J-E03007-18
2019 PA Super 13
PITTSBURGH LOGISTICS SYSTEMS, : IN THE SUPERIOR COURT OF
INC. : PENNSYLVANIA
:
Appellant :
:
:
v. :
:
: No. 134 WDA 2017
BEEMAC TRUCKING, LLC AND :
BEEMAC LOGISTICS, LLC :
Appeal from the Order December 22, 2016
In the Court of Common Pleas of Beaver County Civil Division at No(s):
No. 11571-2016
BEFORE: GANTMAN, P.J., BENDER, P.J.E., BOWES, J., PANELLA, J.,
LAZARUS, J., OTT, J., STABILE, J., DUBOW, J., and MURRAY, J.
DISSENTING OPINION BY BOWES, J.: FILED JANUARY 11, 2019
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”).1
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1 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.
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At the outset, I observe that, of the six elements a party must establish
to obtain a preliminary injunction,2 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, 860 A.2d 41, 46-47 (Pa. 2004). Hence, my
analysis is limited to a discussion of the fourth prong as it relates to the no-
hire provision.
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2 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, 860 A.2d 41, 46-47 (Pa. 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.
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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”).3 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 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., 785 A.2d 491, 494 n.5 (Pa. 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
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3 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.
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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,
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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 9. 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 10 (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
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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,
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Inc., 981 So.2d 413 (Ala. 2006), and H & M Commercial Driver Leasing,
Inc. v. Fox Valley Containers, Inc., 805 N.E.2d 1177 (Ill. 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).4 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.
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.
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4 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).
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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
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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
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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., 648 A.2d 755, 760 (Pa. 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 11. 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.
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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.
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