In M* Services, LLC v Q* Hospitality Group, LLC, the plaintiff provided employees for three hotels operated by Q*. And under their agreements, Q* was prohibited from hiring these employees directly during the term of the contract and for 90 days thereafter. However, M* alleged that Q* circumvented this restriction by rehiring the workers through another staffing agency, effectively undermining the intent of the parties' agreements.
Q* moved to dismiss the claims, arguing that the no-poaching provision violated the New York City Displaced Building Service Workers Protection Act (DBSWPA). This law is designed to protect workers from job loss when a building's management changes hands. Q* contended that enforcing the provision would contradict this statutory protection. Additionally, the defendants claimed that the financial penalties associated with violating the provision were unenforceable, arguing that they constituted impermissible punitive damages rather than legitimate liquidated damages.
The New York Supreme Court rejected Q*'s arguments and denied its motion to dismiss. And, on appeal, the Appellate Division, First Department, unanimously affirmed this decision, holding that the DBSWPA did not apply because the employees were not displaced—they continued working at the same hotels, albeit under a different staffing arrangement. The court reasoned that the DBSWPA was meant to prevent job loss after management transitions, not regulate contractual disputes over employment sourcing.
Furthermore, the court found no public policy concerns sufficient to invalidate the agreements. It emphasized that contracts negotiated between sophisticated business entities must generally be upheld unless they clearly violate statutory law or fundamental fairness. Q* failed to demonstrate that enforcing the no-poaching clause would be contrary to broader legal principles.
On the issue of financial penalties, the court determined that the fees stipulated in the contracts were properly characterized as liquidated damages rather than punitive fines. M* argued that these fees were intended to compensate for actual losses incurred when employees were poached, rather than serve as a punitive deterrent. The court agreed, holding that Q* had not shown the fees were disproportionate to the damages M* suffered.
Seems like this case was more scrambled, than poached.
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DECISION