September 13, 2021 • 20 mins
Host Corrie Woods interviews fellow appellate attorneys Dan McLane and Tom Sanchez of Eckert Seamans to discuss Pittsburgh Logistics Sys., Inc. v. Beemac Trucking, LLC, a case in which the Court held unanimously that the Restatement test for no-hire/no-poach provisions ancillary to a services contract between two business entities governs in Pennsylvania and finding the subject no-hire/no-poach provision to be unenforceable.
Show Notes:
- Justice Mundy's Opinion
- United States Department of Justice's "No-Poach Approach"
- Bloomberg Law Summary
Read more about Pittsburgh Logistics Sys., Inc. v. Beemac Trucking, LLC and all of SCOPA's cases on SCOPAblog.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Intro (00:00):
The Supreme Court of Pennsylvania is the highest
court in the Commonwealth andthe oldest appellate court in
the nation, an institution thatshapes our practice our laws and
our lives. This is a podcast byattorneys and for attorneys who
argue before Pennsylvania'scourt of final appeal. Welcome
to The Standard of Review bySCOPAblog.
Corrie Woods (00:26):
Hi, and welcome to The Standard of Review by
SCOPAblog. I'm your host CorrieWoods, and I recently sat down
with attorneys Dan McLane andTom Sanchez, who successfully
argued the recent case ofPittsburgh Logistic Systems
versus Beemac Trucking, in whichthe Court answered a novel
question of employment law,whether and to what degree
companies are free to agree notto solicit or hire their
(00:47):
contractors' employees. TheCourt held that the so called
rule of reason applies. Suchagreements must be necessary to
protect the company's legitimateinterests, that those interests
cannot be outweighed by thelikely harm to, among others,
the public and workersgenerally. And depending on how
you read its opinion, the courtmight have suggested that those
interests are always outweighedby that harm. Let's listen.
(01:11):
Our guests today are Dan McLaneand Tom Sanchez, both members of
Eckert Seamans, primarilylocated in its Pittsburgh
Office. Dan and Tom are bothtrial and appellate attorneys
with extensive experiencerepresenting businesses and
complex commercial litigation.
Dan, Tom, thanks for joining ustoday.
Dan McLane (01:27):
Thanks for having us.
Corrie Woods (01:28):
Before we get to today's case, I wonder if you
could just each give me a littlebit of background about why you
became an attorney and how youcame to your current practice.
Dan McLane (01:37):
Wow, that could take up the whole podcast. In my
case, I grew up in a family oflawyers. Start with my
grandfather, my uncles, my dad,my sister, my uncles, cousins.
I, I was always attracted to thelaw. And that is something as a
kid growing up in New York, Ikind of idolized what my dad did
(01:58):
for a living and I followed inhis footsteps. Though he was a
different type of lawyer,primarily in the business and
corporate realm, I was moreinclined to go into litigation,
a path that I've been on for 25years and really glad I chose
that path.
Corrie Woods (02:17):
I'm gonna have to have you talk to my son. Tom?
Tom Sanchez (02:19):
Yeah, I'm the first one in my family to go to law
school. And candidly, towardsthe end of college, I didn't
really know what path I wantedto go on. But I knew I excelled
with research, writing,analytical skills, and law
school seemed like just as goodof a decision as anything else.
So I pursued that and landedopportunities to work with- for-
(02:40):
some judges during law school,and then I clerked right out of
law school. And that led me onthe path of commercial
litigation practice.
Corrie Woods (02:47):
Great. Well, thank you. So we're here today to talk
about a pretty recent case,Pittsburgh Logistics Systems
versus Beemac Trucking, and thatwas when the Pennsylvania
Supreme Court adopted the Ruleof Reason test for no hire slash
no poach provisions betweenbusiness entities and
contractors. Before we get intothe decision, can you explain
(03:08):
sort of exactly what a no hireno poach provision is, and how
that compares to say, a covenantby an employee not to compete
with his employer.
Tom Sanchez (03:17):
Sure, in the traditional restrictive covenant
of a non compete, an employeetypically will sign or agree to
that type of provision in his orher employment agreement at the
inception of employment,although they can be added to
subsequent employment agreementsduring the course of employment
as long as consideration isexchanged and typically the
(03:38):
employee agrees not to acceptemployment with a competitor of
the current employer for aperiod of one to two years. So
the employee has directknowledge of that restraint, and
is agreeing to it withconsideration typically being
the acceptance of- of the jobitself. Conversely, our case
(04:02):
involves a no hire no poachprovision, which is an agreement
between two companies, eitherreciprocal or one of them
agreeing not to hire theemployees of another company. So
here we have an agreementbetween the appellant Pittsburgh
Logistic Systems and theappellee Beemac Trucking, and
(04:24):
the provision would restrictBeemac from hiring any PLS
employees for the term of theagreement and two years
thereafter. So it's restrictingthe employees of PLS from
accepting employment withBeemac, although they are not
parties to that agreement, andin our case, didn't even have
(04:45):
knowledge of it.
Corrie Woods (04:46):
So in essence, sort of, why agree with the cows
when you can just agree with thefarmer?
Tom Sanchez (04:50):
Sure. Yeah, that's a good way to put it.
Corrie Woods (04:52):
So how did the case sort of come to your door
and how did you decide to sortof ask for this change in the
law?
Dan McLane (04:59):
We originally weren't even thinking that far
of changing the law, we wererushed into an injunction
setting with two cases that wereconsolidated. And frankly, I
think the first part of thetrial court's attention was how
overbroad the direct noncompetes with the employees
were, and when it became readilyapparent that those were
(05:23):
excessive. And the fallbackoption of the no hire was what
was left, the court's attentionwas directed towards that issue.
And the guidance in Pennsylvaniawas pretty sparse, but elsewhere
in other states that had beenaddressed and deemed to be
unenforceable in a number ofother states. And that quickly
(05:46):
became the focus of the court'sattention. I think Tom and I've
talked many times since thedecision came out that when this
really popped up on the scene,and we're handling it, no one
saw this going that distance andmaking new law, at least on the
short term, right, Tom?
Tom Sanchez (06:01):
Yeah, that's right.
Just for a little more context.
Initially, this lawsuit arosefrom PLS suing four of its
former employees that hadaccepted employment with Beemac
Trucking or another companynamed Hybrid. And initially, we
had an injunction hearingscheduled solely to address
(06:24):
their alleged violations oftheir employment agreements,
their non compete provision andtheir non solicitation
provision. And a week, 10 dayslater, PLS filed a separate
lawsuit against Beemac itself,alleging in part a violation of
this no hire provision in thecontract between Beemac and PLS.
(06:47):
So the court consolidated theinjunction hearing to address
both issues at the same time.
And, you know, we were initiallyjust dealing with a typical non
compete case. And this got addedinto the mix. So I think the
initial strategy was thinking,alright, if we defeat the non
compete, how do we defeat thethe no hire provision, then?
(07:09):
Which, effectively would act asa backdoor non compete. So like
Dan said it, it resulted inlooking at case law from outside
Pennsylvania on the no hireissue. But I think everything
was colored by the fact thatboth provisions, the non
competes, and the no hire werevery overbroad, and that I think
helped our arguments at everystage of this of this case to
(07:34):
show there was a lot ofoverreaching here with respect
to the provisions.
Corrie Woods (07:40):
You've mentioned sort of the extra jurisdictional
research you did. To someextent, weren't you sort of the
beneficiary of the particulartime that this case arose? It's
my understanding that not onlythose other jurisdictions, but
also the Department of Justicehad begun prosecuting these as
essentially, antitrustviolations.
Dan McLane (07:58):
Yes, from my perspective, that's true. And I
think we'd be remiss if we alsodidn't recognize that the
Pennsylvania Attorney Generalhad a pretty instrumental role
in defining what the publicopinion is on these things and
being adverse to them on a statelevel and really picking up the
(08:18):
ball on the antitrust argument.
Whether we're the beneficiary ofthe timing or not, you know,
that remains to be seen. Butthese things are, in my opinion,
on a- on a national basis,falling under pretty heavy
scrutiny from all those threesources.
Corrie Woods (08:34):
So ultimately, how does the trial court come down
at the preliminary injunctionphase?
Tom Sanchez (08:38):
Sure. So the trial court enforced the non
solicitation of customersprovisions with respect to three
of the four individualdefendants. So the trial court
enforced the non solicitationprovision in their respective
employment agreements with PLSwith respect to a defined list
of customers and PLS. In turn,the trial court enforced the
(09:02):
same non solicitation not thesame non solicitation provision,
but a similar non solicitationprovision that was in the
contract between PLS and Beemac.
So PLS did obtain someinjunctive relief in the case
with the defendants beingprohibited from soliciting
certain customers. The trialcourt, however, with respect to
the non competes in theindividuals' employment
(09:25):
agreements, found them to be sooverbroad, that enforcement just
was not appropriate. The noncompetes would have prohibited
the employees from working for acompetitor located anywhere in
the world. And the trial courtsaid that is so overbroad, it's
so onerous on the employees thatPLS, you're coming to the court
(09:50):
with unclean hands and it's notgoing to be enforced. PLS had
attempted to argue that theprovision should- the trial
court should have limited theprovision, basically blue lined
it for PLS to enforce it in amore defined geographic area.
And the trial court rejectedthat and said, under these
circumstances, that equitablemodification was not
(10:13):
appropriate. Looking at the nohire provision, the trial court
found it was void against publicpolicy in the trial court's
view, because it was essentiallyoperating as this backdoor non
compete without the employeeshaving knowledge, without the
employees giving their consent.
And the trial court said, if youwant to limit your employees'
(10:37):
future job opportunities, thatneeds to be an agreement
directly between employer andemployee. Employee needs to know
about it, needs to give consent,needs to receive some
consideration for it. And noneof that occurred here. So the
trial court refused to enforceit on that basis.
Corrie Woods (10:55):
So how do you get before the Superior Court?
Tom Sanchez (10:56):
So PLS very soon after the trial court issued its
decision on the preliminaryinjunction filed a notice of
appeal to the Superior Court,which you can immediately appeal
an injunction decision. And wedid the appeal before a three
judge panel of the SuperiorCourt, the decision was affirmed
(11:17):
two to one. PLS then soughtreargument before the full
Superior Court in an en bancproceeding which the Superior
Court allowed. So we did anotherround of briefing and were
affirmed there 7 to 2 that time.
Dan McLane (11:31):
Right.
Corrie Woods (11:31):
Yeah. So in that case, the matter goes before
three judge panel, then the enbanc panel comes out in your
favor. What happens at theSupreme Court?
Dan McLane (11:38):
That's an interesting story. We were all
ready to go and then this funnylittle event known as COVID-19
hit, and changed all of ourlives. We were set to argue I
think on April 22. And, Tom, Idon't recall the exact date, but
it was relatively short periodof time before the argument was
set to be conducted, that theCourt announced because of the
(12:02):
unique circumstances thatmatters like this had to be
submitted.
Corrie Woods (12:06):
Oh, wow. So did you- did you go directly on the
briefs? Or did they do a...
Dan McLane (12:10):
Yes, the Court- the Court took the matter, with all
the other matters that werescheduled for argument at that
time, on the briefs.
Corrie Woods (12:19):
Wow. So a lot of hours there to no- to no end.
Dan McLane (12:23):
Well, I wouldn't say to no end, because ultimately,
the result was one we were verypleased with. So, I guess I
would disagree with you there onthat point. It was obviously
though, obviously, veryunderstandable. We were
disappointed we didn't get achance to have what would have
been, I think a very interestingargument on law and policy and
(12:47):
just so you, you know, thecounsel for PLS is extremely
qualified and very well knownand reputable attorney, I think
it would have been a vigorousand intellectually challenging
argument with that Court. Yes,it's- it's unfortunate, we
didn't get to do that. Butbecause of the outcome, you
know, we're happy with how itultimately unraveled.
Corrie Woods (13:09):
And one thing I noticed about the opinion was,
you know, this is a unanimousdecision. And, you know, for our
blog, I think we cover everypublished opinion out of the
Supreme Court. I think I cancount on two hands, how many
issues that the entire Courtagreed on in the last year. So I
thought that was certainly apoint of pride for your
position.
Dan McLane (13:26):
You hit the nail on the head. That's exactly right.
In fact, when- when it came out,I, the first thing I noticed was
it was unanimous. And then astime has gone on those that have
commented on it, in, you know,the scholarly literature or
articles have also noted howrare that is. So we are
particularly proud of that.
Corrie Woods (13:47):
So in terms of the test that sort of applies to
these agreements now. It's, it'smy understanding that, and this
is a heck of a long list, right?
The agreement must be ancillaryto an employment relationship.
It must be supported byconsideration. It must be
narrowly tailored, and the needsmust be greater than the
hardship to the other party, andthe public. Now, in sort of
(14:09):
traditional ways of looking atagreements like that, you know,
that seems to suggest, well,hey, there's room for these in
certain circumstances in thefuture. But one thing that I
kind of took from the opinionwas one of the things that
they're relying on in terms ofharm to the public is, well,
hey, the labor market is goingto be affected here. And
economic statistics show thathey, wages tend to be 4 to 5%
(14:31):
higher in states that refuse toenforce these provisions. So I
guess my question is, and I'mspeculating as much as anyone,
as much as you will. Is thereroom for these agreements at
all?
Tom Sanchez (14:44):
I think that the opinion- it certainly doesn't
close the door on potentialenforcement of this type of
restriction in an appropriateagreement with the appropriate
tailoring. I think here, as Imentioned before, the provisions
not only the no hire, but inturn the non compete. Because I
(15:05):
think the Court's decisions Ithink were, to some extent
colored by that one as well,because this was in a
consolidated hearing where PLSwas basically trying to disallow
certain individuals from workingfor Beemac or or Hybrid. And if
the non compete failed, which itdid, they had this no hire
(15:27):
provision to rely on. And the nohire provision here would
prohibit Beemac from hiring andemploying any PLS employee,
regardless of their job title,their job responsibilities, how
long they worked for thecompany, whether they had any
interaction with Beemacwhatsoever, during the course of
(15:49):
their tenure at PLS, regardlessof the geographic area in which
they'd work for Beemac, and hadnone of those restraints that
are necessary to demonstrate tothe court that this provision is
somehow necessary to protect thelegitimate business interests of
PLS and is not unduly oppressiveto the- to the employee. And I
(16:12):
think a more narrowly tailoredprovision may be applicable to
only a very small amount ofemployees who maybe have a
particular skill set and thathave worked for the other
contracting party and maybe notworked for isn't the right
terminology, but hadinteractions with the other
contracting party during thecourse of their employment,
(16:34):
maybe in a more limitedcircumstance like that, this
type of provision couldwithstand scrutiny. I don't
think the decision foreclosesthat, but I think it would be
necessary to be very careful inin the drafting of any
contractual provision like that,particularly where the employee
(16:55):
doesn't have knowledge of it.
That might be another thing thatthe employees need to be made
aware of it and need to be givensome consideration in exchange
for it, even though it'stechnically not a non compete,
that would certainly be aconcern of mine, if I were
reading a contract that had thistype of provision in it.
Dan McLane (17:15):
Yeah, I would agree.
I, if it's this type ofboilerplate provision, or
similar to it, where it appliesto all employees, I think
they're, they're dead on arrivalin Pennsylvania. If it's for the
reasons Tom did a good jobarticulating, specifically
tailored perhaps a company[inaudible], two or three
(17:36):
specific employees for aspecific joint venture and the
employees are informed of it andspecifically limited to two or
three or whatever discrete groupand that that may be under what
the courts outlined, somethingthat can withstand scrutiny. But
again, the boilerplate allemployees, I think those are now
(17:57):
clearly gone and unenforceablein Pennsylvania.
Corrie Woods (18:03):
So if you're advising, you know, companies
who are concerned about poachingat this point, what's the
advice? Is it hey, keep itnarrow, or just pay the
employees for it?
Dan McLane (18:13):
I'll tell you the counsel we've been giving. And I
counsel actively that youshouldn't seek any form of anti
poach agreement, not onlybecause of how our PA Supreme
Court ruled, but because as youalluded to, the heightened
scrutiny of the Department ofJustice on a federal level,
(18:36):
that's a whole another animal.
So my counsel has been, do notseek these you should be dealing
directly with your employeeswith enforceable, reasonable,
non competes. The no poachavenue, even if you could come
up with something that maybewithstands a PA Supreme Court's
thought process and analysis,you're still exposing yourself
(18:56):
to antitrust violations on afederal level. That isn't worth
it.
Corrie Woods (19:02):
To say the least.
Anything else about the opinion,about the case that you think is
particularly noteworthy?
Dan McLane (19:07):
That could take a long time. Tom, go ahead first,
if you'd like.
Tom Sanchez (19:10):
I think the Court's focus on consideration leads me
to definitely agree with Dan. Ithink that, at a minimum in
Pennsylvania, any type ofprovision here if an employer is
dead set on having some sort ofno hire agreement in his
contract with another company, Ithink the employees need to know
(19:31):
about it at a minimum. The Courtreferenced, you know,
consideration being crucial, andit didn't articulate any type of
bright line test where thesethings might withstand scrutiny.
So I think that that's my bigtakeaway. You can't leave the
impacted third parties in thedark on these and that was
(19:53):
definitely the case in thesituation in our case.
Dan McLane (19:56):
Yeah, I agree with how you put that, Tom. I think
as we discussed earlier, thereis a nationwide trend both on
the state and federal level, tolook at restrictive covenants,
and obviously they're- they'reclearly seem to be disfavored. I
don't know whether this decisionis going to stand as unique in
(20:21):
Pennsylvania or whether we'regoing to see a broader wave of
state legislatures and/or courtsissuing more and more rulings
that restrict the impact ofthese types of provisions,
either no poach provisions,which are indirectly restraints
on labor, or, you know, lookingagain, at the scope of who
(20:42):
should really be subject to anon compete or a non solicit.
It's clearly a hot topic, and wethink this is part of that.
Corrie Woods (20:50):
Well, Dan, Tom, thank you so much for joining us
today on The Standard of Review,and we appreciate your time and
your work on this case. Goodwork.
Dan McLane (20:58):
Thank you. We really enjoyed it.
Corrie Woods (21:00):
That's all for this episode of The Standard of
Review. If you like what you'veheard, and you want to hear
more, you can subscribe for newepisodes in your pod catcher of
choice. If you'd like to reachout with a topic or a guest for
a new episode, you can find uson the web at
WoodsLawOffices.com or justsearch for Woods Law Offices on
Facebook, Twitter, or LinkedIn.
Thanks so much for listening,and we'll see you next time on
(21:21):
The Standard of Review.
Outro (21:26):
Thanks for listening to The Standard of Review by
SCOPAblog. This episode has beenbrought to you by Woods Law
Offices, Raising the Bar forPennsylvania Appeals. Check them
out at www.WoodsLawOffices.com.
The Supreme Court of Pennsylvania is the highest
court in the Commonwealth andthe oldest appellate court in
the nation, an institution thatshapes our practice our laws and
our lives. This is a podcast byattorneys and for attorneys who
argue before Pennsylvania'scourt of final appeal. Welcome
to The Standard of Review bySCOPAblog.
Corrie Woods (00:26):
Hi, and welcome to The Standard of Review by
SCOPAblog. I'm your host CorrieWoods, and I recently sat down
with attorneys Dan McLane andTom Sanchez, who successfully
argued the recent case ofPittsburgh Logistic Systems
versus Beemac Trucking, in whichthe Court answered a novel
question of employment law,whether and to what degree
companies are free to agree notto solicit or hire their
(00:47):
contractors' employees. TheCourt held that the so called
rule of reason applies. Suchagreements must be necessary to
protect the company's legitimateinterests, that those interests
cannot be outweighed by thelikely harm to, among others,
the public and workersgenerally. And depending on how
you read its opinion, the courtmight have suggested that those
interests are always outweighedby that harm. Let's listen.
(01:11):
Our guests today are Dan McLaneand Tom Sanchez, both members of
Eckert Seamans, primarilylocated in its Pittsburgh
Office. Dan and Tom are bothtrial and appellate attorneys
with extensive experiencerepresenting businesses and
complex commercial litigation.
Dan, Tom, thanks for joining ustoday.
Dan McLane (01:27):
Thanks for having us.
Corrie Woods (01:28):
Before we get to today's case, I wonder if you
could just each give me a littlebit of background about why you
became an attorney and how youcame to your current practice.
Dan McLane (01:37):
Wow, that could take up the whole podcast. In my
case, I grew up in a family oflawyers. Start with my
grandfather, my uncles, my dad,my sister, my uncles, cousins.
I, I was always attracted to thelaw. And that is something as a
kid growing up in New York, Ikind of idolized what my dad did
(01:58):
for a living and I followed inhis footsteps. Though he was a
different type of lawyer,primarily in the business and
corporate realm, I was moreinclined to go into litigation,
a path that I've been on for 25years and really glad I chose
that path.
Corrie Woods (02:17):
I'm gonna have to have you talk to my son. Tom?
Tom Sanchez (02:19):
Yeah, I'm the first one in my family to go to law
school. And candidly, towardsthe end of college, I didn't
really know what path I wantedto go on. But I knew I excelled
with research, writing,analytical skills, and law
school seemed like just as goodof a decision as anything else.
So I pursued that and landedopportunities to work with- for-
(02:40):
some judges during law school,and then I clerked right out of
law school. And that led me onthe path of commercial
litigation practice.
Corrie Woods (02:47):
Great. Well, thank you. So we're here today to talk
about a pretty recent case,Pittsburgh Logistics Systems
versus Beemac Trucking, and thatwas when the Pennsylvania
Supreme Court adopted the Ruleof Reason test for no hire slash
no poach provisions betweenbusiness entities and
contractors. Before we get intothe decision, can you explain
(03:08):
sort of exactly what a no hireno poach provision is, and how
that compares to say, a covenantby an employee not to compete
with his employer.
Tom Sanchez (03:17):
Sure, in the traditional restrictive covenant
of a non compete, an employeetypically will sign or agree to
that type of provision in his orher employment agreement at the
inception of employment,although they can be added to
subsequent employment agreementsduring the course of employment
as long as consideration isexchanged and typically the
(03:38):
employee agrees not to acceptemployment with a competitor of
the current employer for aperiod of one to two years. So
the employee has directknowledge of that restraint, and
is agreeing to it withconsideration typically being
the acceptance of- of the jobitself. Conversely, our case
(04:02):
involves a no hire no poachprovision, which is an agreement
between two companies, eitherreciprocal or one of them
agreeing not to hire theemployees of another company. So
here we have an agreementbetween the appellant Pittsburgh
Logistic Systems and theappellee Beemac Trucking, and
(04:24):
the provision would restrictBeemac from hiring any PLS
employees for the term of theagreement and two years
thereafter. So it's restrictingthe employees of PLS from
accepting employment withBeemac, although they are not
parties to that agreement, andin our case, didn't even have
(04:45):
knowledge of it.
Corrie Woods (04:46):
So in essence, sort of, why agree with the cows
when you can just agree with thefarmer?
Tom Sanchez (04:50):
Sure. Yeah, that's a good way to put it.
Corrie Woods (04:52):
So how did the case sort of come to your door
and how did you decide to sortof ask for this change in the
law?
Dan McLane (04:59):
We originally weren't even thinking that far
of changing the law, we wererushed into an injunction
setting with two cases that wereconsolidated. And frankly, I
think the first part of thetrial court's attention was how
overbroad the direct noncompetes with the employees
were, and when it became readilyapparent that those were
(05:23):
excessive. And the fallbackoption of the no hire was what
was left, the court's attentionwas directed towards that issue.
And the guidance in Pennsylvaniawas pretty sparse, but elsewhere
in other states that had beenaddressed and deemed to be
unenforceable in a number ofother states. And that quickly
(05:46):
became the focus of the court'sattention. I think Tom and I've
talked many times since thedecision came out that when this
really popped up on the scene,and we're handling it, no one
saw this going that distance andmaking new law, at least on the
short term, right, Tom?
Tom Sanchez (06:01):
Yeah, that's right.
Just for a little more context.
Initially, this lawsuit arosefrom PLS suing four of its
former employees that hadaccepted employment with Beemac
Trucking or another companynamed Hybrid. And initially, we
had an injunction hearingscheduled solely to address
(06:24):
their alleged violations oftheir employment agreements,
their non compete provision andtheir non solicitation
provision. And a week, 10 dayslater, PLS filed a separate
lawsuit against Beemac itself,alleging in part a violation of
this no hire provision in thecontract between Beemac and PLS.
(06:47):
So the court consolidated theinjunction hearing to address
both issues at the same time.
And, you know, we were initiallyjust dealing with a typical non
compete case. And this got addedinto the mix. So I think the
initial strategy was thinking,alright, if we defeat the non
compete, how do we defeat thethe no hire provision, then?
(07:09):
Which, effectively would act asa backdoor non compete. So like
Dan said it, it resulted inlooking at case law from outside
Pennsylvania on the no hireissue. But I think everything
was colored by the fact thatboth provisions, the non
competes, and the no hire werevery overbroad, and that I think
helped our arguments at everystage of this of this case to
(07:34):
show there was a lot ofoverreaching here with respect
to the provisions.
Corrie Woods (07:40):
You've mentioned sort of the extra jurisdictional
research you did. To someextent, weren't you sort of the
beneficiary of the particulartime that this case arose? It's
my understanding that not onlythose other jurisdictions, but
also the Department of Justicehad begun prosecuting these as
essentially, antitrustviolations.
Dan McLane (07:58):
Yes, from my perspective, that's true. And I
think we'd be remiss if we alsodidn't recognize that the
Pennsylvania Attorney Generalhad a pretty instrumental role
in defining what the publicopinion is on these things and
being adverse to them on a statelevel and really picking up the
(08:18):
ball on the antitrust argument.
Whether we're the beneficiary ofthe timing or not, you know,
that remains to be seen. Butthese things are, in my opinion,
on a- on a national basis,falling under pretty heavy
scrutiny from all those threesources.
Corrie Woods (08:34):
So ultimately, how does the trial court come down
at the preliminary injunctionphase?
Tom Sanchez (08:38):
Sure. So the trial court enforced the non
solicitation of customersprovisions with respect to three
of the four individualdefendants. So the trial court
enforced the non solicitationprovision in their respective
employment agreements with PLSwith respect to a defined list
of customers and PLS. In turn,the trial court enforced the
(09:02):
same non solicitation not thesame non solicitation provision,
but a similar non solicitationprovision that was in the
contract between PLS and Beemac.
So PLS did obtain someinjunctive relief in the case
with the defendants beingprohibited from soliciting
certain customers. The trialcourt, however, with respect to
the non competes in theindividuals' employment
(09:25):
agreements, found them to be sooverbroad, that enforcement just
was not appropriate. The noncompetes would have prohibited
the employees from working for acompetitor located anywhere in
the world. And the trial courtsaid that is so overbroad, it's
so onerous on the employees thatPLS, you're coming to the court
(09:50):
with unclean hands and it's notgoing to be enforced. PLS had
attempted to argue that theprovision should- the trial
court should have limited theprovision, basically blue lined
it for PLS to enforce it in amore defined geographic area.
And the trial court rejectedthat and said, under these
circumstances, that equitablemodification was not
(10:13):
appropriate. Looking at the nohire provision, the trial court
found it was void against publicpolicy in the trial court's
view, because it was essentiallyoperating as this backdoor non
compete without the employeeshaving knowledge, without the
employees giving their consent.
And the trial court said, if youwant to limit your employees'
(10:37):
future job opportunities, thatneeds to be an agreement
directly between employer andemployee. Employee needs to know
about it, needs to give consent,needs to receive some
consideration for it. And noneof that occurred here. So the
trial court refused to enforceit on that basis.
Corrie Woods (10:55):
So how do you get before the Superior Court?
Tom Sanchez (10:56):
So PLS very soon after the trial court issued its
decision on the preliminaryinjunction filed a notice of
appeal to the Superior Court,which you can immediately appeal
an injunction decision. And wedid the appeal before a three
judge panel of the SuperiorCourt, the decision was affirmed
(11:17):
two to one. PLS then soughtreargument before the full
Superior Court in an en bancproceeding which the Superior
Court allowed. So we did anotherround of briefing and were
affirmed there 7 to 2 that time.
Dan McLane (11:31):
Right.
Corrie Woods (11:31):
Yeah. So in that case, the matter goes before
three judge panel, then the enbanc panel comes out in your
favor. What happens at theSupreme Court?
Dan McLane (11:38):
That's an interesting story. We were all
ready to go and then this funnylittle event known as COVID-19
hit, and changed all of ourlives. We were set to argue I
think on April 22. And, Tom, Idon't recall the exact date, but
it was relatively short periodof time before the argument was
set to be conducted, that theCourt announced because of the
(12:02):
unique circumstances thatmatters like this had to be
submitted.
Corrie Woods (12:06):
Oh, wow. So did you- did you go directly on the
briefs? Or did they do a...
Dan McLane (12:10):
Yes, the Court- the Court took the matter, with all
the other matters that werescheduled for argument at that
time, on the briefs.
Corrie Woods (12:19):
Wow. So a lot of hours there to no- to no end.
Dan McLane (12:23):
Well, I wouldn't say to no end, because ultimately,
the result was one we were verypleased with. So, I guess I
would disagree with you there onthat point. It was obviously
though, obviously, veryunderstandable. We were
disappointed we didn't get achance to have what would have
been, I think a very interestingargument on law and policy and
(12:47):
just so you, you know, thecounsel for PLS is extremely
qualified and very well knownand reputable attorney, I think
it would have been a vigorousand intellectually challenging
argument with that Court. Yes,it's- it's unfortunate, we
didn't get to do that. Butbecause of the outcome, you
know, we're happy with how itultimately unraveled.
Corrie Woods (13:09):
And one thing I noticed about the opinion was,
you know, this is a unanimousdecision. And, you know, for our
blog, I think we cover everypublished opinion out of the
Supreme Court. I think I cancount on two hands, how many
issues that the entire Courtagreed on in the last year. So I
thought that was certainly apoint of pride for your
position.
Dan McLane (13:26):
You hit the nail on the head. That's exactly right.
In fact, when- when it came out,I, the first thing I noticed was
it was unanimous. And then astime has gone on those that have
commented on it, in, you know,the scholarly literature or
articles have also noted howrare that is. So we are
particularly proud of that.
Corrie Woods (13:47):
So in terms of the test that sort of applies to
these agreements now. It's, it'smy understanding that, and this
is a heck of a long list, right?
The agreement must be ancillaryto an employment relationship.
It must be supported byconsideration. It must be
narrowly tailored, and the needsmust be greater than the
hardship to the other party, andthe public. Now, in sort of
(14:09):
traditional ways of looking atagreements like that, you know,
that seems to suggest, well,hey, there's room for these in
certain circumstances in thefuture. But one thing that I
kind of took from the opinionwas one of the things that
they're relying on in terms ofharm to the public is, well,
hey, the labor market is goingto be affected here. And
economic statistics show thathey, wages tend to be 4 to 5%
(14:31):
higher in states that refuse toenforce these provisions. So I
guess my question is, and I'mspeculating as much as anyone,
as much as you will. Is thereroom for these agreements at
all?
Tom Sanchez (14:44):
I think that the opinion- it certainly doesn't
close the door on potentialenforcement of this type of
restriction in an appropriateagreement with the appropriate
tailoring. I think here, as Imentioned before, the provisions
not only the no hire, but inturn the non compete. Because I
(15:05):
think the Court's decisions Ithink were, to some extent
colored by that one as well,because this was in a
consolidated hearing where PLSwas basically trying to disallow
certain individuals from workingfor Beemac or or Hybrid. And if
the non compete failed, which itdid, they had this no hire
(15:27):
provision to rely on. And the nohire provision here would
prohibit Beemac from hiring andemploying any PLS employee,
regardless of their job title,their job responsibilities, how
long they worked for thecompany, whether they had any
interaction with Beemacwhatsoever, during the course of
(15:49):
their tenure at PLS, regardlessof the geographic area in which
they'd work for Beemac, and hadnone of those restraints that
are necessary to demonstrate tothe court that this provision is
somehow necessary to protect thelegitimate business interests of
PLS and is not unduly oppressiveto the- to the employee. And I
(16:12):
think a more narrowly tailoredprovision may be applicable to
only a very small amount ofemployees who maybe have a
particular skill set and thathave worked for the other
contracting party and maybe notworked for isn't the right
terminology, but hadinteractions with the other
contracting party during thecourse of their employment,
(16:34):
maybe in a more limitedcircumstance like that, this
type of provision couldwithstand scrutiny. I don't
think the decision foreclosesthat, but I think it would be
necessary to be very careful inin the drafting of any
contractual provision like that,particularly where the employee
(16:55):
doesn't have knowledge of it.
That might be another thing thatthe employees need to be made
aware of it and need to be givensome consideration in exchange
for it, even though it'stechnically not a non compete,
that would certainly be aconcern of mine, if I were
reading a contract that had thistype of provision in it.
Dan McLane (17:15):
Yeah, I would agree.
I, if it's this type ofboilerplate provision, or
similar to it, where it appliesto all employees, I think
they're, they're dead on arrivalin Pennsylvania. If it's for the
reasons Tom did a good jobarticulating, specifically
tailored perhaps a company[inaudible], two or three
(17:36):
specific employees for aspecific joint venture and the
employees are informed of it andspecifically limited to two or
three or whatever discrete groupand that that may be under what
the courts outlined, somethingthat can withstand scrutiny. But
again, the boilerplate allemployees, I think those are now
(17:57):
clearly gone and unenforceablein Pennsylvania.
Corrie Woods (18:03):
So if you're advising, you know, companies
who are concerned about poachingat this point, what's the
advice? Is it hey, keep itnarrow, or just pay the
employees for it?
Dan McLane (18:13):
I'll tell you the counsel we've been giving. And I
counsel actively that youshouldn't seek any form of anti
poach agreement, not onlybecause of how our PA Supreme
Court ruled, but because as youalluded to, the heightened
scrutiny of the Department ofJustice on a federal level,
(18:36):
that's a whole another animal.
So my counsel has been, do notseek these you should be dealing
directly with your employeeswith enforceable, reasonable,
non competes. The no poachavenue, even if you could come
up with something that maybewithstands a PA Supreme Court's
thought process and analysis,you're still exposing yourself
(18:56):
to antitrust violations on afederal level. That isn't worth
it.
Corrie Woods (19:02):
To say the least.
Anything else about the opinion,about the case that you think is
particularly noteworthy?
Dan McLane (19:07):
That could take a long time. Tom, go ahead first,
if you'd like.
Tom Sanchez (19:10):
I think the Court's focus on consideration leads me
to definitely agree with Dan. Ithink that, at a minimum in
Pennsylvania, any type ofprovision here if an employer is
dead set on having some sort ofno hire agreement in his
contract with another company, Ithink the employees need to know
(19:31):
about it at a minimum. The Courtreferenced, you know,
consideration being crucial, andit didn't articulate any type of
bright line test where thesethings might withstand scrutiny.
So I think that that's my bigtakeaway. You can't leave the
impacted third parties in thedark on these and that was
(19:53):
definitely the case in thesituation in our case.
Dan McLane (19:56):
Yeah, I agree with how you put that, Tom. I think
as we discussed earlier, thereis a nationwide trend both on
the state and federal level, tolook at restrictive covenants,
and obviously they're- they'reclearly seem to be disfavored. I
don't know whether this decisionis going to stand as unique in
(20:21):
Pennsylvania or whether we'regoing to see a broader wave of
state legislatures and/or courtsissuing more and more rulings
that restrict the impact ofthese types of provisions,
either no poach provisions,which are indirectly restraints
on labor, or, you know, lookingagain, at the scope of who
(20:42):
should really be subject to anon compete or a non solicit.
It's clearly a hot topic, and wethink this is part of that.
Corrie Woods (20:50):
Well, Dan, Tom, thank you so much for joining us
today on The Standard of Review,and we appreciate your time and
your work on this case. Goodwork.
Dan McLane (20:58):
Thank you. We really enjoyed it.
Corrie Woods (21:00):
That's all for this episode of The Standard of
Review. If you like what you'veheard, and you want to hear
more, you can subscribe for newepisodes in your pod catcher of
choice. If you'd like to reachout with a topic or a guest for
a new episode, you can find uson the web at
WoodsLawOffices.com or justsearch for Woods Law Offices on
Facebook, Twitter, or LinkedIn.
Thanks so much for listening,and we'll see you next time on
(21:21):
The Standard of Review.
Outro (21:26):
Thanks for listening to The Standard of Review by
SCOPAblog. This episode has beenbrought to you by Woods Law
Offices, Raising the Bar forPennsylvania Appeals. Check them
out at www.WoodsLawOffices.com.
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