Company A and Company B work together from time to time on certain projects. Both companies have invested a lot of time, money, and other resources into their respective workforces and do not want to risk employees switching companies. So, they enter into a no-hire or no-poach agreement; e.g., a ‘contract’ between two businesses where they agree not to hire the others’ employees during their business relationship and for some time after it ends.
Is that legal?
In January, the Pennsylvania Superior Court ruled (here) that a no-hire provision “exceeds the necessary protection [that a company] needs to secure its business, and is void as a matter of public policy.” The rationale was that the agreement unfairly prevented individuals from seeking employment without providing any consideration — let alone knowledge or input of the restrictive provision.
Now, the Pennsylvania Supreme Court has agreed to decide whether contractual no-hire provisions which are part of a services contract between sophisticated business entities are enforceable under Pennsylvania law.
Does it matter?
A few years ago, the DOJ announced (here) that it would proceed criminally against companies that enter these no-poach arrangements. According to the DOJ, “[m]arket participants are on notice: the Division intends to zealously enforce the antitrust laws in labor markets and aggressively pursue information on additional violations to identify and end anticompetitive no-poach agreements that harm employees and the economy.”
Good times ahead for Pennsylvania employers…