement with another [ ], the employee is deprived of his or her freedom without acquiescence and with no resulting benefit.").
Richards Energy v. Glover , at *3.
This reasoning aligns with the trial court's determination that Paragraph 14.6 violated public policy by preventing non-signatories, PLS employees, from exploring alternate work opportunities in a similar business. An example of how such covenants can produce harm is demonstrated by the following application of Paragraph 14.6. The PLS MCSC ostensibly prevents BeeMac from hiring any PLS employee for the term of the agreement, which is self-renewing, and for an additional two years thereafter. Accordingly, each MCSC contract with a new carrier, results in a new restriction upon current employees from obtaining employment in the same or similar field of work. Employment restrictions are valid, in certain circumstances, in contracts between employer and employee. As a general rule, those restrictions are in place, in an agreement between the employer and employee, at the time of initial employment. When a new restriction is added, to be enforceable, that restriction must be supported by additional consideration. See generally , Insulation Corp. of America v. Brobston , 446 Pa.Super. 520, 667 A.2d 729 (1995) ; Modern Laundry & Dry Cleaning Co. v. Farrer , 370 Pa.Super. 288, 536 A.2d 409 (1988). If additional restrictions to the agreement between employer and employee are rendered unenforceable by a lack of additional consideration, PLS should not be entitled to circumvent that outcome through an agreement with a third party.
MCSC ¶ 2.1.
We note, again, that PLS's employment restrictions with its employees were also found to be unenforceable. That aspect of the related decision was not raised before this en banc panel.
Finally, the caselaw that supports such inter-company employment provisions generally uphold narrowly tailored restrictions. For example, in H & M Commercial Driver Leasing v. Fox Valley Containers, Inc., supra , the provision at issue prevented Fox Valley from hiring only those drivers who had been supplied to Fox Valley by H & M. It did not prevent Fox Valley from hiring any other driver who was working for H & M. Here, Paragraph 14.6 prevents BeeMac, or any agent or independent contractor of BeeMac who is involved with providing services related to PLS, from hiring any PLS employee. By the plain reading of the language of this restrictive provision, it was meant to have effect in the broadest possible terms. This fact, coupled with the trial court's finding that Paragraph 14.6 was largely superfluous in light of the enforceable non-solicitation clause, further supports our determination that the trial court's decision was based upon reasonable grounds.
The scope of our review for a preliminary injunction is to determine if the trial court's ruling regarding injunctive relief had a sound basis. Our review and analysis demonstrates the trial court's ruling in this matter is reasonably based. See Warehime , supra . Accordingly, we affirm the order of December 22, 2016 as it applied to the MCSC between PLS and BeeMac.
We acknowledge the possibility that the passage of time during the pendency of this appeal may have rendered our decision moot. However, neither of the parties have raised that concern.
Order affirmed.
President Judge Gantman, President Judge Emeritus Bender, Judges Panella, Lazarus, Stabile and Dubow join the Opinion.
Judge Bowes files a Dissenting Opinion in which Judge Murray joins.
DISSENTING OPINION BY BOWES, J.:
I respectfully dissent. As I would hold that the no-hire provision at issue is enforceable under Pennsylvania law, I would reverse the trial court's order denying the petition for a preliminary injunction filed by Pittsburgh Logistics Systems, Inc. ("PLS") against BeeMac Trucking, LLC, and BeeMac Logistics, LLC ("BeeMac").
The record contains reference to a company named Hybrid Global Logistics ("Hybrid"), which is not a party to this suit. Hybrid purportedly hired two of the disputed employees, and is supposedly owned by one of those employees and BeeMac Trucking, LLC. These allegations raise questions of fact not decided by the trial court, and thus, the question of Hybrid's affiliation with BeeMac and PLS is not presently before us.
At the outset, I observe that, of the six elements a party must establish to obtain a preliminary injunction, the only one at issue herein is the fourth prong. PLS was required to establish that the activity that it sought to restrain was actionable, that its right to relief was clear, and that the wrong was manifest, or, in other words, show that it was likely to prevail on the merits. Warehime v. Warehime , 580 Pa. 201, 860 A.2d 41, 46-47 (2004). Hence, my analysis is limited to a discussion of the fourth prong as it relates to the no-hire provision.It is undisputed that the laws of this Commonwealth are silent as to the enforceability of a no-hire provision, such as the condition provided in § 14.6 of BeeMac's contract with PLS ("MCSC"). Notwithstanding the lack of authority on point, I would hold that PLS has established a likelihood of success on the merits because I am persuaded that the no-hire provision is valid and enforceable.
The six elements are:
1) that the injunction is necessary to prevent immediate and irreparable harm that cannot be adequately compensated by damages; 2) that greater injury would result from refusing an injunction than from granting it, and, concomitantly, that issuance of an injunction will not substantially harm other interested parties in the proceedings; 3) that a preliminary injunction will properly restore the parties to their status as it existed immediately prior to the alleged wrongful conduct; 4) that the activity that its seeks to restrain is actionable, that its right to relief is clear, and that the wrong is manifest, or, in other words, must show that it is likely to prevail on the merits; 5) that the injunction it seeks is reasonably suited to abate the offending activity; and, 6) that a preliminary injunction will not adversely affect the public interest.
Warehime v. Warehime , 580 Pa. 201, 860 A.2d 41, 46-47 (2004) (cleaned up). That the trial court found that PLS established the other five prongs is confirmed by its decision to grant a preliminary injunction as to the non-solicitation provision contained in PLS's contract with BeeMac, thus preventing BeeMac from soliciting PLS customers. The difference in the trial court's decisions appears to have turned upon its which determination that the non-solicitation provision was a reasonable restraint on trade, while the no-hire clause was not. Trial Court Opinion, 12/22/16, at 11-12.
Section 14.6 provides as follows:
[BeeMac] agrees that, during the term of this Contract and for a period two (2) years after the termination of this Contract, neither [BeeMac] nor any of its employees, agents, independent contractors or other persons performing services for or on behalf of [BeeMac] in connection with [BeeMac'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 any Affiliate for any reason.
MCSC, 8/30/10, at § 14.6.
"The legal effect or enforceability of a contract provision presents a question of law accorded full appellate review and is not limited to an abuse of discretion standard." Midwest Fin. Acceptance Corp. v. Lopez , 78 A.3d 614, 624 (Pa. Super. 2013). As such, our scope of review of the question is plenary. Mace v. Atl. Ref. Mktg. Corp. , 567 Pa. 71, 785 A.2d 491, 494 n.5 (2001).
Generally speaking, Pennsylvania law favors contracts entered into at arm's length between sophisticated parties. John B. Conomos, Inc. v. Sun Co., Inc. (R & M) , 831 A.2d 696, 708 (Pa. Super. 2003) ("Absent fraud or unconscionability, courts should not set aside terms on which sophisticated parties agreed."). Here, the record suggests that PLS and BeeMac engaged in arm's length negotiations and exchanged valuable consideration in arriving at the agreement set forth in the MCSC. The record is devoid of allegations that PLS perpetrated a fraud or that the terms of the MCSC were unconscionable. Rather, the record reflects that BeeMac appreciated the consequences of entering into the MCSC with PLS, including its promise to refrain from hiring any PLS employee during the term of the contract, and for two years following its termination. Accordingly, Pennsylvania law generally supports a finding that the agreement is enforceable on its face.
The question thus becomes whether § 14.6 is unenforceable as contrary to another aspect of Pennsylvania law. In resolving the issue, this Court must examine the provision actually before us, namely, BeeMac's agreement not to hire PLS's employees during the performance of the contract or for two years afterwards. This is a no-hire provision that binds BeeMac, not a non-compete clause binding PLS's employees. In my view, the majority errs in conflating the two, as there is no basis in Pennsylvania law for treating a no-hire provision as a restrictive covenant between an employer and an employee.
By way of background, in a separate action not implicated in this appeal, PLS sued former employees for alleged violations of non-compete agreements. The trial court held the provisions to be unenforceable as overly-broad, as they were unlimited in geographic scope. See Trial Court Opinion, 12/22/16, at 8, 10. Further, the trial court declined to modify the scope of the provisions, concluding that PLS had unclean hands, as the overbreadth evidenced an intent to oppress the employees. Id. at 6-8.
The majority seizes upon these holdings to find that "[i]t would be incongruous to strike the employees' restrictive covenant, finding PLS to have unclean hands, yet allow PLS to achieve the same result via a contract between companies." Majority Opinion at 807. The majority opines that the no-hire provision "is similarly overbroad, preventing any PLS employee from working for any PLS customer." Id. The majority further confuses the issues by relying upon a New Mexico federal district court's discussion of a Texas court's invalidation of an agreement between the buyer and seller of a company that included a provision purporting to prevent employees of the company from participating in a competing business, although the employees were not parties to the contract. Id. at 807–08 (quoting Richards Energy Compression, LLC v. Dick Glover, Inc. , 2013 WL 12147626 (D.N.M. Sept. 16, 2013) (discussing Texas Shop Towel v. Haire , 246 S.W.2d 482, 484 (Tex.Civ.App.–San Antonio 1952) ).
PLS's non-compete agreements with its individual employees have absolutely no relevance in determining the enforceability of BeeMac's contractual obligation not to hire PLS employees. The provisions are in separate agreements, with distinct rights and responsibilities, made by different parties for different purposes. This is not at all akin to the Texas case above in which a company made an agreement to bind individuals who were not parties to the contract. Further, the no-hire provision does not prevent any PLS employee from working for any PLS customer as the majority suggests; rather, it prevents only the hire of PLS employees by BeeMac, and thus is far narrower in scope than the non-compete agreements included in the employees' contracts. The majority's apparent assumption that such no-hire provisions are contained in every agreement PLS reaches with a new customer is simply not supported by the record, and is not a proper basis for consideration of the issue before us.
Accordingly, it is inappropriate to construe § 14.6 at issue as a back-door restrictive covenant through which an employer signs away rights of its employees without supplying consideration. The no-hire provision does not restrict the employees' actions, but rather is a concession from BeeMac that, in exchange for its access to PLS's specialized industry knowledge and contacts through PLS's employees, BeeMac would not thereafter appropriate those employees and obviate the need for PLS's services. BeeMac's contract with PLS does nothing to restrict PLS's employees from seeking employment with any other company.
The proper analysis of the issue in this appeal is whether the no-hire provision in the PLS-BeeMac contract is a reasonable restraint upon trade. No-hire agreements have been upheld under such scrutiny in other jurisdictions. See , e.g. , Ex parte Howell Engineering and Surveying, Inc. , 981 So.2d 413 (Ala. 2006), and H & M Commercial Driver Leasing, Inc. v. Fox Valley Containers, Inc. , 209 Ill.2d 52, 282 Ill.Dec. 160, 805 N.E.2d 1177 (2004).
I find particularly persuasive the reasoning of the United States District Court for the Middle District of Pennsylvania's decision in GeoDecisions v. Data Transfer Solutions, LLC , 2010 WL 5014514 (M.D.Pa. December 3, 2010). In that case, the district court applied Pennsylvania state law in granting a motion for a preliminary injunction after upholding the validity of a no-hire provision. The language of that agreement, in a contract between competitors who teamed up for a project, was as follows: "For a period of two (2) years from the date of this Agreement, neither party shall solicit for employment or employ any person employed by the other party, or otherwise encourage any person to terminate employment with such party." Id. at *2. The defendant opposed the motion for a preliminary injunction, inter alia , on the basis that the plaintiff was unlikely to proceed on the merits because the no-hire provision was invalid. Id. at *3.
Although the decisions of the federal district courts are not binding on this Court, we may "utilize the analysis in those cases to the extent we find them persuasive." Umbelina v. Adams , 34 A.3d 151, 159 n.2 (Pa. Super. 2011) (citation omitted).
In considering the arguments, the court began by noting that
[o]ther courts considering the issue have found that although such no-hire provisions do impact an employee's ability to obtain future employment, they are not properly characterized as covenants not to compete or restrictive covenants between employer and employee. Rather, agreements containing such provisions are construed as contracts in restraint of trade.
Id. (citations omitted). The court then acknowledged that restraints on trade are generally void as against public policy; however, such an agreement will be deemed valid under Pennsylvania law if "(1) it is ancillary to the main purpose of a lawful transaction; (2) it is necessary to protect a party's legitimate interest; (3) is supported by adequate consideration; and (4) it is reasonably limited in both time and territory." Id. at *4 (citing Volunteer Firemen's Ins. Servs., Inc. v. CIGNA Prop. & Cas. Ins. Agency , 693 A.2d 1330, 1337 (Pa. Super. 1997) ).
The court held that the no-hire provision was ancillary to a lawful agreement, as "the purpose of the Agreement was not to restrict a corporation's ability to hire a competitor's employees. Rather, the purpose of the arrangement was to ensure a productive temporary cooperative relationship." Id. at *5. The court next determined that the restriction was necessary to protect a legitimate interest, as "corporations have a legitimate interest in ensuring that they are not treated as an involuntary and unpaid employment agency for competitors to whom they have exposed themselves and their personnel." Id. (internal quotation marks omitted). Consideration was present, in that "[b]oth parties promised that as they engaged in the development of a mutually beneficial relationship they would bind themselves by limiting the use of any information obtained in the course of the discussions and by prohibiting the hiring of one another's employees." Id. at *6 (internal quotation marks omitted). Finally, the court held that the two-year restriction was not overbroad despite its lack of geographical limitation, reasoning as follows:
The agreement is quite limited as to the parties here. The Agreement only prohibits the hiring individuals of one corporation. Neither party has put forward convincing evidence that the inability to hire the other's employees has impaired its ability to fill open positions.... In addition, it cannot be said that the provision interferes with the right of the parties' employees from seeking work, as they are only prohibited from being employed by one firm.... Where the parties are both sophisticated and in equal bargaining positions, where the provision is clear and mutually binding, and where the provision does not impose an overly broad restraint, the Court is unwilling to declare the provision unreasonable because one party determines ex ante that the bargain struck was not desirable.
Id. at *7 (citation omitted).
The only relevant distinction I discern between the no-hire provision at issue in GeoDecisions and that of the instant case is that the one in GeoDecisions was mutually-applicable while the instant provision was not. However, that difference does not warrant a different result. I would hold that the restraint on trade presented in § 14.6 of the MCSC is a reasonable, and thus valid and enforceable, restraint upon trade for the reasons discussed by the court in GeoDecisions .
I further disagree with the majority's conclusion that the no-hire provision violates public policy. Our Supreme Court has cautioned against finding a contract violates public policy unless that violation is clear:
[p]ublic policy is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interest. As the term "public policy" is vague, there must be found definite indications in the law of the sovereignty to justify the invalidation of a contract as contrary to that policy .... Only dominant public policy would justify such action. In the absence of a plain indication of that policy through long governmental practice or statutory enactments, or of violations of obvious ethical or moral standards, the Court should not assume to declare contracts ... contrary to public policy. The courts must be content to await legislative action.
Safe Auto Ins. Co. v. Oriental-Guillermo , 170 A.3d 1170, 1175 (Pa. Super. 2017) (citing Hall v. Amica Mut. Ins. Co. , 538 Pa. 337, 648 A.2d 755, 760 (1994) ).
The majority agrees with the trial court's determination that the no-hire provision violated public policy since it "prevented non-signatories, PLS employees, from exploring alternate work opportunities in a similar business." Majority Opinion at 808. However, as discussed above, BeeMac received valuable consideration for its promise not to hire PLS employees, thereby limiting its own pool of applicants from which it could hire. Although this agreement had an indirect effect on those PLS employees seeking employment away from PLS, that effect, insofar as the MCSC is concerned, prohibited those employees only from seeking employment with BeeMac and its affiliates who deal with PLS. I discern no strong public policy against such a limitation, and I suggest that the dearth of Pennsylvania statutory or case law invalidating such an agreement supports the conclusion that it does not violate "dominant public policy." Id.
We have long held that the purpose of injunctive relief is "to prevent irreparable injury or gross injustice by preserving the status quo as it exists or as it previously existed before the acts complained of in the complaint. Ambrogi v. Reber , 932 A.2d 969, 974 (Pa. Super. 2007) (citation omitted). Here, PLS made a showing of irreparable harm caused by BeeMac allegedly hiring its former employees, which PLS trained and developed. By denying PLS's petition for injunctive relief, the trial court effectively permitted BeeMac to enjoy the benefit of its purported breach while the issue proceeded through litigation. In the interim, BeeMac is free to leverage the specialized knowledge that PLS's former employees acquired while under its employment. Even if PLS were to succeed on the merits following trial, BeeMac still gained a competitive advantage. Such an outcome fails to maintain the status quo , and falls far short of satisfying the spirit of fairness underlying the doctrine.
Therefore, I respectfully dissent.
Judge Mary Murray joins this dissenting opinion.