Today, rather than directly hire employees, many Pennsylvania companies and some government entities enter into contracts with staffing companies that supply their employees to perform work for these companies. Even more complicated are situations where one staffing company hires another company to provide employees. These arrangements are often found in the information technology industry. While such arrangements serve to reduce the number of employees who work for the contracting entities and limit exposure for certain potential liabilities that may arise from the employer-employee relationship, these relationships may provide unexpected barriers to the enforcement of restrictive covenants such as non-solicitation agreements.
There are several types of restrictive covenants that Pennsylvania employers seek from employees. A non-compete agreement generally requires that an employee agree not to work in the same industry after leaving employment for a period of time after the employment relationship ends. Another form of a restrictive covenant is a non-solicitation agreement that generally prohibits an employee from seeking business from customers of an employer for a period after the employment relationship ends. In Computer Aid v. Ferree (Pa. Super. Ct. no. 525 MDA 2016) (February 21, 2017) (non-precedential), the court considered the enforcement of a “non-solicitation” agreement required by a staffing company. In addition, the Superior Court of Pennsylvania’s decision addressed another barrier that may arise when an employer seeks to enforce a restrictive covenant, the requirement that an employer must demonstrate that it cannot be made whole by money damages.
Computer Aid, the original managing staffing company for PennDot (the Pennsylvania Department of Transportation), had arranged for the hiring of individuals submitted by numerous vendors that supplied employees to fill PennDot’s needs. Computer Aid lost the contract to be the managing staffing provider but it remained a vendor that provided employees to work for PennDot. After it lost the managing staffing provider position, an individual (hereinafter, the employee), who was originally placed through Computer Aid to work at PennDot who had signed a non-solicitation clause, began working at PennDot again as an employee placed through another staffing company. Computer Aid filed an emergency motion for a preliminary injunction, alleging that the employee violated a non-solicitation agreement by effectively taking Computer Aid’s customer, PennDot. Computer Aid sought an injunction to prevent the employee from further interactions and business with PennDot based upon language in the non-solicitation agreement that prohibited the employee from taking its customers.
In Pennsylvania, a trial court has broad discretion to grant or deny a preliminary injunction against an employee. In order to obtain a preliminary injunction against a Pennsylvania employee, an employer must establish that (1) injunctive relief is necessary to prevent immediate and irreparable harm that cannot be adequately compensated by money damages; (2) greater injury will occur to the employer from refusing to grant the injunction rather than from granting it; (3) the injunction will restore the parties to their status quo as it existed before the alleged wrongful conduct; (4) the employer is likely to prevail on the merits; (5) the injunction is reasonably suited to abate the offending activity; and (6) the public interest will not be harmed if the injunction is granted.
In order for an employee to be granted a preliminary injunction it must be able to establish that money damages will not make it whole. Computer Aid argued that the trial court erroneously concluded that it could be made whole by money damages by failing to recognize a loss of goodwill, the loss of a customer, and the loss of income when the employee took a position at PennDot through another staffing company. In affirming the trial court, the Superior Court of Pennsylvania noted that a loss of income is in fact a loss of money that can be remedied by monetary damages. While Computer Aid also claimed that the employee created a loss of a customer, the court found that this argument was not convincing as it remained a PennDot vendor and continued to place employees. Lastly, while loss of business goodwill is a non-monetary consideration, the court found that there was no evidence that Computer Aid lost any business goodwill since it continued to be a PennDot vendor providing employees and there was no evidence presented to show that PennDot was in any way dissatisfied with its work. Thus, the court found that Computer Aid failed to establish that it lost a customer but rather just lost one “slot” at PennDot after it had already lost its position as prime contractor and while there may or may not have been a violation of the restrictive covenant, the employee’s actions associating himself with a new vendor did not cause irreparable harm as damages could be calculated based on the amount of money Computer Aid would have received absent the alleged violation. Consequently, the Superior Court found that there were reasonable grounds for the denial of the preliminary injunction and there was no abuse of discretion or misapplication of law.
Andrew Abramson regularly consults with Pennsylvania employees who have issues surrounding non-compete agreements, non-solicitation agreements and restrictive covenants, and when the needs arise Abramson Employment Law represents employees in federal and state courts in Philadelphia, Montgomery County, Pennsylvania and surrounding areas. For more information see https://www.job-discrimination.com/noncompete-agreements.html
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