Avoid Broad "No Poaching" Agreements With Clients

Parker Poe Adams & Bernstein LLP

Parker Poe Adams & Bernstein LLP

A business’s employees are among its most valuable assets. Companies that provide professional services often run the risk that their clients may poach their employees. Think of information technology service providers, engineering firms, marketing companies, and staffing firms. In order to prevent clients from hiring away personnel, many service contracts contain “no poach” or “no hire” provisions which restrict the client from hiring away the service provider’s employees.

A recent decision of the Pennsylvania Supreme Court serves as a reminder that the enforceability of such provisions is far from guaranteed. In Pittsburgh Logistics Systems, Inc. v. Beemac Trucking, the court reviewed the enforceability of a no poach provision in a contract between PLS, third-party logistics provider, and Beemac, a trucking company. Beemac agreed not to hire any of PLS’s employees during the term of the contract or for two years following termination of the contract. While the contract was in force, the trucking company hired four PLS employees. PLS sued. After multiple decisions at the lower court level, the case was reviewed by the Pennsylvania Supreme Court, which held that the no poach provision was unenforceable.

In order to determine whether the clause was enforceable, the court considered (1) whether the restraint was greater than needed to protect PLS’s legitimate interest; and (2) whether PLS’s need was outweighed by the hardship to Beemac and the likely injury to the public. The court ruled against PLS noting the provision at issue applied to all employees of PLS, not just those working with Beemac, and it impaired the employment opportunities and job mobility of the employees, who were not parties to the contract.

In light of this decision, employers who are concerned about losing valuable employees to their clients should keep a few things in mind. First, no poach provisions should be drafted as narrowly and equitably as possible. Second, an alternative, and perhaps more effective, way to prevent employee poaching may be to enter into non-competition and/or non-solicitation agreements directly with employees.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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