A Warning On No-Hire And Nonsolicitation Clauses In Pa.

By Joseph Lincoln, Nipun Patel, Patrick McCabe and David Kully

Law360 (March 13, 2019, 12:56 PM EDT) --

When consultants or other vendors bring their employees together in

collaboration with their customers’ personnel, the parties may be concerned

that one side might poach the other’s talent. Why would a party attempt to

poach the employees of its business partner?

in a customer or client, the ideal candidate to provide its services, hiring away

a key employee.

Frequently parties have dealt with these possibilities by including a no-hire or

a nonsolicitation clause, often broadly thought of as no-poaching

provisions,[1] in their agreements. These clauses will, to some extent,

prevent or limit the ability of employees to move from one side of the

relationship to the other.

A recent en banc decision from the Pennsylvania Superior Court, Pittsburgh

Act.[3] In combination, the Pittsburgh Logistics case and DOJ guidance call

for extreme care in drafting, agreeing to and implementing anything resembling a no-

poaching clause.

Joseph Lincoln

Styled as a case of first impression in Pennsylvania, Pittsburgh Logistics addressed the

enforceability of a no-hire provision among a trucking business and its logistics vendor.

After reviewing decisions from other states and noting the conflicting treatment no-hire

clauses have received,[4] the majority held that:

guidance, because the court imposes public policy scrutiny on such clauses similar to that

imposed on a post-employment restrictive covenant agreement between a business and an

individual employee.

A Pennsylvania court confronted with a no-poaching clause more narrowly crafted than in

Pittsburgh Logistics might be persuaded to uphold the clause without applying restrictive

covenant law.[6] Such a narrowly tailored clause may also avoid the DOJ’s concern with

“naked” no-poaching clauses by meeting the DOJ’s recognition that certain clauses are

acceptable if they are reasonably necessary to a separate legitimate business transaction

or collaboration.

By contrast, the DOJ guidance, does not wrap itself around the standards for a covenant

not to compete. In the final judgment settling U.S. v. Knorr Bremse AG, et al.,[7] the DOJ

permitted the defendants to continue with no-poaching covenants ancillary to legitimate

business collaborations, provided that each such covenant:

To address the concerns of the Pittsburgh Logistics court and of the DOJ, a company

desiring to protect itself with no-poaching restrictions should carefully consider the following

points.[9]

The Pittsburgh Logistics court frowned upon the lack of notice provided to employees

subject to the no-hiring provision. Clear disclosure of the existence of no-hire clauses in

agreements with customers through a standardized acknowledgment may help alleviate this

concern. For smaller-scale operations, or infrequent situations, a similar protective action

employer’s legitimate business interests.[11] Violations will be more challenging to prove

than with a no-hire provision, but policy-based scrutiny should be reduced.

Although no-poaching protections are fundamental to many commercial relationships, both

state and federal law drive limitations on those protections, when not carefully constructed,

and in some cases may criminalize them. Given recent precedent and DOJ guidance, a

closer look at these provisions is recommended.

as legal advice.

[1] While some may want to distinguish between anti-hiring and anti-solicitation provisions,

the Department of Justice includes both in its view of potential antitrust violations described

below. The United States Department of Justice, No More No-Poach: The Antitrust Division

Continues to Investigate and Prosecute ‘No-Poach’ and Wage Fixing Agreements, (updated

April 10, 2018), https://www.justice.gov/atr/division-operations/division-update-spring-

2018/antitrust-division-continues-investigate-and-prosecute-no-poach-and-wage-fixing-

agreements. (the “No-Poach Guidance”). The DOJ might, however, regard nonsolicitation

anti-poaching agreement entered into or continuing after October 2016 is per se violation of

Section 1 of the Sherman Act and potentially a criminal offense. Agreements established

before that date are not subject to criminal sanctions, but may be subject to civil penalties.

The Department of Justice has also pointed out that private litigants may recover treble

damages for violations. Competitive Impact Statement at 19, U.S. v. Knorr-Bremse AG ,

No. 1:18-cv-00747, slip op. 2018 WL 4386565 (D.C. Cir. July 11, 2018). In fact, private

litigation is following on. In re Railway Industry Employee No-Poach Antitrust Litigation, No.

2:18-mc-798 (W.D. PA). The DOJ has stated that the plaintiffs’ allegations of naked no-

poach agreements are sufficient to state a per se claim. Statement of Interest of the United

States (Feb. 8, 2019). See Statement of Interest of the United States of America, Seaman

The DOJ, however, takes the position that no-poaching restrictions to the extent established

through “vertical” agreements between a franchisor and a franchisee, unlike certain

horizontal naked no-poach agreements, should receive rule-of-reason analysis. See

employees (which the franchisees would be less likely to do if other franchisees could

simply hire already-trained employees).

Less sympathetically, the Washington attorney general, however, has suggested it will take

an approach under state antitrust law different from the DOJ’s under the Sherman Act. See

Motion for Expedited Leave to File Amicus Curiae Brief by the Attorney General of

Washington, Stigar v. Dough Dough Inc. et al, (E.D. WA March 1, 2019), granted March 7,

2019 (No. 2:118-cv-00244). The Washington attorney general has extended no-poach

food franchisors requesting information and documents on no-poaching agreements.

Attorney General of Massachusetts, AG Healy Leads Multistate Investigation of Worker No-

Poach Agreements at National Fast Food Franchises, (July 9,

2018), https://www.mass.gov/news/ag-healey-leads-multistate-investigation-of-worker-no-

poach-agreements-at-national-fast-food. At this writing, in Dough Dough, a hearing on a

motion to dismiss for failure to state a claim has been scheduled for March 20, 2019.

The DOJ has simultaneously reiterated its position that a per se violation exists in the case

of a naked horizontal no-poaching agreement absent an ancillary purpose reasonably

necessary to a separate, legitimate business transaction or collaboration among employers

both in its Statement of Interest in the Dough Dough case and in a North Carolina case. See

Statement of Interest of the United States of America, Seaman v. Duke University, (D. NC

March 7, 2019)(No. 1:15-cv-462).

[4] The court noted that Wisconsin, California and Texas have held that these types of

agreements are void against public policy while Alabama and Illinois have held that they are

therapist agency brought action against a nursing home alleging breach of a no-hire

provision in a service agreement between the parties. The court held the provision was not

necessary for the agency to protect its interest in maintaining its employees and the

provision was harsh and oppressive to agency’s employees and was contrary to public

policy. The provision restricted the hiring of Heyde employees with respect to all of the

facilities that Heyde had a contract with and not just the facility operated by Dove, even if an

employee had no contact with that facility. The record also established that Heyde had

contracts with 35 nursing homes making it much broader than the provision at issue in

In Texas Shop Towel Inc. v. Haire , 246 S.W. 2d 482 (Tx. Ct. App. 1952), the buyer of a

business brought claims against the seller for breach of a noncompete agreement by

seller’s employees. The court held that seller was not liable for alleged breach by a person

who was no longer employed by the seller. The court reasoned that, in a contract restricting

trade, an employee’s right and freedom to contract may not be traded away by a third

person, even by the third party’s express contract.

In Ex Parte Howell Engineering and Surveying Inc., 981 So. 2d 413 (Ala. 2006), an

engineering firm brought breach of contract and conversion actions against its client and

former employee who had been moonlighting for the client. The court held that the no-hire

provision, as a partial restraint of trade, was not rendered void by statute governing

contracts in restraint of trade. There was no corollary noncompetition agreement with the

employee and the no-hire provision did not prevent employee from practicing her profession

and only prevented her from working for the client.

In H&M Commercial Driver Leasing Inc. v. Fox Valley Containers Inc. , 209 Ill. 2d 52

covenant and the restraint was reasonable. The court reasoned the drivers could seek

employment with employers other than lessee and, if lessee was allowed to hire lessor’s

drivers, lessee would no longer need lessor’s services.

[5] Pittsburgh Logistics, No. 134 WDA 2017 at 5.

[6] The outcome in the Pennsylvania Supreme Court could follow several paths. The court

could simply not hear the case, leaving the Superior Court decision in place, it could simply

agreements, and the defendants terminated them, before the October 2016 announcement.

Id. at 12.

[8] Id. at 4. Given the view of the Department of Justice, this analysis should be undertaken

with respect to existing as well as new agreements. What steps should be taken with

respect to any existing “naked” agreements is beyond the scope of this article.

[9] Under Federal law, at least, a somewhat different approach might be taken with respect

to vertical restrictions. See infra at 3 n. iii.

[10] The majority opinion ignored a federal case in which the court upheld a no-hire

provision while applying what it believed to be Pennsylvania state law. GeoDecisions v.

Data Transfer Solutions LLC , 2010 WL 5014514 (M.D. Pa. 2010). There two competitor

information technology companies executed a mutual nondisclosure agreement that

contained a no-hire clause as part of teaming up on a project. The no-hire provision was for

a period of two years from the date of the agreement. After DTS hired several of

district court’s reasoning in GEODecisions particularly persuasive, and noted that the only

distinction between GEODecisions and Pittsburgh Logistics was that the GEODecisions

covenant was mutual while the Pittsburgh Logistics clause was unilateral.

[11] See, e.g., Metalico Pittsburgh Inc. v. Newman , 160 A.3d 205, 207 (Pa. Super. Ct.

2017) (reversing trial court decision to strike down covenant that prohibited, among other

things, former employees from engaging in actions to “solicit, employ, or otherwise engage

as an employee, independent contractor, or otherwise, any person who is or was an