Pittsburgh Logistics Sys., Inc. v. Beemac Trucking, LLC

• Decision Date: 29 April 2021
• Docket Number: No. 31 WAP 2019,31 WAP 2019
• Parties: PITTSBURGH LOGISTICS SYSTEMS, INC., Appellant v. BEEMAC TRUCKING, LLC and Beemac Logistics, LLC, Appellees
• Court: Pennsylvania Supreme Court

249 A.3d 918

PITTSBURGH LOGISTICS SYSTEMS, INC., Appellant

v.BEEMAC TRUCKING, LLC and Beemac Logistics, LLC, Appellees

No. 31 WAP 2019

Supreme Court of Pennsylvania.

Submitted: April 16, 2020

Decided: April 29, 2021

Stephen John Del Sole, Esq., Zachary Nicholas Gordon, Esq., Del Sole Cavanaugh Stroyd, LLC, for Appellant Pittsburgh Logistics Systems, Inc.

Daniel Boyle McLane, Esq., Thomas Edward Sanchez, Esq., Eckert Seamans Cherin & Mellott, LLC, Paul Douglas Steinman, Esq., Cozen O'Connor, for Appellees Beemac Trucking LLC, Beemac Logistics LLC

BAER, C.J., SAYLOR, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.

OPINION

JUSTICE MUNDY

In this appeal we consider whether no-hire, or "no poach," provisions that are ancillary to a services contract between business entities are enforceable under the laws of this Commonwealth. For the reasons that follow, we hold the no-hire provision in this case is not enforceable, and therefore affirm the order of the Superior Court.

I.

Pittsburgh Logistics Systems, Inc. ("PLS") is a third-party logistics provider that arranges for the shipping of its customers’ freight with selected trucking companies. Beemac Trucking ("Beemac")¹ is a shipping company that conducts non-exclusive business with PLS.

On August 30, 2010, PLS and Beemac entered into a one-year Motor Carriage Services Contract ("the Contract"), which automatically renewed on a year to year basis until either party terminated it. Contract, 8/30/10, at 2. It contained both a non-solicitation provision and the no-hire provision, which is the focus of this appeal. Those provisions are as follow:

14.3 The parties acknowledge that during the term of the Contract there may be disclosed to CARRIER [Beemac] 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, any 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 of 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.

Id. at 9-10.

While the contract was in force, Beemac hired the following four PLS employees: Michael Ceravolo, Mary Coleman, Natalie Hennings, and Racquelle Pakutz. On November 29, 2016, PLS filed an action in the Court of Common Pleas of Beaver County against Beemac alleging breach of contract, tortious interference with contract, violation of the Pennsylvania Uniform Trade Secrets Act, 12 Pa.C.S. §§ 5301 - 5308, and civil conspiracy. PLS sought injunctive relief, and on December 1, 2016, the court issued an order enjoining Beemac from employing the former PLS employees and soliciting PLS customers pending a hearing.

In a related action, on November 18, 2016, PLS sued its former employees for breach of contract, alleging they had breached the non-competition and non-solicitation provisions of their employment contracts. On November 22, 2016, the court entered an order enjoining the former employees from employment with Beemac and soliciting certain PLS customers pending a hearing.

On December 8, 9, and 13, 2016, the court held a consolidated hearing on both actions, and on December 22, 2016, it vacated the injunction entered against Ms. Coleman because it determined that her employment agreement was void. It also concluded that the other three employees had valid employment agreements but that the worldwide non-compete clauses in their contracts were "unduly oppressive and cannot be subject to equitable modification." Trial Court Opinion, 12/22/2016, at 10. However, the court found that the provisions of the employment agreements which precluded Mr. Ceravolo from soliciting clients of PLS for one year, and Ms. Hennings and Ms. Pakutz from soliciting clients of PLS for two years, were reasonable. Accordingly, the court ordered no injunctive relief against Ms. Coleman, and enjoined the other three employees only from soliciting PLS clients in accordance with their employment agreements. The order specified that the employees were not enjoined from working for Beemac.²

With respect to the PLS action against Beemac, the court first addressed Section 14.3 of the Contract governing non-solicitation of PLS customers:

[R]estrictions 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 Env't Corp . 236 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 ... Contract meets these requirements; it was ancillary to the main purpose of the agreement, and [it] 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 Bee[m]ac from cutting PLS out of the equation.

Trial Court Opinion, 12/22/16, at 11-12.

With respect to Section 14.6, the court noted the lack of "case law in Pennsylvania on the issue of no-hire covenants between contracting companies." Id . at 13. It recognized that while some states have found such provisions to be void against public policy, e.g. , Heyde Cos., Inc. v. Dove Healthcare LLC , 258 Wis.2d 28, 654 N.W.2d 830 (2002), others have deemed them to be a permissible restraint on trade, e.g. , 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). The court concluded:

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 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 Bee[m]ac, 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 ... 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 Bee[m]ac ... from hiring former PLS employees.

Trial Court Opinion, 12/22/16, at 13.

PLS filed an appeal to the Superior Court, which issued an en banc opinion on January 11, 2019, affirming the trial court. Pittsburgh Logistics Sys. v. BeeMac Trucking, LLC , 202 A.3d 801 (Pa. Super. 2019) (en banc).³ The Superior Court recognized that pursuant to Summit Towne Centre, Inc. v. Shoe Show of Rocky Mount, Inc. , 573 Pa. 637, 828 A.2d 995, 1000 (2003), it exercises a highly deferential standard of review with respect to the grant or denial of a preliminary injunction, and examines the record to determine if the trial court had any apparently reasonable grounds for its action.

The court noted:

Here, there is no proof that the employees knew of the [no-hire] 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. 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.

Pittsburgh Logistics Sys. , 202 A.3d at 807 (citations omitted).

The court agreed with the trial court that "Paragraph 14.6 violated public policy by preventing non-signatories, PLS employees, from exploring alternate work opportunities in a similar business." Id . at 808. Furthermore, "each [motor carriage service contract] with a new carrier, results in a new restriction upon current employees[.]" Id . While such restrictions may be valid in a contract made between an employer and employee at the time of hiring, a new restriction must be supported by additional consideration. Id . Therefore, the court concluded, "[i]f 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...